Start pension or finish paying debt

dunstonh

cash isa - 5.8% fixed 5 years NR.
Shares isa - gilts - You buy 1 gov stock say 10 gilt with a yield of 5% then thats your return fixed until maturity - no risk. All interest is tax free !

Not the same as a variable pension fund which may lose 23% or more (performance over the last 5 years).

A lot of people are waking up as they get their private pension fund letters through their doors on retirement and screaming - What the hell ??? And then go and demo outside westiminster. This is likely to be a growing phenomena

You are still showing that you do not understand pension funds. If you are risk advserse then you can invest in gilts or similar in a pension as well. You do not have to invest in the stockmarket when you have a pension.

Plus, 5 years in isolation have hit some stockmarket linked pension funds but for most people a pension is a long term savings product and a decline like we have had is extremely beneficial to them over the term when they are contributing on a monthly basis.

Pal

As DD states, it is clear that Denny does not understand pensions. A pension is only a tax wrapper in the same way that an ISA is only a tax wrapper. You can invest in bonds, cash, property, equities and so on within a pension making them more flexible that ISAs, and the contribution limits are much higher and about to be increased even further.

At retirement 25% of the fund can be withdrawn tax free, meaning that tax is never paid on it at all.

The only possible disadvantage is the compulsory annuity purchase from age 75. Annuity prices are linked to bonds yeilds which are generally linked to interest rates. Just because interest rates are low now does not mean that they will be in the future when someone is actually retiring. IMO planning for a future in 20/30 years based on the current economic situation is short-sighted in the extreme.

In addition, money from ISAs will, when spent during retirement, eventually run out if you live too long. An annuity will last for a lifetime. Although that means you lose out if you die relatively soon after retirement, it does mean that you are protected should you live longer than you expect.

In the end, most people will probably end up spending their ISA savings on buying an annuity anyway or suffering poverty should they live longer than they have budgeted for. Annuities may be a pain but they are there for a very sensible reason.

charlfer

If your employer offers a pension scheme to which they contribute, it is almost always worth joining straight away.

They offer a pension scheme which they can, if they wish, contribute to at their discretion.

But anyway...if I understand correctly, what was said above is that credit card debt should be paid off first, before starting a pension scheme...is this true no matter what rate tax payer I am?

dunstonh

But anyway...if I understand correctly, what was said above is that credit card debt should be paid off first, before starting a pension scheme...is this true no matter what rate tax payer I am?  

To be honest its a judgement call with no right or wrong. If it takes you 20 years to clear the credit card, its doesnt leave you long to save for retirement.

If you are a higher rate taxpayer, then you could benefit more than paying off the credit card. However, sooner or later you need to pay off the credit card.

Any reason why you cant do both to some degree. Rather than doing one or the other?

charlfer

None whatsoever. I had just been working under the assumption that I should pay off debt before starting a pension, that's all. :-/

Pal

The key thing is to destroy the credit card and don't ever use it or any other card again, then completely pay the debt off as quickly as possible. Then you can start putting money into a pension or other savings and only use credit cards if you can pay them off in full every month (while still saving) or for stoozing.