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  • FIRST POST
    • MSE Guy
    • By MSE Guy 12th May 11, 5:04 PM
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    MSE Guy
    MSE News: Guest Comment: The route to retirement riches
    • #1
    • 12th May 11, 5:04 PM
    MSE News: Guest Comment: The route to retirement riches 12th May 11 at 5:04 PM
    This is the discussion thread for the following MSE News Story:

    "It's amazing how confused people get about the benefits of property, pensions or Isas when saving for old age ..."

    Last edited by MSE Guy; 13-05-2011 at 8:14 AM.
Page 1
    • Milarky
    • By Milarky 13th May 11, 10:20 AM
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    Milarky
    • #2
    • 13th May 11, 10:20 AM
    • #2
    • 13th May 11, 10:20 AM
    Britain faces a 9 trillion savings gap so what should you do so you've enough for your retirement? Bob Bullivant (right), chief executive of retirement specialist Annuity Direct, explores the options.
    Where's this come from?
    It's amazing just how confused most people get about the benefits or otherwise of property, pensions or Isas as a route to retirement riches.
    Most people have a favourite and champion it to anyone who will listen. In reality, they all have advantages and disadvantages and I suggest that the best solution is a mixture of all three.
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    Pensions have a bad name mainly brought on by the best efforts of life insurance companies who were short-sighted enough to use them as a way of trying to get rich throughout the last two decades of the twentieth century bringing on untold bad publicity and mis-selling investigations by regulators.
    Charges were very high, often with the first year's premiums disappearing into the hands of greedy insurers. Things were cleaned up in 1997 with the introduction of stakeholder pensions but, as always, mud sticks – and there was a lot of it.
    Pensions, perhaps?
    First thing – a stakeholder pension is good value where charges are low and completely transparent.
    Add to that income tax relief at either 20% or 40% and you are getting a very big bang for your buck. As with everything, the tax man does not give free lunches and so he makes you wait until age 55 before you can touch your fund and taxes much of the income.
    Perfection is getting tax relief at 40% or 20% and then having the income taxed at 20% or nil. You no longer have to buy an annuity (where you give your pension pot to an insurer in return for a regular income) so that objection is removed. Time to look again at pensions?
    What about Isas?
    Or should you choose an Isa? You do not get tax relief on contributions but you can have your cash at any time and it is tax free.
    It means more flexibility but can you trust yourself to have enough in the kitty at retirement? If pension tax relief is available when you are close to retirement your Isa funds could be converted to a pension with tax relief automatically increasing the fund size.
    And from a tax viewpoint an Isa fund is taxed exactly the same as a pension fund with the only tax being 10% on dividends.
    Property: pain or gain?
    So what about property? Traditionally, it has produced good returns but is subject to cyclical fluctuation.
    Throw in costs of purchase and sale, void periods and its illiquid nature and it does have a number of issues.
    Rent is taxed as income and any gains are subject to capital gains tax. We are an island, we have a limited amount of land and so over time property should be a good investment. That is probably right – but bear in mind the pitfalls.
    Why all three are the answer
    The biggest issue in planning retirement income is the unknown. You need to have total flexibility to enable you to cope with life's little downs – the ups are easy. A mixture of asset types enables you to do this.
    Imagine a situation where, for whatever reason, you are unable to work up to retirement age. Income from property will ease the situation, Isa withdrawals may also help and, of course, the pension will provide income for life.
    You have maximum flexibility – not forced to sell property when values are depressed – not forced into an annuity at an unattractive rate. All markets are cyclical and a mix of investments means you can choose your moment to buy and sell each asset type.
    Views expressed are not necessarily those of MoneySavingExpert.com.
    See comments next post @dunstonh, I deleted my knee-jerk posting - sorry for that - thank you for interpolating my stream of consciousness intelligently though.
    Last edited by Milarky; 13-05-2011 at 10:35 AM.
    .....under construction....
    • dunstonh
    • By dunstonh 13th May 11, 10:26 AM
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    dunstonh
    • #3
    • 13th May 11, 10:26 AM
    • #3
    • 13th May 11, 10:26 AM
    Things were cleaned up in 1997 with the introduction of stakeholder pensions
    Stakeholder pensions were introduced in 2001.

    As usual the 'advice' is confined to the tax treatment of different products - completely generic - and of course not guaranteed not to change in the future just because it might be true of the system today. Discussion of investments and ('savings' which confuses people when they get used interchangeably)
    You have to remember that it is an adviser. So, he will have the regulatory constraints on him that a journalist would not have or a general member of the public. The rule of thumb on official adviser comments is keep it generic. Plus, to go in the detail we all love in this section where we do aim to look at the fine tuning and getting what is best cannot be done on an article that the adviser has probably only been asked to provide around 200 words for a low knowledge audience.

    Modern pensions for many people are a tax wrapper that has advantages that have little to do with providing a pension. You can use them for estate planning now for example and many pensioners use them to build up a pot in the spouse name for kicking in at 75 because the provision is uneven. A long way from the old "pension product" for providing an income in retirement from 75. its a shame there isnt a link to the ISA vs Pensions thread in this section which contains a great deal of detail and examples (although perhaps early posts are looking dated now due to rule changes).
    Last edited by dunstonh; 13-05-2011 at 10:32 AM.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • gadgetmind
    • By gadgetmind 13th May 11, 5:58 PM
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    gadgetmind
    • #4
    • 13th May 11, 5:58 PM
    • #4
    • 13th May 11, 5:58 PM
    I've had sucky old pensions in the past, and have moaned (long and hard) about them, but things have changed. They are now just another wrapper, with benefits and restrictions on money going in, and ditto for money coming out. ISAs are the same, just another wrapper, different restrictions, different pros and cons, but they also have a (very important!) role in your savings strategy.

    Within both, you can save in cash, fixed interest, equities, trackers, ETFs, and many more esoteric instruments, and this is all a matter of matching your risk attitude, mental aptitude, and precognitive abilities to your asset holdings.

    Between the wrappers and the assets sit the platforms and the advisers. Both need a good shake up, and it looks like they are about to get one. I wish they'd had the same a few decades ago when I started on the whole pensions and investments journey as things have *really* improved already, and the signs are good for further progress.
  • FATBALLZ
    • #5
    • 13th May 11, 6:48 PM
    • #5
    • 13th May 11, 6:48 PM
    We are an island, we have a limited amount of land and so over time property should be a good investment.
    I think we can safely dismiss this 'guest' as a fool. I wonder which countries he has been to that have unlimited amounts of land.
  • jamesd
    • #6
    • 13th May 11, 8:16 PM
    • #6
    • 13th May 11, 8:16 PM
    Russia, China, United States (most parts), most of Africa, much of central and southern America all often have effectively unlimited amounts of land for residential building. Not literally unlimited, but plenty of supply.
    • Lokolo
    • By Lokolo 13th May 11, 8:18 PM
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    Lokolo
    • #7
    • 13th May 11, 8:18 PM
    • #7
    • 13th May 11, 8:18 PM
    Russia, China, United States (most parts), most of Africa, much of central and southern America all often have effectively unlimited amounts of land for residential building. Not literally unlimited, but plenty of supply.
    Originally posted by jamesd
    Yeh but who the hell wants to live there?
    • Joe_Bloggs
    • By Joe_Bloggs 14th May 11, 10:24 AM
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    Joe_Bloggs
    • #8
    • 14th May 11, 10:24 AM
    • #8
    • 14th May 11, 10:24 AM
    The CII say:-
    http://www.cii.co.uk/app/news/default.aspx?endstem=1&id=1008
    J_B. (who day think day are?)
    • Le73Uq86Uv
    • By Le73Uq86Uv 15th May 11, 7:24 AM
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    Le73Uq86Uv
    • #9
    • 15th May 11, 7:24 AM
    • #9
    • 15th May 11, 7:24 AM
    What is the point of saving for a pension?

    You are not in control of it, it could go bust, It could be used by your employer leaving no money in the pot for you or the goverment change the rules when you are in your late 50's and you get less than what you thought you would for 30 years.

    Put it under the matress is my advice.
    • gadgetmind
    • By gadgetmind 15th May 11, 7:49 AM
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    gadgetmind
    For many people, the tax advantages of saving for a pension outweigh the risks. Trusting your employer with the funds is very old fashioned and increasingly rare, and instead the pot accumulates with a pension company that invests (often under your direction) in a combination of cash, bonds, equities, etc. Yes, HMG do like meddling with the rules, and have made big raids on private pension funds, but as I say, the rewards outweigh the risks.

    I could model how your advice would have affected my retirement funds but a rough figure is that I'd have a third of what I have now, and your cash under the mattress will just continue to be rendered worthless by inflation.

    Of course, I do have other retirement pots, such as ISAs, ITs, equities, and property, but holdings in pension pots will be 50% of my retirement funds.
    • Linton
    • By Linton 15th May 11, 8:34 AM
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    Linton
    What is the point of saving for a pension?

    You are not in control of it, it could go bust, It could be used by your employer leaving no money in the pot for you or the goverment change the rules when you are in your late 50's and you get less than what you thought you would for 30 years.

    Put it under the matress is my advice.
    Originally posted by Le73Uq86Uv

    It cant be used by your employer - that stopped after Maxwell. The worst they can do (for the increasingly rare number of final salary pensions only) is not put enough into the fund. If it's not a final salary scheme it cant go bust either, unless the trustees invest the pension in something really silly. Finally, again if it's not a final salary scheme, you are in control of it if you want to be.

    Carrying on your train of thought - you might be dead before you live to enjoy your pile of worthless paper (or pile of gold/silver bullion!!) under the bed, why not spend it all now....

    and then spend 30 years of retirement on the breadline.
    • gadgetmind
    • By gadgetmind 15th May 11, 9:22 AM
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    gadgetmind
    There do seem to be those who aren't prepared to stop at ignorance regards funding their retirement. These people seem to be actively proud of the fact that they have their heads in the sand and condemn themselves to decades of misery with what often comes across as a fiercely anti-establishment stoicism.

    Yes, the guys in pinstripes might run off with huge chunks of your savings, and yes the whole financial system might collapse. But the former is less rare than it used to be, and can be kept under control if you keep your wits about you, and the latter is a "black swan" that it best ignored in much the same way as are asteroid strikes. The most likely outcome is that the world limps along, you live well into your dotage, you get to keep the vast majority of your pot away from HMG and greedy advisers, and it does grow long-term.

    Yes, saving for retirement does have its risks, but is the absolute certainly or not doing so really more attractive?
    • Credit-Crunched
    • By Credit-Crunched 15th May 11, 12:07 PM
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    Credit-Crunched
    What is the point of saving for a pension?

    You are not in control of it, it could go bust, It could be used by your employer leaving no money in the pot for you or the goverment change the rules when you are in your late 50's and you get less than what you thought you would for 30 years.

    Put it under the matress is my advice.
    Originally posted by Le73Uq86Uv

    Great advice there, ever hear of inflation?

    Imagine spending 1.40 on a 4 pints of milk 20 years ago, you would have had a heart attack, now its standard.

    Please think before posting as people read these and listen to them, at least make a recommendation for a FSCS secure cash based ISA account!
    • Le73Uq86Uv
    • By Le73Uq86Uv 15th May 11, 8:08 PM
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    Le73Uq86Uv
    The point I was making is if you sign up to a deal when you are 20 years old the goverment or anyone else should not be able to change the conditions unless you agree when you are not far off the pension age.

    Yes I wanted people to listen but those who think they can just change it at will giving no thought to the individual but only to profits and the state of the country.

    Just look at the state pension and how they are changing it making retirement longer away when the individual may have made plans to retire at 65 30 years ago. OK make changes for new entrants to schemes but dont change them for others who have made plans for 30 years with no chance/time of making new plans.
    Last edited by Le73Uq86Uv; 15-05-2011 at 8:13 PM.
    • gadgetmind
    • By gadgetmind 15th May 11, 8:54 PM
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    gadgetmind
    Yes, there are constant changes, far too many. Planning for retirement in the UK is like trying to walk in a straight line during a Japanese earthquake.

    How much can we save per year? All change! Anti-forestalling, loads of different caps,retrospective limits, earthquake!
    How will our pension pots be taxed. All change! 10% tax on dividends can't be reclaimed, 5bn pounds per annum ripped from our pensions and !!!!ed down the toilet that is government coffers.
    What will all the many hundreds of thousands we pay in NI per worth when we hit retirement age? All change! Who knows? we don't, HMG don't, no-one does, TBH, planning is impossible,
    When might we be able to retire? All change! Private pensions move from 50 to 55, state from 60/65 to 66, or is it 68, or is it 70? Who knows? We don't HMG don't.

    All we can do as individuals is max out pensions and ISAs, bang what else we can into dividend paying investments outside of these wrappers and hope for the best. Or we can choose to !!!! it against the wall and/or stick it under the mattress. I know which I prefer.
    • dunstonh
    • By dunstonh 16th May 11, 8:13 AM
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    dunstonh
    You are not in control of it, it could go bust, It could be used by your employer leaving no money in the pot for you or the goverment change the rules when you are in your late 50's and you get less than what you thought you would for 30 years.
    1 - you are in control of your pension. You have virtually identical investment options to an ISA.
    2 - Please name a money purchase fund that has gone bust (you wont be able to). Even defined benefit schemes give 90% protection now.
    3 - Govt can change the rules but it wouldnt leave you less in your pension. Indeed, most of the rule changes over the last decade have seen greater flexbility and options brought in. the Govt does play around with pension legislation too much but it is mostly tweaks rather than whole sale changes. Personal pensions were introduced in 1988 and for the vast majority, the same rules on pre-retirement exist today as they did then.

    The point I was making is if you sign up to a deal when you are 20 years old the goverment or anyone else should not be able to change the conditions unless you agree when you are not far off the pension age.
    In most cases they havent changed existing pension plans. In some cases, you could avoid changes by applying for transitional relief (large investors with 1.5 million or thereabouts). But for most, there hasnt been any major changes other than the minimum commencement age, which didnt effect most people).

    Just look at the state pension and how they are changing it making retirement longer away when the individual may have made plans to retire at 65 30 years ago.
    What the Govt does to state pension is irrelevant to personal pensions. However, anyone planning things 30 years ago and not keeping up to date is daft. For example, personal pensions didnt exist 30 years ago. Nor did ISAs (or PEPS before that). The investment products of that era are woefully obsolete compared to today.

    Fact of life is that things change. You adapt or you lose out.
    Last edited by dunstonh; 16-05-2011 at 8:17 AM.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • bigbloke45
    • By bigbloke45 16th May 11, 8:58 AM
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    bigbloke45
    Dear old Bob. Poacher turned gamekeeper?

    Corporate Development Director at Britannic Retirement Solutions
    Corporate Development Director at Britannic Retriement Solutions
    Sales & Marketing Director at Target Group
    • Marine_life
    • By Marine_life 16th May 11, 11:01 AM
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    Marine_life
    I think we can safely dismiss this 'guest' as a fool. I wonder which countries he has been to that have unlimited amounts of land.
    Originally posted by FATBALLZ
    Probably more accurately the statement should be that the UK is expecting continuous population growth until 2050 which will keep the demand pressure on land (compare that with a number of other European countries - Germany, Italy etc - where population is actually projected to fall)
    • Milarky
    • By Milarky 16th May 11, 11:05 AM
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    Milarky
    In most cases they havent changed existing pension plans. In some cases, you could avoid changes by applying for transitional relief (large investors with 1.5 million or thereabouts). But for most, there hasnt been any major changes other than the minimum commencement age, which didnt effect most people).
    Originally posted by dunstonh
    Ah but if if didn't affect a lot of people why was it changed? (To stop a rush to the door I would guess was the government's assumption)

    No one has mentioned auto enrolment for 'Personal Accounts' (!!! 'NEST's) yet. That's 'soft compulsion' of the too-little-too-late-but-got-to-be-seen-to-do-something variety of state interference. The benefits have been made so anaemic from the get-go that it won't matter if you're in one or you're not. What does that say about the rest of the legislative framework?

    They called them 'Personal Accounts', no doubt, to give a nicer ISA feeling instead using of that dreaded 'P' word. Then thought (perhaps) if they called it something more snappy, like 'NEST' (in the tradition 'Neddy' or 'Aunty' or 'Ernie' - but 'Numptie' would be a more appropriate backronym) for 'National' [good!] 'Employment' [hmmm?] 'Savings' [Yeah, right!] 'Trust' [Oh? so that's all right, then..]

    I'll repeat myself and state that I believe the government missed an opportunity to help people genuinely save by not using the Australian/NZ model of a tax privileged lump sum for this one particular product. Annuities are only 'popular' to the extent they are mandated. Government often flunks decisions like these in favour of vested interests and status quo.

    I've also asked this before: where else are annuities* mandated as they are in the UK? Germany? France? Sweden? Russia? the USA?

    *including complex drawdown only suitable for 'a few' anyway.
    Last edited by Milarky; 16-05-2011 at 11:22 AM.
    .....under construction....
    • gadgetmind
    • By gadgetmind 16th May 11, 11:14 AM
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    gadgetmind
    I know a few people who had worked hard on their pensions so they could retire in their early 50s. All were mightily cheesed off by the changes and particularly the one was born just over a week too late and had to work for another five years.
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