Pension or not?

[x5x3]

I have a suspicion that I have invested too much into pensions and should have more into other (e.g. ISA investments).

Does anyone have any links to general guidance on this - should people aim for a 50/50 split for example?

I'm specifically excluding property from this question.

All thoughts appreciated.

[K12beano]

x5x3 said:

..... I have invested too much into pensions ......

It's true. A proportion of people will never make it to pension age. Some will live to 113. You could have invested too much.

[Mattt]

Are you just talking about wrappers or underlying investments?

All things being equal, the tax relief from pensions (assuming you're a normal person) will be a better option than putting money into an ISA - you just can't access it on a whim.

[bogie]

pension and stocks n share isa are really the same, its just that on the pension you get tax relief on what you put in and cant get hold of it until 55

I spend money like water on stuff I dont need, hobbies and just generally having a good time. Paying into a pension is the best thing I ever did and I increase it as I can afford to. It protects me from spending my future on a whim.

If you are a higher rate tax payer and perhaps get an employer contribution, a pension is a no brainer. Just make sure its invested in the lowest cost funds

stocks n shares ISA is good too, but no tax benefit

cash ISA pointless these days

There are no rules as such, although many people like to have 6 months outgoings as a cash fund in the bank. Anything you save in short term accessible savings after that is up to you.

Personally I do the 6 month thing and everything else into pension and enough to pay off mortgage early to a meet retirement age goal.

[bmwmike]

Pension you save the tax on the way in

ISA not pointless you save the tax on the way out

A split is a good idea.

[bogie]

well I dont hold any money in a cash ISA, I get a better rate of interest on my current account

[x5x3]

thanks all - I'm not sure if I am a normal person or not?

I assume you mean an employed/salaried job with very little control?

In which case then I am not although I do have several old company pension schemes which are growing nicely.

Currently working through a ltd company so lots of options available but I am struggling to decide how best to invest the cash coming into the ltd company.

[768]

Personally, I think I'm just going to leave it in the LTD and continue paying myself after retirement. The rules are clearer to me and I feel more in control of it.

I keep hearing about people with significant pension pots getting what seems a pittance out of it, it wouldn't take much to keep me going through retirement, if I get that far.

[DonkeyApple]

I don't see any harm in taking some of that money out of the Ltd each year and putting it into the pension. The key benefit is that you get to claim the tax back and make that element work for you on top.

[Ginge R]

x5x3 said:

I have a suspicion that I have invested too much into pensions and should have more into other (e.g. ISA investments).

Does anyone have any links to general guidance on this - should people aim for a 50/50 split for example?

I'm specifically excluding property from this question.

All thoughts appreciated.

No prescriptive answer - it all depends on your tax situation now and especially in the future, your estate planning position, what your cash flow needs are going to be (all income, or a mixture of income and capital) and what those numbers are going to be. If you have a partner, you should take them and their situation into account too.

[Simpo Two]

Moneybox Live (R4 Wednesday) had a head-to-head debate on the subject of pension vs property, and champions for both. Might be worth digging out. And there are of course numerous other options.

[JulianPH]

x5x3 said:

I have a suspicion that I have invested too much into pensions and should have more into other (e.g. ISA investments).

Does anyone have any links to general guidance on this - should people aim for a 50/50 split for example?

I'm specifically excluding property from this question.

All thoughts appreciated.

Are you a higher rate tax payer? That should provide you (or us) with the answer. If you can reclaim 40% to 45% of income tax on any pension contributions then you are in the best show in town. If you pay the basic rate of tax and are likely to be paying the same rate on your pension drawings in retirement then it is virtually cost neutral with an ISA (with the exception of 25% tax free cash lump sum).

If you pay the basic rate now and will retire at the zero rate you are also better off using a pension. If you pay no tax now and will pay none in retirement you should be laughing your head off on gross £3,600 annual contributions.

Basically, pensions defer tax and benefit those who are in a higher band now than they will be in retirement, or those who pay no income tax at all. Anyone who is a basic rate taxpayer now and will continue to be so in retirement would be just as well off with an ISA (except for the 25% tax free element).

That you can't access a pension until you are 55 can be seen as either a negative or a big positive.

[sidicks]

Simpo Two said:

Moneybox Live (R4 Wednesday) had a head-to-head debate on the subject of pension vs property, and champions for both. Might be worth digging out. And there are of course numerous other options.

Comparing a product wrapper and an asset class - should be interesting...

[deckster]

JulianPH said:

If you pay the basic rate of tax and are likely to be paying the same rate on your pension drawings in retirement then it is virtually cost neutral with an ISA (with the exception of 25% tax free cash lump sum).

Isn't there a compound effect on the growth of the additional 20% though? Over 20 years or more that could make a serious difference, surely (assuming that all other factors ie % return, fees etc. are equal).

I've not done the maths but intuitively it would seem that

((X * 1.2) * (% return compounded over 20 years)) / 1.2

is larger than

(X * (% return compounded over 20 years))

[MadProfessor]

If your employer contributes towards your pension (usually but not always tied to you also contributing) and if you're a top rate tax payer it makes sense to pay into a pension.

Whether you 'invest' all of the money you wish to 'save' through a pension is a different matter. There are numerous issues to consider including tax, inheritance, diversification, risk / return and when you want to get the return, etc.

Surely this is an issue for a professional advisor.

[sidicks]

deckster said:

I've not done the maths but intuitively it would seem that

((X * 1.2) * (% return compounded over 20 years)) / 1.2

is larger than

(X * (% return compounded over 20 years))

Er no!

[NickCQ]

sidicks said:

deckster said:

I've not done the maths but intuitively it would seem that

((X * 1.2) * (% return compounded over 20 years)) / 1.2

is larger than

(X * (% return compounded over 20 years))

Er no!

hehe

https://en.wikipedia.org/wiki/Commutative_property

[deckster]

NickCQ said:

sidicks said:

deckster said:

I've not done the maths but intuitively it would seem that

((X * 1.2) * (% return compounded over 20 years)) / 1.2

is larger than

(X * (% return compounded over 20 years))

Er no!

hehe

https://en.wikipedia.org/wiki/Commutative_property

Yes yes, alright. Elementary maths fail. Serves me right for not thinking for two minutes but hey ho.

[sidicks]

deckster said:

Yes yes, alright. Elementary maths fail. Serves me right for not thinking for two minutes but hey ho.

[Ozzie Osmond]

x5x3 said:

I have a suspicion that I have invested too much into pensions....

Have you hit (or will you hit) the Lifetime Allowance? It's currently £1m

Sounds a lot of money but at a conversion ratio between 25:1 and 30:1 that would deliver you a pension of £33,000 to £40,000 p.a.

ISA is IMO perfect to run in parallel with pension. You don't get 40% tax relief (or whatever) going in but everything cumulates tax free and whatever you take out is tax free.