Pension Planning

[Guest peter]

Found this forum on Money Saving Expert.com site. http://forums.moneysavingexpert.com/showthread.html?t=72831 Very interesting for anyone wondering what it's all about. (like me). theres loads of other Forums on the site on just about anything to do with money and special offers.

 

[CliveH]

Sorry to be negative but Martin Lewis (the guy that runs the above site) is the idiot that was still recommending Icesave and Kapthung Edge (Icelandic Banks) right up until it all went pear shaped.

 

He was asked on TV why he did this and he had no answer whatsoever.

 

The generic info on pensions is so so.

 

However, our advice is if you are a higher rate tax payer then private or personal pensions are worthwhile as the 40% tax relief is hard to beat.

 

But if you are a basic 20% taxpayer then the benefits of funding your own pension is debatable. Main reason is the annuity rates you get at the end. Lucky if you can get 5% at age 65 if you want some kind of inflation proofing it could start off far lower.

 

So that means that you would have to live 20 years just to break even (100%/5% = 20 years) If you sadly die after, say, 15 years then you lose and someone who survives for 25 years enjoys the money that you lost by dieing too soon.

 

That is how annuities work - nobody cares when you die because the rate is determined by the average death age. Once you sign up for an annuity you give up your capital for the promise of an income for life. If you die early your capital is not yours you cannot give it to your family anymore. Your fund is used to pay the annuity of someone who is lucky enough to live longer than expected.

 

How would you and your family feel knowing that if you died someone you and they have never met and never knew would be the recipients of your pension fund?

 

However there are alternatives such as Drawdown and Phased Retirement but you do need a large fund to benefit from these plans.

 

But my advice as an IFA is to save outside of pensions using ISA's and other tax free savings if you are a basic rate taxpayer. You can look at pensions later and use these savings to fund a large pension contribution thanks to the new A-Day pension simplification rules that did away with the old restrictive percentages of net relevant earnings. If at some time in the future annuity reform is such that pension funding is attractive the new post A-Day rules would allow it.

 

But with annuity rates at say 5% which after income tax is down to 4%, I feel that Maxi ISA's, where whilst you will not get the initial tax relief, are still a viable alternative because you can take 5% income tax free and if you die the capital is yours to bequest as you wish.

 

Government Con

 

It is even worse if you are low paid because if you earn less than £18,000 pa then you should NOT have a pension because any pension income £ you take will simply offset the £ available to you by the MIG (Minimum Income Guarantee) Gordon introduced when Chancellor.

 

Probably the most cynical ploy this Government has ever introduced was the Stakeholder Pensions that were designed to get the low paid to do just that.

 

[Brian Kirby]

I agree with Clive on this.  For standard rate taxpayers pension schemes are too restrictive, and the choice of investment vehicles provided by ISAs is much better than the pensions providers offer. 

If not eligible for standard rate tax, and especially if over 65 (enhanced tax allowance), remember you can get interest on ordinary savings accounts paid gross, which can be a better rate than is on offer via (irrelevant to non-taxpayers) cash ISAs.

By staying away from pension schemes you do not become committed to buy annuities, which may or may not be a good buy when the time comes, and can take interest or capital at will without limits on time, or the rate at which you may cash in.  Equally, if you wish, you can just leave the money to accumulate until you want it (or to give away or pass on) rather than having to take it before a certain age.

[BGD]

Another bit of small print which might just be useful to some people: if you do decide to (and are able to) carry on working either full or part time past your 65th birthday, you get an instant (roughly) 10% pay rise on any wages you earn.

Reason is that that from then on you pay no employee's National Insurance contributions on any wages.

 

When I was in HR, for a big international aerospace group, we actively encouraged our senior Design Engineers to stay on, if only on a "zero-hours" contract, as their skills were so highly valued, and they got a lot from teaching younger engineers,, and would come in for perhaps just one or two days a week......suited both parties.

 

We has to break their continuous service, to protect the Company. So they'd "retire", go away for a month or so, and then re-start on a zero-hours contract, working whatever hours they and we found convenient at the time, project by project.

 

 

 

 

 

 

[Guest peter]

Does tthat also apply to women on reaching 60?. As my wife is now 60 but is staying on.

[york brewery]

I have a small pension plan . but have invested in property

have 2 houses fully paid for as i only in my late forties see them as long term investments

 

Tony

[vindiboy]

We have Company and private pensions and next year we will get Mr Browns state pension,I look around me and see people who have never made any attempt to provide for their old age and are doing very nicely on the State, I E rent ,community tax, income etc paid for them. Some have lived in their vans for many years after selling up years ago and now they can apply for housing as homeless and I have seen some go into very nice sheltererd housing complexes. I'm not complaining as I could have done exactly the same had I choosen too, I'm just saying is it really worth while planning ahead when you see investments ,pension plans and property values going down the pan. Fortunatly I was able to get out of the rat race at 55 due of course to forward planning *-)

[nightrider]

Is it worth investing in all these pension plans? I dont think so, how many people have seen their pensions and plans go down the pan or swallowed up in tax.

I took the advice of an old Jewish fella who I used to do work for when I was a young tradesman starting out, he said stick your money in a tin box and hide it and dont let your left hand know what your right hand is doing, sound advice off an accountant.

My stepson who is or was a financial adviser for a major bank is now facing ruin, he is expecting to lose his job, company car, the shares he had with the bank have been wiped out and the preferential mortgage he had with the bank will revert to an ordinary mortgage, it is highly unlikely that he will get another job in the near future and if he signs on the dole what a culture shock he is going to get, not like the old days when you signed on and got a giro a week or so later, all dealings with the dole office now are dealt with via a call centre in India.

I am two years past official retirement age and still running my business part time and have the benefit of a big steel box under my bed, thanks for the advice all those years ago Maurice, RIP you old villain.

[vindiboy]

And of course there are some great deals to be had if you produce folding money, poor old Vat man ,keep it under your matress. *-)

[nightrider]

My stepson was a highflying financial adviser earning mega bucks and like most professionals and all the professionals that I know, are up to their eyes in debt and living beyond their means, no problem, take out another easy loan and consolidate your debts, but now the bubble has burst they are in the mire.

The man with the cash is and always was the king, show the colour of your money and you can negotiate a tasty deal, the thing that I hate the most is when you see goods marked up at £9.99, £19 99 etc etc this is from the days when the first cash registers were innovated in the States to stop fiddling going on.

If I see something in a store that I want and it is marked up like that I say "how much off for cash" sometimes it works depending on what store you are in but it always works with an Asian shop keeper, haggle, that is the name of the game, it makes for some interesting shopping.