Is it worth investing in my private pension

Enigmaman

I am looking for advice on whether it is worth investing in my stakeholder pension plan.

I am a 41 year old male living in the UK and have apaltry £1500 in my pension fund at the moment. I am self- employed and in poor health - and with income very restricted.

I see the gpvernment pays a top up on the basic pension (I think it's called the State Second Pension and is worth about £40 per week). IF that stays until I retire I understand it would be reduced by any income I have from a private pension.

That begs the question of whether it is worth putting money, which I need now, into future planning, only to have the government take it away in the end.

I imagine I would have to invest a lot in order for the weekly pension pay out to exceed what the govenment would give me anyway.

Can anyone advise please?

dunstonh

I see the gpvernment pays a top up on the basic pension (I think it's called the State Second Pension and is worth about £40 per week).

You are self employed and do not qualify for that. You will get the basic state pension and any benefits from employed pension contributions that may have been about before you went self employed.

IF that stays until I retire I understand it would be reduced by any income I have from a private pension.

No. Personal pensions have no impact on the basic state pension or second state pension. The only thing they have an impact on is pension credits. However, a single person has to be earning less around £6500 a year to get those.

I imagine I would have to invest a lot in order for the weekly pension pay out to exceed what the govenment would give me anyway.

It isnt a £1 for £1 deduction. That method was changed a number of years ago when the minimum income guarantee was replaced. Small pension incomes do no damage but there comes a point where you can just tip yourself over the limit and get nothing.

Dozey_Mare_2

Enigmaman wrote: »

I see the gpvernment pays a top up on the basic pension (I think it's called the State Second Pension and is worth about £40 per week). IF that stays until I retire I understand it would be reduced by any income I have from a private pension.

Not quite. The State Second Pension is basically an earnings-related top-up to the State Basic Pension.

In addition, if your total pension income in retirement is less than about £100 pw, you may get a means-tested benefit called the Pension Credit. The pension credit is reduced by 50p for every £1 of private pension you get.

The State Second Pension is not means-tested and not reduced if you get a private pension. You get it, no matter what.

That begs the question of whether it is worth putting money, which I need now, into future planning, only to have the government take it away in the end.

I imagine I would have to invest a lot in order for the weekly pension pay out to exceed what the govenment would give me anyway.

Can anyone advise please?

As things stand, you are likely to get the State Basic Pension and, possibly, the State Second Pension - but your eligibility for the State Second Pension depends on your earnings. You may also get the Pension Credit.

If you do nothing, you can be sure that - in current money - your pension income will be topped up to the Pensions Credit threshold.

If you put more into your private pension, you might lose out on some Pension Credit - but even then you might end up with more income.

It's very difficult to know what to do, for sure. But remember that future Governments can "change the rules".

Either - trust in future Governments or paddle your own canoe (Panama, anyone?) :rolleyes:

You might want to start with a a forecast of your state pension entitlement.

EdInvestor

Enigmaman wrote: »

I am a 41 year old male living in the UK and have apaltry £1500 in my pension fund at the moment. I am self- employed and in poor health - and with income very restricted.

First check your state pension entitlement.Presumably you are paying class 2 contributions. You'll need 30 years in total for the basic state pension. If you worked as an employee before you might be entitled to extra S2P on top.

I see the gpvernment pays a top up on the basic pension (I think it's called the State Second Pension and is worth about £40 per week). IF that stays until I retire I understand it would be reduced by any income I have from a private pension.

I think you mean Pension Credit ( new rates from next year, basic state pension 90 pounds, pension credit 124 pounds.)This is meanstested and is reduced if you have savings or other income - though some is disregarded.It also "passports you to housing benefit and free council tax.

That begs the question of whether it is worth putting money, which I need now, into future planning, only to have the government take it away in the end. I imagine I would have to invest a lot in order for the weekly pension pay out to exceed what the govenment would give me anyway.

Do you own your own home? It may be better to put savings into paying off the mortgage than into a pension. But check state pension entitlement first.

Enigmaman

Thanks for these replies. Yes, I did mean Pension Credits. So I get to keep 60% of them up to a certain point despite having a personal pension - OK, that's useful to know and I think I will start a SIPP to begin investing again.

Moreover, the IFA I saw seemed to think I would lose the Credits pound for pound.

dunstonh

Moreover, the IFA I saw seemed to think I would lose the Credits pound for pound.

The old MIG was pound for pound. Pension credits have never been pound for pound. Perhaps he is a mortgage IFA or only normally deals in high net worth clients. You should tell him he is wrong

and I think I will start a SIPP to begin investing again.

Why SIPP?

Enigmaman

You don't recommend a SIPP?

dunstonh

Can't recommend anything on the forums. Its discussion only.

However, I was interested in what made you choose SIPP. Assuming you are using investment funds and going DIY for purchasing it, stakeholders and most personal pensions will be a lot cheaper.

There is nothing wrong with a SIPP. It is generally the more expensive option for purchasing funds but if you are also doing self investment or using other features that are unique to SIPPs then its worthwhile. If you arent using any of those features then it can be an expensive folly and you may be better served with a stakeholder or personal pension.

SIPPs are fashionable but they are being oversold and over purchased. It has been estimated (from multiple sources) that over 90% of all SIPPs purchased post A day have used funds rather than self investment. There is a very very good chance that a significant number of those could have got those same funds cheaper in a stakeholder or personal pension.

Enigmaman

I chose SIPP because a friend who is a chartered accountant recommended them...but thanks for your information.

dunstonh

I chose SIPP because a friend who is a chartered accountant recommended them...but thanks for your information.

Accountants should stick to their side. Neither regulated or authorised to recommend products. I suggest you do your research carefully and do not rely on media hype or those that can be influenced media hype.

jamesd

dunstonh, might be worth expanding a bit on "direct investment" as opposed to indirect, that is, saying what can be held in a non-SIPP pension and what is SIPP-only. Since you can have several independent pensions one of each may be useful sometimes. The simple version seems to be: collective investments like unit trusts and OEICs are better in the non-SIPP pension, provided it's sold on competitive terms and offers the features and fund choice desired. Commercial property outside a collective: SIPP. Shares: don't know.