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Pensions (Read 17539 times)

Paul B

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Pensions
December 02, 2016, 02:34:55 pm
Sorry for the extremely boring topics of late. However, each year at work I have a limited window in which to pick my flexible benefits (this year it closes on 8/12). Apart from 'buying' the maximum amount of leave possible (without looking at the number which is hugely upsetting on wasted days out) I've largely left this as standard but for some reason or another this year I decided to read about pensions a bit (which left me a bit  :tumble:). Looking at the money advice service online was also depressing...

Currently I pay in 4.5% which my employer matches (they'll do this up to 7% (14% total)).

Moneysaving expert suggests that you should be contributing roughly the percentage of half your age when the pension began. For me this is around 29 so the maximum contribution looks sensible. However, I've got a mortgage to pay off. Currently the interest rate on this is fairly low (although not as low as it could be as it was fixed a few years ago) and we take every opportunity we can to overpay. Given the reasonable house prices in Lancs. being mortgage free at some point in life doesn't look like an absurd concept (which is nice).

Given UKB seems to have a number of speciailists and people who I view as financially savvy how do you strike the balance between importance of these things?

abarro81

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#1 Re: Pensions
December 02, 2016, 06:51:53 pm
Whilst people who know about shit like money are here, and since I'm belatedly entering the world of earning money rather than doing a PhD, I'll ask an add-on question... Beyond what your employer will match your contributions up to, are you generally better off sticking extra money in your pension or in a separate fund? (Presuming you can deal with not accessing the money until retirement)
Or should I just convince shark to sponsor me and give me a big fat retainer

Paul B

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#2 Re: Pensions
December 02, 2016, 06:55:05 pm
Viewed in those simple terms it is a no-brainer.

But that's clearly not the end of the analysis. You might then want to consider issues like: how much do you trust investing in financial markets? can you tolerate waiting until pension age before you can access your savings? etc

Thanks. I expected it wasn't going to be that straightforward (the MSE article is long), however, additional money from an empolyer can't be a bad thing! The benefits tool online gives you a figure of "what it'll cost you per month", which can be a bit eye-watering when bumping leave up to 45 days total (includes bank hols. and enforced days before anyone sprays coffee everywhere); the same applied to bumping from 4.5% to 7% and put me off last year.

With respect to markets i.e. I'm fairly naive financially.

Barrows is being born into a mortgage free life which is upsetting to say the least.

abarro81

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#3 Re: Pensions
December 02, 2016, 07:22:44 pm
Are you thinking a stocks and shares ISA or just a cash one? I have a cash one with some money in but the interest rate is pretty junk

tomtom

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#4 Re: Pensions
December 02, 2016, 07:32:58 pm
Retirement age will be 90 by the time you get near your pension Paul ;)

More seriously - the whole austerity belt tightening shit that's been going on for the last 9 years will lead to some huge gaps in people's pensions. And how poorly many of the funds have performed. Why many people look at buy to let as their pension...

Paul B

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#5 Re: Pensions
December 02, 2016, 07:38:30 pm
The former. A cash ISA is almost totally pointless.

There was a useful Radio 5 MSE podcast on this fairly recently Barros.

Retirement age will be 90 by the time you get near your pension Paul ;)

Quite probably - the online government tool won't let you set it lower than 55!

shark

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#6 Re: Pensions
December 02, 2016, 08:37:38 pm
Maybe a mix of ISA and pension is sensible?

Yes. ISA's are effectively taxed on the way in (insofar as your earnings are taxed) but you can withdraw from ISAs tax free whilst pensions are tax free on the way in (insofar as pension contributions are income tax deductible) but drawings on the way out are taxed.

So when retired your state pension and private pension could use up your tax allowances (whatever they might be by then) and the earnings or drawdown from your ISA would be untaxed.


shark

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#7 Re: Pensions
December 02, 2016, 08:49:27 pm
Retirement age will be 90 by the time you get near your pension Paul ;)

More seriously - the whole austerity belt tightening shit that's been going on for the last 9 years will lead to some huge gaps in people's pensions. And how poorly many of the funds have performed. Why many people look at buy to let as their pension...

Funds have many hidden costs and disadvantages and apart from a few notable exceptions don't do well decade in, decade out. Fund Managers get lucky and unlucky and come and go. Picking a fund on the basis of its performance over the last five years is not a good idea. A low cost tracker with dividends reinvested would be a more transparent option than an active fund. With a low cost tracker the known, known of costs will be minimised.

webbo

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#8 Re: Pensions
December 02, 2016, 08:56:48 pm
Having returned to paid employment I was enrolled in the Nest scheme. They deducted £2.79 off me. How many years would contributions at that rate take to be worth more than a few fuck alls.

Doylo

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#9 Re: Pensions
December 02, 2016, 08:57:46 pm
Aren't Private pensions just shit these days though?

shark

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#10 Re: Pensions
December 02, 2016, 09:09:05 pm
Aren't Private pensions just shit these days though?

Certainly they are not as good as a final salary pension scheme which is becoming pretty rare outside the public sector now as they are unaffordable for companies as retirees are awkwardly living too long.

However, private pensions still offer a good incentive to invest ie you get a 20% to 40% reduction on contributions depending on your tax status so that's not shit. Also if you set up a low cost SIPP then you have the flexibility of using the money to invest in pretty much whatever you want so that's not shit either. If your employer is prepared to add even more than that's also not shit though you may have to be part of their scheme
« Last Edit: December 02, 2016, 09:16:36 pm by shark »

Doylo

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#11 Re: Pensions
December 02, 2016, 09:14:55 pm
Cheers Shark. My old king wants to give me a decent wedge of cash but he says he'll only stick it in a pension. Need to get on it.

shark

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#12 Re: Pensions
December 02, 2016, 09:26:48 pm
Cheers Shark. My old king wants to give me a decent wedge of cash but he says he'll only stick it in a pension. Need to get on it.

Old King? Googled it and can only find Old King Clancy!  :o

If its your dad then he could give you the money so you could put it in a SIPP which means that unlike a stocks and shares ISA you can't get your grubby hands on it till your 55 and the SIPP provider will add the tax relief at basic rate. If a higher rate tax payer you claim the extra back as an allowance on your annual tax return to reduce your tax bill (thousands of people dont!).

In the SIPP put the money in a FTSE100 tracker or similar rather than blowing it all on Lagerstarfish Enterprises PLC   

Doylo

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#13 Re: Pensions
December 02, 2016, 09:39:34 pm
I've just read up on the SIPPs though and it says they're best suited to people who know a bit about investments etc...

shark

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#14 Re: Pensions
December 02, 2016, 10:06:44 pm
I've just read up on the SIPPs though and it says they're best suited to people who know a bit about investments etc...

The great and good  investment community would have you believe its all very complicated and your financial affairs need to be managed by experts. The only adviser who truly has your interests at heart is yourself. A SIPP is simply a pension managed by yourself. You can invest recklessly or conservatively the choice is yours. A tracker of the FTSE 100 with dividends reinvested is a reasonable choice for a novice investor. If you want an actively managed fund with low charges look at "Fundsmith". Talk to Pete about it.

lagerstarfish

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#15 Re: Pensions
December 02, 2016, 10:12:41 pm
Barrows is being born into a mortgage free life which is upsetting to say the least.

he's a fool if he ignores the investment opportunity that is a cheap British mortgage

shark

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#16 Re: Pensions
December 02, 2016, 10:16:57 pm
Barrows is being born into a mortgage free life which is upsetting to say the least.

he's a fool if he ignores the investment opportunity that is a cheap British mortgage

Has he been gifted a house? If so he can still raise a mortgage against it and go knee barring around the world with tenants paying the interest. He don't need no retainer from me.

abarro81

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#17 Re: Pensions
December 02, 2016, 11:46:22 pm
Not been gifted a house unfortunately, though I'll happily have one of yours if you've got too many...

Will look up about SIPP and trackers, cheers, need to start thinking about this shit now I'm getting old

Paul B

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#18 Re: Pensions
December 02, 2016, 11:48:07 pm
Report back with your conclusions please.

If only there was way to see how you'd do managing this kind of thing. A bit like where online casinos allow you to pretend at gambling to lure you in.

slackline

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#19 Re: Pensions
December 03, 2016, 08:55:05 am
I'll be taking advantage of the forthcoming new Lifetime ISAs when they launch in April 2017 in addition to my pension.

25% return on the money you put buy seems a pretty good deal if its honoured, and could be more if opting for shares LISA as the money will be invested for some time and should provide a positive return (from what I've read the 25% is paid purely on what you put in, interest/return on investment is separate).  Obvious downside being that its tied up for a minimum of 20 years as you can't access it until your 60 without sacrificing the benefits, but when you do its tax free unlike pensions.


kingholmesy

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#20 Re: Pensions
December 03, 2016, 09:28:20 am
I've just received my annual pension statement from my previous employer and depressingly the value of my fund has fallen by over a £1k in the last year.

Anyway, I also noticed that it has an annual management fee of 0.58%.  Is this about normal?

Should I leave the money where it is, or transfer it into my current employer's scheme?  Both are defined contribution schemes (not sure what the management fee is with my current employer's scheme).

Ali

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#21 Re: Pensions
December 03, 2016, 10:46:48 am
Just to add to Sharks comment on the tax treatment of pensions v ISAs: As he says, ISAs are taxed on the way in and pensions on the way out so if you pay the same tax rate all your life then they would be financially equal. However most people have lower incomes in retirement than when working so may move from being a higher rate tax payer to a basic rate payer or from basic rate to having some tax free allowance unused. In this case pensions win out. And if you are getting matched contributions from your employer that's doubling your money for free and (except in some unusual circumstances) seems a no -brainer,  as said before.
There are also the less tangible pros and cons, in particular the lack of flexibility of pensions. They can't currently be accessed before 55 and there are some proposals to link this age to state pension age minus 10yrs. If this happens then it could affect anyone under about mid 40's now and mean they had to wait even longer. So if you want to early retire best have some other investments, probably in ISAs. There are also risks of future governments changing rules of either pensions or ISAs or changing tax rates,  all of which can't be predicted but tips the balance slightly towards ISAs as you are not tied in til retirement.
The lack of flexibility could be considered a benefit if you think you may lack the self discipline not to raid your savings at some point! Also pensions savings are not taken into consideration if you need to apply for benefits in the future.

Teaboy

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#22 Re: Pensions
December 03, 2016, 10:49:12 am
The choice seems to be sacrifice 60p of your take home pay and knock 60p off the capital of your mortgage or sacrifice 60p and have £2 paid into a pension fund (I'm not sure if that's the same if you are a lower rate tax payer as not sure if NI is deducted).

Things to bare in mind is you'll still have to pay tax on whatever income you draw down in the future except 25% is tax free.

Ali

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#23 Re: Pensions
December 03, 2016, 10:57:36 am
Good point on the 25% tax free, I'd forgotten that in my post.

If anyone wants to make a start on learning about investing Tim Hale's book "Smarter Investing, Simpler Decisions" is quite widely recommended and I found it useful. Monevator.com is a good website about investing, tending to feature strategies based on passive investment, low costs and diversification. They did a series of videos fairly recently about getting started.

shark

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#24 Re: Pensions
December 03, 2016, 11:25:51 am
I've just received my annual pension statement from my previous employer and depressingly the value of my fund has fallen by over a £1k in the last year.

Anyway, I also noticed that it has an annual management fee of 0.58%.  Is this about normal?

Should I leave the money where it is, or transfer it into my current employer's scheme?  Both are defined contribution schemes (not sure what the management fee is with my current employer's scheme).

You'd need to take proper advice on that.

Re the point about management fee that is only one part of the cost - there are usually lots of hidden internal management costs that are not obvious

 

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