Need a Pension - any advice much appreciated!

dunstonh

dunstonh “So, if you are going to compare then use £100 for a pension and £55 on an ISA to get a like for like comparison for income provision”

What sort of maths are you using ? That’s rubbish ! You must be in the pension industry !

£100 minus 20% tax relief (assuming 08/09 relief) = £80. You get 25% back tax free so 80-25 = 55. Therefore a like for like cost comparison should be £55 on the ISA against £100 on the pension when looking at income provision.

Higher rate even better with a further £20 paid for in tax relief and possibly as much as £73 if you include childrens/working tax credits. In that scenario your pension provision may end up only costing you 2% (100-40-33-25= 2%)

10k per year .I think you have to subtract your state pension first as that will be included in taxable income, so knock of at least 5k per annum.

You do but that still leaves some left over and if you plan as a couple you both have £10k giving you a potential £20k of tax free income.

So the net benefit is 20% of 5k=1k per year....whooo..! In 2020 that will fill your car and buy the shopping for 3 or 4 weeks ..if you're lucky !

As you well know the personal allowance is increased annually.

No-one is going to take your arguments against seriously if you pick and choose and distort information to support your views. There are pros and cons but you are posting rubbish. For example, what has the PPF got to do with personal pensions?

Stick to stocking up on your paper bags and tin foil.

jamesd

dunstonh, the 25% tax free sum means that you get 25% without 20% tax so the gain from it is 25% of 20% = 5%, not 25%.

Consider basic rate:

80 net contribution, grossed to 100.
take 25% tax-free sum from 100, 25 tax free.
leaves 75 at 20% tax, so 60 received.
End up with 60+25 = 85 from 80 contribution.
Receive 1.0625 times the net contribution value.

Consider higher rate contribution, basic rate retired:
60 contribution, increased to 80 in pension, reclaim 20 tax.
take 25% of 80 as tax-free sum = 20.
leaves 60 taxed at 20%, so 48 received.
End up with 20+20+48 = 88 from 60 contribution.
Receive 1.47 times the net contribution value.

Consider higher rate contribution and retired:
60 contribution, increased to 80 in pension, reclaim 20 tax.
take 25% of 80 as tax-free sum = 20.
leaves 60 taxed at 40%, so 36 received.
End up with 20+20+36 = 76 from 60 contribution.
Receive 1.27 times the net contribution value.

dunstonh

Not sure we are talking the same things but we could be but saying it different ways. Take an immediate commencing personal pension.

07/08
£3600 gross means it costs you £2808. You can take back 25% of the £3600 which is £900. So the cost to you is 2808-900 = £1908

£1908 is 53% of the £3600 contribution

08/09
£3600 gross means it costs you £2880. You can take back 25% of the £3600 which is £900. So the cost to you is 2880-900 = £1980

£1980 is 55% of the £3600 contribution

Going on from that, if that person is 65 and gets a 7% annuity rate, that income is £196.56pa That is a yield of 9.927% guaranteed for life. Even if it is taxed at 20% that is still 7.94% guaranteed.

So, income below the personal allowance is nearly 10% tax free on a pension contribution. Wheres the ISA with the 10% guaranteed for life rate to beat it? Even fully taxed at 20% gives 7.94% is still very good. The ISA yield will be closer to 5% with no tax.

There are advantages of both ISAs and pensions but you cannot rule out pensions on some misplaced paranoia because there are still benefits. Mainly due to the tax relief and 25% Tax free cash coming back at the end.

Pensions are no good for capital provision but there isnt much that can beat it for income provision and lets face it, what is a pension for?

At the end of the day, utilising both ISA and pension is still the best option for the majority.

jamesd

We are saying roughly the same thing but in different ways.

When you write that "£1908 is 53% of the £3600 contribution", just £3600-£900 = £2700 is left in the pension and taxed at 22% leaving £2106 after tax. So your net spend is £2808 - £900 = £1908 and you receive £2106 in after tax benefits for it. So, a tax gain of £2106 / £1908 * 100 - 100 = 10.4% for using the pension instead of ISA.

Or in 2008/9 £3600 - £900 = £2700 taxed at 20% => £2160 after tax at a net cost of £1980.£2160 / £1980 * 100 - 100 = 9.1% gain for using the pension instead of the ISA.

So for 2008/9 say you get 7% annuity from the ISA, you'd get an extra 9.1% of 7% from the pension, 7.63% of your spend instead of 7%.

All this assuming tax is paid, since within the personal allowance range it's obvious that there's a clear benefit for the pension.

TRUSt_NO_1_2

from my post above....I would not touch ANY fund with a barge pole.I would stay well clear of the financial sector and UK property altogether for at least 12 months to 2 years.
My advice is remove as many people as possible between you and your method of preserving (hopefully increasing) your wealth. Keep your assets as accessible as possible.

Well the cracks are already appearing.Were going to have some runs now on funds.Should get very interesting for the whole pension industry soon........
http://news.bbc.co.uk/1/hi/business/7195391.stm

dunstonh

16 years of growth on the property funds and you get one year of loss and you get paranoid individuals claiming its the end of the world.

A healthy correction periodically is actually highly beneficial for those making regular contributions into a pension, ISA or other investment.

purch

I wish people, when they read the Bloggers and 'Financial Sense' type websites would realise the posters are often also no doubt conspiracy theorists too............for every 10 'claims as fact' probably only 2 or 3 are truely facts, and for every 10 words written maybe 1 or possibly 2 make any real sense


P.S. Ditch the S.I.P.P.

EagerLearner

Thanks everyone - your thoughts much appreciated. I have to point out for anyone confused, I am actually a girl... but yes for tax purposes my husband and I have 2 ISA's (cash) and 2 ISA's (with funds). In addition, my husband has a company pension (only 4 years, it;s not worth much according to his last statement).

My funds have taken the biggest ever hit this week (I started last May), so I am now scared of funds and SIPP as a whole, but I suppose I am still fairly ok with trying to buy into the funds ISA and SIPP cheap if the 'market fundamentals' are still solid as I hear so many financial experts saying. I have both direct debits set up, but the SIPP is not yet active.

So is the overall opinion that a SIPP is worth doing only if I split money between the SIPP, funds and cash ISA presumably?

If I do that, I'd like your considered opinions on what sectors to stay clear of, rather than what you think are winners as I know you can't recommend any funds.

Many thanks for your continued advice, much appreciated.

jamesd

EagerLearner, winners for regular investing currently look to be commercial property, banking and retail. Lots of big drops to profit from over time even if prices aren't yet at the bottom.

People posting here unhappy with property fund drops are a particularly good sign for people considering buying - a sign that retail investors are giving up on the area. Same for property funds halting redemptions.

When everyone is scared and prices have taken a beating it's a great time to be buying if you expect an eventual recovery and are prepared to wait for it. Prices will probably fall for a while yet but finding the exact bottom is not easy, starting fairly close and buying through and after the bottom is more practical.

Next big bit of UK bad news might be bank annual reports, due within the next month. Confession time for the banks about what the US mortgages and European credit difficulties have cost them.

Not a good time to be buying in these areas if you'll worry about seeing drops over the next 6-18 months, since it could take that long for drops to end and clear recovery to start to happen, particularly if there is a significant US or UK recession.

TRUSt_NO_1_2

jamesd:EagerLearner, winners for regular investing currently look to be commercial property, banking and retail. Lots of big drops to profit from over time even if prices aren't yet at the bottom.
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jamesd..do I understand you correctly-you are suggesting to invest in commercial property,banking and retail and wait for a recovery ?

I posted :from my post above....I would not touch ANY fund with a barge pole.I would stay well clear of the financial sector and UK property altogether for at least 12 months to 2 years.


http://news.bbc.co.uk/1/hi/business/7195391.stm
This link details what will be the first many.

I think the commercial property market (much more than domestic) could take an absolutely massive hit.If funds have to liquidate and sell properties in 'fire' sales it might take years (decades type years) to get back ...if ever.There are so many factors weighing against commercial properties,as you mention recession being one of them.
At least people will always need somewhere to live.
As for banking,I heard people talking of buying Northern Rock when it had drop to about £1.20.Just because they have gone down,doesn't always make them cheap.The banking sector still has plenty of problems to come to light.
Retail ... pick wisely.Tesco has been my favourite and continues to be.I don't own it (as I'm in to silver and gold mining companies right now).I think they have moved into China so should do well as Chinese are moving to a more western diet.(I hope JJB are going to open fitness clubs in China to counteract their new diet lol!)
In a recession not many things do well.Holding cash would be good normally..but we all know 'true' inflation is over 10% so even that is going down in value quickly.