Starting a pension

dunstonh

all you ever hear about is doom and gloom on the news about pensions

Which is rubbish scaremongering

the high fees for running/transferring pensions is bound to eat significantly into any tax breaks....

Which is rubbish for modern pensions (since about 2001) and many legacy pensions.

The majority of people, me included, feel completely out of our depth when it comes to pensions.

Which is strange as the fundamentals are little different from other tax wrappers like ISA and investment bonds and unwrapped investments like unit trusts.

The debate going on here only serves to create even more confusion about retirement planning and helps nobody.

This section tends to focus on the optimal way of doing things. The priority is to do something. If you are lazy and not bothered about whats best then a pension is perfectly fine. However, if that is the case, what are you doing contributing to these forums. Perhaps some are too focused on saving a few pennies here and there but dont realise the pounds they could be saving by reviewing and monitoring their investments. Simple things like making sure you invest in the most tax efficient manner for both now and in retirement.

Having all your pensions in one name (and not half in spouse) can cost you over £1000 a year in tax in retirement in todays terms. Utilising pensions and ISAs to match your personal allowances can save hundreds or thousands even. So, saving £15 on a car insurance is tiny in comparison to getting it right with your retirement planning.

EdInvestor

A lot of the confusion about pensions is related IMHO to the fact the rules change all the time.

For instance before A day it made sense to follow DD's approach, because everyone had a tax free allowance for investing in pensions every year and if you didn't use it, you lost it.

But that's now been dropped, and replaced by a lifetime allowance, which you can use up with giant lump sums any time up to retirement.

Now, it's the ISA that has the annual "use it or lose it" allowance.

So for some people it will be more sensible to save in ISAs, using your annual allowance. You can then shift all the ISA money into a pension later if it's a good idea.

But you can't get money out to put in an ISA once it's gone into the pension and you can't put large lump sums into ISAs.So since none of us knows the future, why close off options early and take the risk that you have made the wrong decision?

Another problem that has affected some people who planned to use pensions to fund retirement is the recent change in the age you can access benefits from 50 to 55.People who wanted to retire early who saved a separate pension to fund it until state pensions etc kicked in found they couldn't get the money out until 5 years after their retirement date.So again the ISA would have been a better choice.

timberford

The debate between ISA's and pensions is certainly an interesting one and I appreciate all the information and varying opinions.

Unfortunately I can't get a state pension forecast from https://www.thepensionservice.gov.uk as the forecaster is being updated... "to reflect the changes to State Pension rules introduced by the Pensions Act 2007". Is there another available forecaster that has been updated?

The advice that appeals most is to use the state and private pension for the £10k annual tax free allowance and have the rest in ISA investments.

However, how much of a risk is it to rely on this £10k tax free allowance? Given there are some 42 years before I retire.

As I'm allowed £6k savings, without losing potential benefits, I wonder if I should build up an ISA to that amount asap and not worry about a pension until then...

Putting away around £200 a month in just a cash ISA would get me to £6k in just over 2 years. Incidentally in 2 years time my fixed rate mortgage will finish (currently at 5.54%) and i'll probably try and get another fixed rate, so my financial situation could change significantly.

dunstonh

However, how much of a risk is it to rely on this £10k tax free allowance? Given there are some 42 years before I retire.

It goes up annually. As should your retirement provision by more or less the same amount. Typically NAEI or RPI are good guides.

You will never get it perfect. There are too many varaiables although you can fine tune more as you get closer. You have 42 years of fluctuating investment returns, 42 years of varying rates of inflation, 42 years of Budgets altering the personal allowance and 42 years of tax changes, rule changes and goodness knows what.

EdInvestor

You should be able to get a state pension forecast in October when the computer will be back in action.As you're on a higher than average salary and have never been contracted out, your S2P forecast might be quite high so it's deficitely worth checking. You could try calling the Pension service people for a general idea of the prospects, they can be quite helpful.

Meanwhile accumulating a good ISA cash fund is a sensible idea.