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IceBoy

Original Poster:

1,507 posts

106 months

[news] 
Monday 1st October 2012 quote quote all
Hi All,

I have just started to think about pensions.

I'm a self employed professional and have always thoueght that the rental property I have would be my pension pot.

To be honest, I'm starting to think that I might beed a back-burner/back-up as well!

So from what I understand, the government would add approx 20% to my pot everytime I contribute to my pension monthly.

So I put in £80 and I get an additional £20. So £100 into my pension pot every month.

Pensions have always baffled me but VIRGIN money seems to be simple enough for even me to understand.....

....Over to you guys, what should I do or look at?

Are there safe and risky pension plans?

IceBoy

sidicks

5,533 posts

106 months

[news] 
Monday 1st October 2012 quote quote all
IceBoy said:
Hi All,

I have just started to think about pensions.

I'm a self employed professional and have always thoueght that the rental property I have would be my pension pot.

To be honest, I'm starting to think that I might beed a back-burner/back-up as well!

So from what I understand, the government would add approx 20% to my pot everytime I contribute to my pension monthly.

So I put in £80 and I get an additional £20. So £100 into my pension pot every month.

Pensions have always baffled me but VIRGIN money seems to be simple enough for even me to understand.....

....Over to you guys, what should I do or look at?

Are there safe and risky pension plans?

IceBoy
The most important thing to note is that the 'pension' is just a tax efficient wrapper. How risky or safe your pension is will depend on what investment choices you make.

Sidicks

Welshbeef

17,692 posts

83 months

[news] 
Monday 1st October 2012 quote quote all
If your a basic rate tax payer you'll get 20% back ditto 40% or 45%.

When you retire you can draw 25% of the pots value tax free then the rest would be taxed just like any other income through income tax. But most people will not pay tax as pension will be so low. Also you'd be mad to take less than 25% tax free out if it meant you'd then pay income tax as you'd be earning over the threshold.

One drawback to a pension is once invested then you cannot touch it /draw on it until you retire.

You should use ISAs Pensions stocks and share investments maybe property if you can afford it basically all eggs in one pot is risky portfolio diversification is the key to lower risk which is generally a good thing.

One thing to consider is is it better to clear all debts first ie invest what you plan to in a pension to pay off debt quicker. If you have teens% credit card debt clear that first and foremost ditto high apr PCPs etc. then once clear max out pension with what you used to spend on debt costs previously.
I've opted for a bit of both rather than stopping pension due to the fact my employers are chipping in too so if I didn't I'd be taking a benefit /package cut!!! Not a good thing

groak

3,254 posts

64 months

[news] 
Monday 1st October 2012 quote quote all
IceBoy said:
Hi All,

I have just started to think about pensions.

I'm a self employed professional and have always thoueght that the rental property I have would be my pension pot.

To be honest, I'm starting to think that I might beed a back-burner/back-up as well!

So from what I understand, the government would add approx 20% to my pot everytime I contribute to my pension monthly.

So I put in £80 and I get an additional £20. So £100 into my pension pot every month.

Pensions have always baffled me but VIRGIN money seems to be simple enough for even me to understand.....

....Over to you guys, what should I do or look at?

Are there safe and risky pension plans?

IceBoy
One thing you MIGHT find valuable or useful is to take opinions or advice from or share the experiences of people who have trod the same well worn path (some for many years) which you're thinking of trying.

Funnily enough, your post could have been written by me several decades ago. I'm 60 now. In my experience you'd be better sticking the money in a box under your bed. Not least because one day if you don't spend it all your nearest and dearest can have it (as opposed to 'gifting' it to an immensely wealthy financial institution and its shareholders).

Mine isn't the ONLY experience, I hasten to add. Why not take some other opinions from other s-e professionals who've self-funded private personal pension plans?




Edited by groak on Monday 1st October 22:40

ringram

14,036 posts

133 months

[news] 
Tuesday 2nd October 2012 quote quote all
groak you obviously didnt select carefully enough frown

You want to avoid fee's as a number 1 start point. Plenty of info showing fee's will halve your returns.

But dont forget you can use a SIPP or ISA to place your money in Gilts, Bonds and Cash which are much less volatile than Falkland Island oil companies or other fly by night operations.

If you had invested in Gilts in the 1980's you would be sitting on massive profits which would be still increasing.

So investment requires some understanding of micro and more importantly macro economics. Sadly for most people this is lacking.

Cash has lost 99% of its value in the last 100 years. So why keep cash!? You want some return. Index Gilts at least etc.

"According to Vanguard, the largest annual loss that a 100% UK bond portfolio would have suffered in the last 30 years is -6.27% (in 1994).

Compare that with the -29.93% sliced off UK equities in 2008."

Anyway OP should not be put off by bad experiences because invariably the results are due to bad decision making and not everyone makes bad decisions, surprisingly.

That being said, its best to take time out and do loads of reasearch and reading before placing your money down. I would certainly not trust a penny with any generic pension provider without much care and consideration. For me H&L offers a self managed pension which means I get to pick and choose and avoid fee's where possible. Fee's are also capped there.

There may be other places just as deserving, but I have no experience of them.


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fandango_c

1,126 posts

71 months

[news] 
Tuesday 2nd October 2012 quote quote all
ringram said:
"According to Vanguard, the largest annual loss that a 100% UK bond portfolio would have suffered in the last 30 years is -6.27% (in 1994).

Compare that with the -29.93% sliced off UK equities in 2008."

This just highlights the higher level of volatility of equities compared with bonds. Also including historic returns would give a more balanced view.

groak

3,254 posts

64 months

[news] 
Tuesday 2nd October 2012 quote quote all
ringram said:
groak you obviously didnt select carefully enough frown

Plenty of info showing fee's will halve your returns.

If you had invested in Gilts in the 1980's you would be sitting on massive profits which would be still increasing.
Compare that with the -29.93% sliced off UK equities in 2008.

Anyway OP should not be put off by bad experiences because invariably the results are due to bad decision making and not everyone makes bad decisions, surprisingly.

I would certainly not trust a penny with any generic pension provider without much care and consideration.
Can I say (yet again) that I THINK there's this enormous market of punters who want to be able to phone an adviser, get him round, explain what's wanted (pretty basic in the case of a pension, ie 'a comfortable retirement'), expect the adviser to go do most of the rest (selecting company, advising on 'which fund' etc), expect the company to manage the money and caretake the ongoing matter both day to day and year to year , and one day, many years later, having religiously and conscientiously paid into the thing, expect to cash it in and live comfortably on its nice compounded produce.

I also THINK most punters expect an annuity company to take the pot and make slightly more from it than they pay out. Y'see there's this abiding fantasy that investment professionals/professional investors are, somehow, experts with money who can make far more out of it than Joe Punter can. So they expect an annuity company to do just that.

Further, I don't think annuitants who die early are remotely interested in their pot being retained by the annuity company 'because other punters live a long time'. See previous paragraph.

Why can't this service be provided?








fandango_c

1,126 posts

71 months

[news] 
Tuesday 2nd October 2012 quote quote all
groak said:
I also THINK most punters expect an annuity company to take the pot and make slightly more from it than they pay out. Y'see there's this abiding fantasy that investment professionals/professional investors are, somehow, experts with money who can make far more out of it than Joe Punter can. So they expect an annuity company to do just that.

Further, I don't think annuitants who die early are remotely interested in their pot being retained by the annuity company 'because other punters live a long time'. See previous paragraph.

Why can't this service be provided?
Annuities aren't about making money, they're designed to make sure the money doesn't run out.
Annuities aren't investment products, they're insurance products.

ringram

14,036 posts

133 months

[news] 
Tuesday 2nd October 2012 quote quote all
groak your suggested expectations are not unreasonable.

Which is why I also will avoid any such products and services wink

I THINK we both agree on that.

Manks

7,546 posts

107 months

[news] 
Tuesday 2nd October 2012 quote quote all
sidicks said:
The most important thing to note is that the 'pension' is just a tax efficient wrapper.
Sidicks
And one that the government can change the rules about on a whim. And when they do, there's not much you can do about it.


ringram

14,036 posts

133 months

[news] 
Tuesday 2nd October 2012 quote quote all
Agreed, but usually the terms are effective from some future date so changes only affect future decisions.
EG Used to be up to £250k PA allowed as a contribution, now of course £50k, but existing pots were ok...

But you have a valid point. Which is why a diversified range of investment wrappers as well as investments themselves is a very sound idea.

Manks

7,546 posts

107 months

[news] 
Tuesday 2nd October 2012 quote quote all
ringram said:
Agreed, but usually the terms are effective from some future date so changes only affect future decisions.
EG Used to be up to £250k PA allowed as a contribution, now of course £50k, but existing pots were ok...

But you have a valid point. Which is why a diversified range of investment wrappers as well as investments themselves is a very sound idea.
As I recall, when I set up my pension I was going to be able to draw at 50. Now it's 55.

As a broad rule of thumb I take the view that anything the government or an IFA wants me to do is probably not in my best interests. I briefly overlooked this principle when setting up my SSAS and I regret it.

Newc

720 posts

67 months

[news] 
Tuesday 2nd October 2012 quote quote all
This topic comes up fairly frequently in various guises, so I am moved to make a cut-out-n-keep guide for review by the collective eye. I’ll add to it as I have time, or consolidate other people’s comments.


1. “I want / need / have been told to get a pension”

No you don’t. Or at least, not necessarily. What you are really doing is considering making very long term savings, which should help you in retirement. There are lots of ways to do this, from sticking a tenner in a jar every week, to buying fixed assets like property or commodities, or making investments in shares and bonds.

All of these savings types have pros and cons, and there are other complexities around exactly how you make the savings, primarily about tax benefits from saving in particular ways, and rules about how you access your money in the future.

So you have to think about your individual circumstances: How old are you. What is your expected profile of earnings and tax over your lifetime. What is your family situation. Are you expecting to retire early and live till 90 on a big yacht in Monaco. What is your view of the world’s economic future. And so on.

There are professional advisors who can help you work through some of these questions and recommend different approaches. These advisors are fee earning specialists and you are paying their fees in some form, either up-front as an invoice or as a percentage fee of your future spending. For some people that’s a perfectly good approach, and some people prefer to do the research and monitoring themselves.


2. Well what is a pension then ?

A pension in the UK is a tightly legislated savings plan with special tax treatment, held in your name. Its key characteristics are that: both you and your employer can contribute to it; money you put in comes out of your pre-tax income and so reduces your tax bill; you are likely to be very limited in what you can do with your money while it’s in there; it is a highly political item subject to constant rule changes by the government; and you are essentially unable to touch any of your money before age 55.


3. So, should I get one ?

No right answer to this question. As a massive massive generalisation, the closer to 55 and higher tax bracket you are, the more sense it makes because of the tax breaks. The closer to 22, single, junior job you are the less sense it makes to lock up money in this particular structure. That doesn’t mean you shouldn’t be trying to make regular savings, just that a formal pension isn’t necessarily the best way to do that. One exception is that if your employer offers a non-contributory pension plan (which is where they put money in rather than deducting it from your salary) then you should definitely take that, because it is free extra cash, though you still can’t touch it for a long time.


Still to come:

- What are final salary, defined contribution, and SIPP pensions
- If not a pension, what other things should I look at
- How do I decide where to put my savings, whether in a pension plan or not
- What happens when I retire
- What’s an annuity
- What happens to my savings when I die





sidicks

5,533 posts

106 months

[news] 
Tuesday 2nd October 2012 quote quote all
fandango_c said:
Annuities aren't about making money, they're designed to make sure the money doesn't run out.
Annuities aren't investment products, they're insurance products.
You're wasting your time - he'll continue to make the same misleading claims and inaccurate comparisons on every thread with 'pensions' in the title.

At least Newc is trying to offer some constructive advice.
smile

groak

3,254 posts

64 months

[news] 
Tuesday 2nd October 2012 quote quote all
There are some interesting (and apparently experience-based) comments on the same topic (personal private pension plan) on the 'business' forum. whistle

As far as I know, despite numerous attempts to find one, no-one on PH has ever come forward to say they've had a standard financial institution's private personal pension plan which has produced anything other than disappointing results.

( apparently this is because of mistakes/misunderstandings/failures of one type or another on the policyholder's part )

smile




groak

3,254 posts

64 months

[news] 
Tuesday 2nd October 2012 quote quote all
sidicks said:
fandango_c said:
Annuities aren't about making money, they're designed to make sure the money doesn't run out.
Annuities aren't investment products, they're insurance products.
You're wasting your time - he'll continue to make the same misleading claims and inaccurate comparisons on every thread with 'pensions' in the title.

smile
....of course, not all "investment professionals" agree with what an annuity actually IS.....laugh

http://www.bankrate.com/brm/news/drdon/20020411a.a...

fandango_c

1,126 posts

71 months

[news] 
Tuesday 2nd October 2012 quote quote all
The thread in the business section seems to be about the assets in which the pension has been invested, not the pension itself...

I'm not old enough to have experienced the benefits of a pension, but I know plenty of people who have and are happy with the results.

Granted, investment returns may have been poor over recent years and mortality improvements and low interest rates have depressed annuity rates. But it's still a good option for some people, provided enough is paid in.

sidicks

5,533 posts

106 months

[news] 
Tuesday 2nd October 2012 quote quote all
groak said:
....of course, not all "investment professionals" agree with what an annuity actually IS.....laugh

http://www.bankrate.com/brm/news/drdon/20020411a.a...
More ignorance from you I'm afraid - it appears you are unable to differentiate between an annuity in the context we have previously been using it i.e. a product for providing an income for life in retirement and the 'variable annuity' product being discussed in this article which is primarily an accumulation product (i.e. pre-retirement).

But you've previously demonstrated you don't really understand what you are talking about in this area, so I'm not sure why we should be surprised.

sidicks

5,533 posts

106 months

[news] 
Tuesday 2nd October 2012 quote quote all
fandango_c said:
The thread in the business section seems to be about the assets in which the pension has been invested, not the pension itself...

I'm not old enough to have experienced the benefits of a pension, but I know plenty of people who have and are happy with the results.

Granted, investment returns may have been poor over recent years and mortality improvements and low interest rates have depressed annuity rates. But it's still a good option for some people, provided enough is paid in.
And of course, as has been explained to groak on numerous occasions, the pension fund is just a wrapper for the underlying investments...

fandango_c

1,126 posts

71 months

[news] 
Tuesday 2nd October 2012 quote quote all
groak said:
....of course, not all "investment professionals" agree with what an annuity actually IS.....laugh

http://www.bankrate.com/brm/news/drdon/20020411a.a...
...of course, this article is about financial products in the USA, not the UK....laugh
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