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  • FIRST POST
    • Firefax
    • By Firefax 17th May 19, 2:16 PM
    • 2Posts
    • 2Thanks
    Firefax
    Work pension vs saving accounts
    • #1
    • 17th May 19, 2:16 PM
    Work pension vs saving accounts 17th May 19 at 2:16 PM
    Hi,
    After doing calculations it is much more profitable not to have workplace pension if you can save up those money on saving accounts and (not spend it) .
    I runned calculations twice and searched for similar topics but found nothing so it makes me think if I missed something obvious or it is not a topic as many of the people would just spend the money if they would not be locked.

    Lets assume that monthly contibution is 100 pounds for the period of 20 years,
    If we will compare NEST that takes 1.8% from the each contribution and 0.3% annual management charge .
    Each 12 months our account is supplied with 1178.4 pounds (1.8% allready deduced)
    Than Nest takes 0.3% of totall amount each year - that after 20 years give us 22 839,53
    Now when we will take the money 25 % of it ( 5 709.88) is tax free hoever 75% is taxed as previous tax relief (lets assume 20%) so we will get 13 703.71
    Totall 19 413.6

    If we would place it into any saving account with we start initially with 100 pounds a month minus tax that gives us 80 pounds.
    That is an 960 per year , lets take here for example saving account of 1% calculated yearly after 20 years we will have 21,128.00

    Pension 19 413 vs saving account 21 128

    Of course there may be tax from an income on saving account depending on saving account hoever choosen exaple of saving account is also not close to many better that are easy to find.
Page 1
    • NoMore
    • By NoMore 17th May 19, 2:29 PM
    • 319 Posts
    • 299 Thanks
    NoMore
    • #2
    • 17th May 19, 2:29 PM
    • #2
    • 17th May 19, 2:29 PM
    Your pension is invested and will grow significantly over a 20 year period, you have not accounted for that.

    You are just saying you put x per year into a pension and get x times number of years minus charges back with no accounting for growth and then comparing putting the same into a savings account and allowing that to compound. Its a ridiculous comparison without accounting for the likely growth in the pension but allowing it in the savings account
    • ViolaLass
    • By ViolaLass 17th May 19, 2:33 PM
    • 5,579 Posts
    • 7,698 Thanks
    ViolaLass
    • #3
    • 17th May 19, 2:33 PM
    • #3
    • 17th May 19, 2:33 PM
    Plus employers contribution.
    • JoeCrystal
    • By JoeCrystal 17th May 19, 2:35 PM
    • 1,683 Posts
    • 1,146 Thanks
    JoeCrystal
    • #4
    • 17th May 19, 2:35 PM
    • #4
    • 17th May 19, 2:35 PM
    Also, did you take into account the employer's contribution and the fact you won't have tax relief if paying into the savings account?

    Assuming 5% of the salary is 100 gross, then you have the employer contribution of 60. So that added up to 160 per month while if you use that 100, it would be only 80 after taxes into the savings account.

    So it is quite a difference. Also, the pension fund is more than likely to see a better return than a saving account, which inevitably declines in value due to inflation. It is not often when the interests are better than the inflation.
    Last edited by JoeCrystal; 17-05-2019 at 2:37 PM.
    • Albermarle
    • By Albermarle 17th May 19, 2:43 PM
    • 751 Posts
    • 427 Thanks
    Albermarle
    • #5
    • 17th May 19, 2:43 PM
    • #5
    • 17th May 19, 2:43 PM
    You are just comparing like for like contributions , in which case a savings account will look better . No initial charge and no tax when you take the money .
    However to add 100 to a savings account from your already taxed pay costs you 100 .
    To add 100 to your pension will cost you a lot less, as the taxman and the employer will pay part of it, so you are already ahead of the game before you start.
    • atush
    • By atush 17th May 19, 3:07 PM
    • 17,626 Posts
    • 11,150 Thanks
    atush
    • #6
    • 17th May 19, 3:07 PM
    • #6
    • 17th May 19, 3:07 PM
    After doing calculations it is much more profitable not to have workplace pension if you can save up those money on saving accounts and (not spend it) .
    I hope your work has nothing to do with calculations You are quite wrong.

    Consider 100 into a pension costs you only 80 if you pay BRT, and 60 if HRT. So immediately you have 100 in a pension, or only 80 in a savings acct (as you paid 20 in tax). Then add in an employers contribution of 100, added to your 100. Now you have 200 in a pension, but only 80 in savings. This is all before any growth or interest, and growth over the long term will be higher.

    So how is 80 more than 200? or even 100?

    Go back to your calculations
    Last edited by atush; 18-05-2019 at 4:21 PM.
    • AnotherJoe
    • By AnotherJoe 17th May 19, 3:09 PM
    • 14,328 Posts
    • 17,082 Thanks
    AnotherJoe
    • #7
    • 17th May 19, 3:09 PM
    • #7
    • 17th May 19, 3:09 PM
    Your calculations are obviously completely invalid since you haven't allowed for
    Tax relief edit - done properly with allowance for possibly not paying any tax, high rate tax, NI relief for salary sacrifice
    Employers contribution
    Investment growth
    Poor savings (rates less than inflation )

    All of which will mean the pension will easily outperform saving by a factor of 3x or so.
    Last edited by AnotherJoe; 18-05-2019 at 7:48 AM.
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
    • squirrelpie
    • By squirrelpie 17th May 19, 3:48 PM
    • 178 Posts
    • 84 Thanks
    squirrelpie
    • #8
    • 17th May 19, 3:48 PM
    • #8
    • 17th May 19, 3:48 PM
    The OP's calculations are awry is some ways but not all those that have been suggested:
    - tax relief on the way in IS allowed for since the calc's deal with gross payments.
    - they omit the employer's contribution, which is a major problem.
    - they treat the pension and the savings differently as regards investment growth, which is simply cheating and a major problem.


    The calcs do emphasise the importance of minimising ongoing charges and maximising investment income/growth though so in that sense they are helpful.
    • AnotherJoe
    • By AnotherJoe 17th May 19, 6:08 PM
    • 14,328 Posts
    • 17,082 Thanks
    AnotherJoe
    • #9
    • 17th May 19, 6:08 PM
    • #9
    • 17th May 19, 6:08 PM
    Fair comment that tax is accounted for, I missed that.
    Just to add, the OP also assumed that you would pay 15% (effective) tax rate. Eg 25% not taxed, 75% taxed at 20% however if you time it right you can pay as little as zero on it. Plus, if you ever paid tax at high rate then the additional 20% relief also destroys the case even without employers contributions.
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
    • kinger101
    • By kinger101 17th May 19, 6:44 PM
    • 4,639 Posts
    • 6,440 Thanks
    kinger101
    Employer contributions, and salary sacrifice aside, pensions are more cost effective for basic rate taxpayers for the simple reason that 25% of the money can be taken out tax free.

    This comes with a major caveat that the tax regime doesn't change for the worse before you retire.

    OP - you use the term "savings". Whatever you do, you will need to be in equities rather than interest bearing cash accounts, and you'll find ISAs charge similar fees to pension funds. It's a matter of picking the right wrapper, but if you don't understand what is meant by the "employer contribution" and "salary sacrifice" and are unable to determine whether you have these, I suggest you remain in your pension fund rather than relying in calculations on the back of an envelope. You're very likely missing something if you think savings are better than an employers scheme.
    Last edited by kinger101; 17-05-2019 at 6:54 PM.
    • Marine_life
    • By Marine_life 17th May 19, 7:20 PM
    • 973 Posts
    • 1,910 Thanks
    Marine_life
    Hi,
    After doing calculations it is much more profitable not to have workplace pension if you can save up those money on saving accounts and (not spend it) .
    I runned calculations twice and searched for similar topics but found nothing so it makes me think if I missed something obvious or it is not a topic as many of the people would just spend the money if they would not be locked.

    Lets assume that monthly contibution is 100 pounds for the period of 20 years,
    If we will compare NEST that takes 1.8% from the each contribution and 0.3% annual management charge .
    Each 12 months our account is supplied with 1178.4 pounds (1.8% allready deduced)
    Than Nest takes 0.3% of totall amount each year - that after 20 years give us 22 839,53
    Now when we will take the money 25 % of it ( 5 709.88) is tax free hoever 75% is taxed as previous tax relief (lets assume 20%) so we will get 13 703.71
    Totall 19 413.6

    If we would place it into any saving account with we start initially with 100 pounds a month minus tax that gives us 80 pounds.
    That is an 960 per year , lets take here for example saving account of 1% calculated yearly after 20 years we will have 21,128.00

    Pension 19 413 vs saving account 21 128

    Of course there may be tax from an income on saving account depending on saving account hoever choosen exaple of saving account is also not close to many better that are easy to find.
    Originally posted by Firefax
    I suspect this was originally drafted in crayon.
    Money won't buy you happiness....but I have rarely if ever been in a situation where more money made things worse!
    • ffacoffipawb
    • By ffacoffipawb 17th May 19, 7:52 PM
    • 2,683 Posts
    • 1,837 Thanks
    ffacoffipawb
    I suspect this was originally drafted in crayon.
    Originally posted by Marine_life
    ... and the calculations were checked by John McDonnell.
    Financial Independence with SIPP in June 2019 (all being well).
    Too young to retire - going part time 2 days a week as a test.
    • Afraid of Kittens
    • By Afraid of Kittens 18th May 19, 3:31 PM
    • 242 Posts
    • 261 Thanks
    Afraid of Kittens
    What type of NEST pension do you have - where are the funds - are they languishing in a defaut fund or have you transferred them?

    My funds have gone into the Sharia fund - 96.6% return in 5 years.

    https://www.trustnet.com/fund/price-performance/p/pension-funds?manager=NETF&tab=fundOverview
    I enjoy flower arranging, kittens, devil worship, the study of serial killers and their methods and road kill jigsaws.
    • AnotherJoe
    • By AnotherJoe 18th May 19, 9:09 PM
    • 14,328 Posts
    • 17,082 Thanks
    AnotherJoe
    What type of NEST pension do you have - where are the funds - are they languishing in a defaut fund or have you transferred them?

    My funds have gone into the Sharia fund - 96.6% return in 5 years.

    https://www.trustnet.com/fund/price-performance/p/pension-funds?manager=NETF&tab=fundOverview
    Originally posted by Afraid of Kittens

    I was intrigued by what a Sharia investment would look like.
    Apparently much like a technology trust !
    A decent performer compared to most NEST funds I suspect


    1 MICROSOFT CORP 6.70 %
    2 APPLE INC 6.10
    3 ALPHABET INC 5.40
    4 JOHNSON & JOHNSON 2.90
    5 FACEBOOK INC 2.70
    6 EXXON MOBIL CORP2.50
    7 PFIZER INC 2.10
    8 VISA INC 2.00
    9 PROCTER & GAMBLE CO 1.90
    10 INTEL CORP 1.8
    Last edited by AnotherJoe; 18-05-2019 at 9:11 PM.
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
    • hugheskevi
    • By hugheskevi 18th May 19, 10:02 PM
    • 2,233 Posts
    • 2,912 Thanks
    hugheskevi
    I was intrigued by what a Sharia investment would look like.
    Apparently much like a technology trust !
    A decent performer compared to most NEST funds I suspect
    Several years ago, I heard that the reason it was the best performer from the NEST fund selection was that due to it not being able to hold investments paying interest it was more heavily weighted to equities than the other NEST funds.

    If so, then its performance over the other funds is primarily reflecting a risk premia during a period that has rewarded risk.
    • bowlhead99
    • By bowlhead99 18th May 19, 11:45 PM
    • 8,745 Posts
    • 16,006 Thanks
    bowlhead99
    If so, then its performance over the other funds is primarily reflecting a risk premia during a period that has rewarded risk.
    Originally posted by hugheskevi
    Yes, the other NEST funds (other than the 'lower growth' fund which is entirely in short duration investment-grade bonds) are mixed asset funds where even the 'higher risk' mixed asset fund is only 70-80% equities (as there is 20-30% of bonds, property, property shares and commodities). The Sharia fund offered by NEST is their highest 'risk' fund with biggest projected annual volatility.

    Something that focuses exclusively on equities (even if certain industry sectors are excluded to make it Shariah compliant) will generally do better in an equities boom than something containing fixed interest assets and diversifiers such as commodities and lightly-leveraged property. But as it invests in a single asset class it will suffer terribly in a global equities downturn and if you are the type of person who watches your pension balance on a weekly or monthly or quarterly or half-yearly basis, it will make painful reading in some years.

    FWIW, I do agree that the OP is garbage.
    Last edited by bowlhead99; 18-05-2019 at 11:48 PM.
    • Firefax
    • By Firefax 20th May 19, 3:15 PM
    • 2 Posts
    • 2 Thanks
    Firefax
    Thank you to all of you, I am not an expert and as I thought I missed some major things like employer contribution etc. Now it all makes sense.
    • AnotherJoe
    • By AnotherJoe 20th May 19, 3:42 PM
    • 14,328 Posts
    • 17,082 Thanks
    AnotherJoe
    Please invest it, not save.
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
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