Can anyone offer me pension advice?

thecaptain – Member

Never been clear to me that an ISA is really worth bothering with. The annual charge is likely larger than the tax saving for most people, isn’t it?

If you’re talking about a stocks and shares ISA the tax savings are considerable. Supposing you had a pot of £100k. With a conservative 4% return you would be getting £4k income per year from it, tax free.

If the value of the stocks in it doubled over a number of years to £200k (not impossible) you could sell the lot and not be liable for one penny of capital gains tax either.

The typical £80 per annum ISA fee seems like a bargain to me. I bet you have no idea how much your pension providers are taking out of your pot every year in administration fees but let me assure you, it’s a lot more than £80. You’ll also be paying taxes when you draw your pension on anything over your personal allowance as well.

Never been clear to me that an ISA is really worth bothering with. The annual charge is likely larger than the tax saving for most people, isn’t it?

Not at all. The annual charge I pay on my Stocks and shares ISA is £45. It saves me far more than that each year and will save me progressively more each year until I die.

Thanks for the advice forzafkawi. Going down the road of doing it myself does sound interesting if not a little intimidating. You have given me something to think about and research, putting away £10k a year is doable. Will check out those forums over the weekend to get an idea of what’s involved. The prospect of doing something like this and opening up the option to retire earlier is some good motivation!

OK, I thought most had a 0.5-1% charge, I’m sure they did when I looked into it for myself. And standard rate taxpayers get no advantage on dividends, though the rules may have changed a few times on that. As for CGT, not many people are going to go over 10k per year (20k per couple). Though if the charge is really only 45 quid a year, might be worth that just to make the tax form filling easier…

Going down the road of doing it myself does sound interesting if not a little intimidating.

It needn’t be, and you’ll save a fortune in fees. This goes for pensions (SIPPs) too.
The weekend edition of the FT will give you an idea of what’s happening. The Times and Telegraph weekend money sections also have have some good advice, as does http://monevator.com/category/investing/

OK, I thought most had a 0.5-1% charge, I’m sure they did when I looked into it for myself. And standard rate taxpayers get no advantage on dividends, though the rules may have changed a few times on that. As for CGT, not many people are going to go over 10k per year (20k per couple). Though if the charge is really only 45 quid a year, might be worth that just to make the tax form filling easier…

£45 a year is through Hargeaves Lansdowne. There are cheaper alternatives too…
You will also be paying 0.1- 2.0% ongoing fees for funds, thugh these are often cheaper with HL, Charles Stanley etc than buying direct from Fundsmith, Invesco etc, and HL etc give you more flexibility.
The savings might not be apparent until you’ve built up a pot, but over time, or after a good year, you’ll be glad you opened an ISA.
Dividends are tax free in an ISA too…

£45? HL charge 0.45% on first £250k. I moved to II for a flat rate.

You’re right. I had assumed the charge was the same for funds as it is for shares and trusts; these are capped at £45 pa

km79 – Member

Thanks for the advice forzafkawi. Going down the road of doing it myself does sound interesting if not a little intimidating. You have given me something to think about and research, putting away £10k a year is doable. Will check out those forums over the weekend to get an idea of what’s involved. The prospect of doing something like this and opening up the option to retire earlier is some good motivation!

Investing can be intimidating because it feels a bit like gambling but it doesn’t have to be like that. You can open a stocks and shares ISA and put money away monthly from your salary by direct debit and you don’t have to do anything until you’re ready. You won’t earn any interest on the cash in the ISA (rates are derisory on cash ISAs anyway at the moment) but inflation is very low too so any cash in your ISA won’t be eaten away unduly.

Take your time to research what sort of investing approach you would like to take. That is the hardest part really – knowing yourself and what you will feel comfortable with. The other thing is though there are no hard and fast rules. You can effectively split your portfolio in two say and have one slow but sure growth portfolio but also put a proportion aside for more risky investments if that’s what you feel like doing.

Like most things you will only learn by doing. You will make mistakes as well but that is also part of any learning experience and in its way is also valuable. Given a small amount of application I guarantee you will be in a much more informed position in a year or two’s time rather than just relying on some fund manager to do it for you (and taking a hefty cut of your money!)

There are a lot of helpful and knowledgeable people on The Motley Fool forums and don’t be afraid to post as a newbie, we all had to start somewhere. If you have any other queries by all means come back to me and I will be happy to try and help. As I said previously I am not a financial expert, just and ordinary guy who decided to take charge of his own finances rather than pay someone else’s exorbitant fees to play with my money.

I’ll leave you with one final thought from Ben Graham:-

“To achieve satisfactory results is easier than most people realise; to achieve superior results is harder than it looks”

If you don’t know who Ben Graham is, you soon will do! 😀

Never been clear to me that an ISA is really worth bothering with. The annual charge is likely larger than the tax saving for most people, isn’t it?

Forzafkawi is spot on and it is something I mentioned earlier in the thread. The tax man doesnt get to see your ISA although he may tax you on your pension if you are lucky enough to receive enough to be taxable. My Stocks and Shares ISA has returned around 17% each year for around the last 4. I dont predict this will last and have a conservative estimate of 8 but the longer it does the better. Cash ISA’s are a waste of time but they do allow you to shelter money if you need to and as I said above my ISA income will be a significnat part of my post retirement income.

Um…looks like I was right and the HL charge is actually 0.45% unless perhaps you choose to invest in one of their expensive underperforming funds in which case they’ll waive this charge but you’re already paying a similar percentage for the privilege of giving them your money to look after. No thanks.

I can’t recall the last time I paid any tax on my investments over the years, the new dividend tax may change that a bit but it will certainly not approach 0.5% of total investment per year. Of course, others may have different circumstances, ISAs might be more useful for higher rate taxpayers but I’m not ever likely to go there, especially having already retired early on the back of my own investment decisions.

I’ve just had my yearly statement through which tells me my ‘estimated’ annual taxable pension pot. This year it’s £2540, last year it was £2720 and the year before it was £3239.

Why is it going down? Am I not paying enough into the pension?
The statement is telling you how much income you’ll get if you use your pot to buy an annuity. As interest rates fall, the amount your pot will earn falls. The rules have now changed and you don’t have to buy an annuity. You can take the money and spend it and/or invest it, but you risk running out if you live longer than you expect.

HL charge is actually 0.45%

Alliance Trust charge a flat rate of £90/year however much you have in your ISA.

Um…looks like I was right and the HL charge is actually 0.45% unless perhaps you choose to invest in one of their expensive underperforming funds in which case they’ll waive this charge but you’re already paying a similar percentage for the privilege of giving them your money to look after. No thanks.

You’re right, and you’re wrong. As I said above, HL do charge 0.45% on FUNDS held in their ISA, but shares and trusts are capped at £45 pa, or are held for free in their trading account. You don’t have to buy one of their expensive underperforming funds.

E a company pension

Every year I watch the statement come in and it’s grown by almost exactly what iv paid in (mine + company contribution) thanks for shit investment strategy and the fees paid.

I can only imagine how this will be eroded away before I ever get to see any of it if I ever stop paying in………as well as currently with that scheme I’m restricted to buying an annuity or withdrawing it all and paying tax on the lot…..no draw down option.

Will have to do maths but I suspect I’ll probably be better off moving my pension out with that mob once I stop working there and Ergo stop getting company contributions

Pensions appear to be scumbags as far as I can see.

So as above ive started my own s and s is a and various other tax free vehicles to store my money in as despite having had generous company contributions over the years – only a fool would believe there will be anything left in that pop after mercer have cleaned it out to keep their big windows at the office clean !

Already I’ve surpassed both the total in savings and growth and it gets quite addictive to see it grow quickly -unlike the pension mob Which looks almost static !

Ok, I’m re-re-corrected 🙂 Maybe one day I’ll get it right. Nevertheless, the tax advantages don’t seem to amount to anything for me, though they certainly could for high-rate taxpayers.

I do concur with many comments regarding self-investing versus pensions. Pensions have two potential big advantages: if the company pays in on top of your contribution, that is free money to you, and if you’re going to be paying tax at a lower rate in retirement (as most are), then the tax kickback is also a bonus. The investment itself is usually a dog though, and most people don’t contribute anywhere near enough anyway, while thinking that they are sorted because they have a pension…

If you can afford it get property, we invested £75k and get 6k a year return (before tax) now not just before we die! plus the capital appreciation of the property. We’d rather pay the tax than the fees for a pension. Never trusted other people to look after my best interests concerning my money/future.

Just one observation about not taking company pensions and self investing in ISAs etc…

If you do this, you may be missing out of some of your salary. My company pay in 6% if I do 4%, but only into the scheme they run. If I put that 4% into something else then I’d be letting the company keep 6% of my salary every year. That’s stupid.

As someone else said, if there’s a company scheme, take it and put the minimum in. Then you’re at least getting your whole salary. Top up with other investments outside the company.

@km if the company is paying in clearly you take that, the question is whay do you do on top. My view is … If you are a higher rate tax payer then pay in as 40% tax relief is worth it. If you are not personally I would pay the tax and invest oitside, eg stocks and shares ISA as suggested above.

On returns being low, yes absolutely its very hard for fund managers to make money with these ultra low interest rates and the pesnion pot buys a small pension for the same reason.

As I posted on another thread I have saved quite a lot into pensions over 35 years and the returns have been going down steadily incouding years where the funds have lost money and the pension rate is of course much lower. This is just the reality of the markets. Also as I have posted before having investments outside property is smart, ideally property inc living in a house you intend to sell when you retire.

The tax man will always have a beedy eye on your pension pot, Gordon Brown effectively cut my pension by 25% with tax changes and Osbourne has been cutting max amount you can save making pension pots even less attractive vs the generous state schemes. Someone above said the taxman “can’t see” ISAs but you are supposed to put income on your tax return and we can be sure in the future they will be a bit more clued up.

If you can afford it get property, we invested £75k and get 6k a year return (before tax) now not just before we die! plus the capital appreciation of the property. We’d rather pay the tax than the fees for a pension. Never trusted other people to look after my best interests concerning my money/future.

I could but I wouldnt. There are a number of downsides to investing in property and even the return you are getting isnt spectacular, what is the return net?. Also:

If you rent it out you have the hassle of tennants
You have to factor in periods when the property is vacant.
Increase in value and desirability is very variable as are rental yields
When changing tennants you often have to make repairs
Can take a long time to liquidise any increase in asset value

People do make money on property but it is not without risk and having been a landlord in the past I wouldnt do it again. Plus my returns have been better without the hassle. Having said that my own property forms part of my pension but in the meantime it is my home.

As someone else said, if there’s a company scheme, take it and put the minimum in.

That goes without saying and I made that point earlier. Dont give up free money.

This is just the reality of the markets.

Thats not true. My pension has increased within my SIPP because I make the investment decisions. There is no such thing as the “reality” of markets. Poor investments perform badly, good ones perform well. Make good decisions!
If your pension is performing badly look at how the fund is invested.

but you are supposed to put income on your tax return

You dont have to declare ISA investments or income on your tax return.

This article shows that pensions are generally better than ISAs for pension provision.

The example shown doesn’t take into account matched employer contributions either. The only flaw I see is it assumes growth is the same for each type of investment but the pension fund I am in don’t have a great selection of funds to choose from and my ISA does outperform my pension. However, for a SIPP which has a wide range of investment choices you can assume it will grow at the same rate as an ISA.

On returns being low, yes absolutely its very hard for fund managers to make money with these ultra low interest rates and the pesnion pot buys a small pension for the same reason.

As I posted on another thread I have saved quite a lot into pensions over 35 years and the returns have been going down steadily incouding years where the funds have lost money and the pension rate is of course much lower. This is just the reality of the markets.

Despite the last 8 years being one of the strongest bull runs in history? You do have to wonder where some of these fund managers are investing.
Don’t buy the funds these sharks are selling. Buy the company that employs the sharks…

There are two relevant articles in today’s FT money section, about people living longer, and Merryn SM on fund fees. Worth the £3.70!

Despite the last 8 years being one of the strongest bull runs in history? You do have to wonder where some of these fund managers are investing.

I agree and you only have to look at the recommendations of many of the larger investment organisations and with a few exceptions they continue to recommend funds which have poor returns.

even the return you are getting isnt spectacular

but it’s also gone up in value £25k in a year I’d say that’s quite spectacular lol
I know exactly where you’re coming from though, being a landlord isn’t for everyone and does come with it’s risks, but that’s the same as most investments, probably.

Thanks all for the hints and tips. Spent all day on various websites and forums reading up. Have to say whilst I obviously haven’t sussed everything out as I am starting from scratch, it’s not been as difficult as I had convinced myself it would be getting my head round all the terminology and products available.

Ran through a couple of scenarios and was pleasantly surprised at the possibilities. 🙂

One thing those advocating company pension schemes should bear in mind is that you are effectively locked into that pension scheme. Fine if you think you are likely to work for that company until you retire but the reality these days is that people can change jobs several times during their working lifetime.

You can end up with several smaller pension pots (as did I) or alternatively get a transfer value into your next pension scheme. If you do that though you will lose out (sometime heavily) on the actual transfer value. The 6% employer contribution “free money” very quickly vanishes under these circumstances, believe you me.

The other problem with any pension scheme (including SIPPs by the way) is that once the money is in there it is largely locked in until you draw your pension. Sure, you usually get the option at that time to take a certain proportion as a lump sum but the remainder of the pot, which will provide you with your pension income, is basically unavailable to you.

Contrast this with the ISA route, your capital is always available to you. This may not seem an obvious advantage but if ever your circumstances change (either for better or worse) you might prefer to use the capital in a different way to what you originally envisaged when you started you own pension plan several years ago. With your company pension plan you don’t have the option to withdraw the capital for say an important operation or to buy the holiday home in the South of France that you dreamed of. This is always assuming that you have income covered from other sources.

In my case this is exactly what happened. I had a company pension which turned out to be a lot less than I thought, mainly due to the financial crisis of 2008. Luckily I had started my own ISA pension scheme which provided a basic, liveable income but then my parents died unexpectidly within a few months of each other and I inherited their small house which I rent out and gives a decent income. I find now I no longer need the company pension payments and would just love to get my hands on the capital to do something with it but can’t.

I could liquidate other assets like the house but find I don’t really want to for various reasons. All I am illustrating with this story is that your lives can change 10 or 20 years down the line and the pension plans you make now may not be appropriate to your circumstances then. The SS ISA may not on paper work out better in terms of pure numbers but there’s no pension plan that can beat it for flexibility. And don’t forget you are managing it so you can take in in any direction you like.

The one thing I would caution anyone following my advice to realise is that the ISA route does require a certain discipline and commitment. With the company pension scheme you are committed to contributing a certain amount every month and it usually comes out of your pay packet almost invisibly, so you don’t tend to miss it. With a self managed pension scheme you should set up a direct debit to do the same from your bank account to your ISA otherwise, holidays, Christmas, concert tickets etc. etc. will be just too temptibng to skip the payment this month, promising yourself that you will catch up double next month. But you never do and your pension will suffer for it.

The other thing that people argue against self-managed pensions is that the temptation to blow the £100k pot will be just too great at the end of the day. Personally, I think that the reverse will be the case. You will have spent so many years scrimping and saving to build up this pot, you won’t want to risk it for anything. You will probably be a lot more savvy about money and investments in general by the time that day comes as well so you will cherish it that much more.

Speaking personally I would have been much better off just putting my own pension contributions into what would have then been a TESSA which then morphed into an ISA. That’s even taking into account tax relief and employer contributions as well. Your mileage might vary as they say…

There is a lot of conflicting and incorrect information in this thread. Declaration first: I’ve been a pensions specialist for 23 years, non advising.

Facts:
– tax relief: tax relief is given at marginal rate, so if you’re just over 40% bracket you’ll only get 40% relief on the proportion that is over. However, it is correct that everyone gets at least 20%. Non taxpayers would be limited to a maximum annual contribution of £3600 gross (after tax relief). Members need to be UK resident for tax purposes, but anyone can pay in on your behalf.
– growth rates in the future illustration of benefits are set by the government and vary from time to time. They assume that you buy an annuity (an income payable for life). In reality since April 2015 when the rules changed, many people are not buying annuities as they feel they are poor value.
– projected incomes change as life expectancy changes, which is happening very quickly these days. The longer an income is likely to be paid, the less annual income will be projected.
– research shows that you’re likely to spend more in the first 10 years of retirement and then spending vastly decreases. It’s important that advice takes account of your variable needs. Projected illustrations can’t do that currently.
– in most cases, a pension will be better than an ISA due to the effect of tax relief. If your income is likely to be lower than the annual tax allowance, you won’t be paying tax on the pension income anyway.

It’s very important to note that everyone’s circumstances are unique and things can and do change. Get advice would be the best option. The Money Advice Service will be able to provide you free impartial guidance on your options.