Apparently pensions aren't worth it?

luckyduck83

I run a ltd company and really need to knuckle-down and sort a pension. I'm 38 and, apart from owning (mortgaged) my own home, I have no plans for my retirement.

I was planning to put about £20k into a pension before my year-end (31 Dec) to get the ball rolliing but I've been talking to a lot of friends/family who pretty much all say don't bother with a pension. To have a meaningful annual payout you need a massive sum invested.

Most say to buy a second/third property.

I'd be interested to hear anyone's comments.

[Deleted User]

It's hard to beat the free money that a pension gives you.

As to the alternative, do you want to become a landlord? It's not for everyone.

Stubod

..I guess it depends on when / if you want to retire, and what your retirement income expectations are. You can then work out the best way to fund this, but personally I would not be taking any advise from "well meaning, friends" who do not seem to have much idea about the subject of pensions. You need to understand the various tax implications, (I guess more so if you are self employed?) Pensions can be very tax efficient and provide an element of "free money". Also how are you with money generally? ie if you do not "lock away" your money in some sort of pension for the long term would you be tempted to spend it before retiring?

Property may not be the best / most cost effective option. There are extra costs associated with BTL, house prices (in some areas at least) have remained static for years, and then you may get tenants who do not pay and cost you more money then you get in rent. The rental income relative to the property cost may not be as good as you think it is, and you also you need to consider all the obligations / costs of being a landlord. (Our actual return is currently about 4%, so if we had a "major" cost would wipe out years rent).

There are too many variables and too little information in your OP to advise on any options. (eg as per above, how long will you work, how much can you afford to "save/invest pa, how much do you think you will need, what is your "risk factor" regarding investments, what about your spouse if anything happens to you..etc. etc).

If I were in your shoes (ie 38 and no pension started!), I would be speaking to an IFA ASAP.....and the longer you leave it the more you will need to save to generate a reasonable income, (you have already lost / wasted 18+ years of extra / "free money").

xylophone

https://forums.moneysavingexpert.com/discussion/comment/75049267#Comment_75049267

post 4.

Linton

A meaningful income in retirement involves a large capital sum of money however you do it. The key question is what is the most efficient and secure method.


There are many factors to be considered, here's 3 for a start:
- Tax has a major impact. The government encourages pension contributions through tax breaks and discourages the purchase of houses to rent out. Pension contributions can be particularly tax efficient if your company rather than you personally pays them.
- Diversification: if your income in retirement is entirely dependent on a few BTLs any single event or long term trend that affects the housing market generally or even just in your chosen location could have a serious impact on your income. With investing you can ensure that the potential risks to your income are spread across the world and across all the worlds industries.
- Flexibility/liquidity: If you buy a number of houses getting access to a moderate lump sum is a major problem. You cant quickly sell a fraction of a house. Sensible investments dont have this problem - you can always sell a few shares or fund units.

MEM62

luckyduck83 wrote: »

I run a ltd company and really need to knuckle-down and sort a pension. I'm 38 and, apart from owning (mortgaged) my own home, I have no plans for my retirement.
Owning your own home is not, in itself, a retirement plan.

I was planning to put about £20k into a pension before my year-end (31 Dec) to get the ball rolliing but I've been talking to a lot of friends/family who pretty much all say don't bother with a pension. To have a meaningful annual payout you need a massive sum invested.
You have provided the perfect example of why you should not listen to friends and family. Also, define meaningful. Without a pension as part of your retirement planning, how are you planning to pay for things when you want to stope working? Or are you going to work forever?

Most say to buy a second/third property.
Ah! Yes! Property, the holy grail of making money. Well it isn't. Again your 'advisors' don't really know what they are talking about. As part of an overall range of investments it may be useful but not as a stand alone investment.

I'd be interested to hear anyone's comments.

You really need to stay clear of armchair experts.

You will need an income in retirement. Short of a big lottery win, a pension is the best way of the providing that. It is tax efficient and, as for whether it is 'worth it', what you get out of it is directly related to what you put into it. Nobody knows for sure how well investments will perform over the years but the bigger fund you build the more comfortable you will be when you want to retire. One thing is for sure, pay in peanuts and you will be living on peanuts.

Property as an investment is not as good as a pension. Pay into a pension and the Government adds to your contribution by means of tax relief. Purchase a rental property and, apart from the additional stamp duty on the purchase price, you will be taxed on the income. You will also have to deal with the problems and responsibilities of being a landlord. Property is also an asset that is not always easily liquidated.

Speak with your business accountant and also seek out an IFA with expertise in pensions. Their advice will serve you better.

OldMusicGuy

The "most people" you are talking to are just ignorant. It's the default position of "most people" in the UK that "you can't go wrong with property" and "pensions are too complicated."

You need to understand the pros and cons of both. Linton has laid out some good arguments above. There could be a place for both in your retirement planning, but by ignoring pension saving you are giving up tax advantages. Increasingly owning a second/third property will become more expensive and less tax efficient. If there is a change of government any time soon, it is highly likely BTL landlords will be a target for them.

The way to build up a large amount of money in a pension is to start as early as possible and put in as much as you can. You have left it a bit late, but 20K would be a good start and it will have plenty of time to grow.

Brynsam

Most don't know what they are talking about.

luckyduck83

OldMusicGuy wrote: »

"pensions are too complicated."

This is definitely true. I've tried to start a pension a few times over the last couple of years and just find it a minefield and give up.

Interesting advice so far. I'll do some reading...

Mnd

Ignore your mates and start investing in you pension. You will get massive help from this site if you ask..if you can put in 20k you will get £5k tax rebate added to that.

Repeat 10 times in the next 20 years and there's 250000 without any investment growth.

Then your only problem is you will be retired but won't have anyone to go for a lunchtime pint cos all your mates will still be working..

Malthusian

luckyduck83 wrote: »

This is definitely true.

No it isn't. Pensions are extremely simple. You put money in, invest it and then years later you take considerably more money out to live on in retirement.

Thanks to tax relief, a pension has at minimum a 25% head start over any non-pension investment you might use for this purpose (e.g. a buy to let property) for someone who has a limited company and would otherwise pay corporation tax and dividend tax.

These are simple facts. The complicated aspects under the bonnet can be easily made someone else's problem at relatively low cost. A car is a complicated piece of machinery but driving a car is simple.

I've tried to start a pension a few times over the last couple of years and just find it a minefield and give up.

You need a better accountant. It was your accountant's job to a) tell you how much more tax-efficient it would be to draw money out via a pension and b) talk you through how it worked.