Getting started

JeffMinter

I'm 22 and just started my pension contributions. I've been looking into the best long term savings-investment options for the future, and I'm not sure which is the best.

Say I put £100 every month into a pension plan, topped off with employer contributions making it to £200 total - will this, coupled with the tax break (20%) - gain better returns over my career (40+ years, hopefully!) than a high interest savings account above inflation rate or shares that, (for the sake of convenience) on average produce 10% gain per year?

On first impressions it seems pensions wins hands down; tax breaks AND double your contributions. But I'm most concerned with inflation. The more time passes, the more my money sitting in that pension is decaying from it; the most affected being my first contribution will be a mere fraction of what it is worth today, and far less so with my last contribution.

Compare that with compounded growth on ALL of the investment in a savings account or shares, and on subsequent contributions, do those extra perks still make pensions far more financially sound?



Also, am I allowed to take out a pension if I have passed the retirement age but still working? The way things work I'm guessing no, but surely that's a breach of the very idea of a pension i.e. refusing to give back the funds that someone has put into for the majority of his life, and expecting back at a predetermined age?

jem16

JeffMinter wrote: »

I'm 22 and just started my pension contributions. I've been looking into the best long term savings-investment options for the future, and I'm not sure which is the best.

Say I put £100 every month into a pension plan, topped off with employer contributions making it to £200 total - will this, coupled with the tax break (20%) - gain better returns over my career (40+ years, hopefully!) than a high interest savings account above inflation rate or shares that, (for the sake of convenience) on average produce 10% gain per year?

Savings accounts are no good for retirement plans. Shares are an alternative. However nothing can beat the free money you are getting from an employer so this wins hands down.

On first impressions it seems pensions wins hands down; tax breaks AND double your contributions. But I'm most concerned with inflation. The more time passes, the more my money sitting in that pension is decaying from it; the most affected being my first contribution will be a mere fraction of what it is worth today, and far less so with my last contribution.

Your contribution isn't just sitting there. Your contributions buy units in a fund. Over the year the unit price increases(can also decrease but over 40 years would be expected to increase) just like the shares you mentioned earlier. The unit price increase should beat inflation.

Compare that with compounded growth on ALL of the investment in a savings account or shares, and on subsequent contributions, do those extra perks still make pensions far more financially sound?

Pension works exactly the same way. That's why it's important to choose the funds inside the pension wrapper well.

Also, am I allowed to take out a pension if I have passed the retirement age but still working? The way things work I'm guessing no, but surely that's a breach of the very idea of a pension i.e. refusing to give back the funds that someone has put into for the majority of his life, and expecting back at a predetermined age?

I presume you mean can you take the benefits of your pension and still continue to work?

If it's a company pension it depends on their scheme rules. My teacher's pension allows me to work part-time and take part of my pension.

With a personal pension you can take it any time from age 55 and still work.

dunstonh

A pension is just a tax wrapper that contains your investments in the same way as ISAs, investments bonds and unwrapped investments like unit trusts and investments trusts (and many others).

The pension tax wrapper gives tax relief on contributions and tax free growth (income tax, capital gains tax and inheritance tax). If you have 1000 units of invesco perpetual income fund in there it will perform the same as having 1000 units of invesco perpetual income fund unwrapped or wrapped in an ISA.

Also, am I allowed to take out a pension if I have passed the retirement age but still working? The way things work I'm guessing no,

yes you are. Pensions stop being available on your 75th birthday. There is also no such thing as a predetermined age. You can take your benefits from age 55 to 75 regardless of what you put on the application (legacy pensions from years ago may have restrictions but not modern ones).

davey9998

put simply jeff, pensions still grow - you could have it invested in cash and get a known return or invest in the stock market for greater potential returns or you could invest it in a property fund.

you seem to imply that pensions don't grow once your money is put in which is wrong