Young persons pension
Discussion
I currently have a pension through my employeer that ive had since i was 16 and i am currently 24.
With the way the world is going i thought about maybe paying into some kind of a private pension fund as a top up.
Im not sure on the exact details of my current pension as the scheme has changed a few times over the last few years.
Anyone have any recommendations, thinking about paying in around 30-40 pounds a month into it.
With the way the world is going i thought about maybe paying into some kind of a private pension fund as a top up.
Im not sure on the exact details of my current pension as the scheme has changed a few times over the last few years.
Anyone have any recommendations, thinking about paying in around 30-40 pounds a month into it.
You need to find out more about your current setup mate.
Often the employer will also contribute so if you increase your current employee contributions to your work scheme your employer may match pound for pound.
That would by far and away be the best bet.
Just check how it works to make sure there are no tie in periods and also check to see how its funded, making sure its a separate entity from the employer itself etc.
Once you understand what you have you can make a decision about what you should have.
My 2p
Often the employer will also contribute so if you increase your current employee contributions to your work scheme your employer may match pound for pound.
That would by far and away be the best bet.
Just check how it works to make sure there are no tie in periods and also check to see how its funded, making sure its a separate entity from the employer itself etc.
Once you understand what you have you can make a decision about what you should have.
My 2p
gsd2000 said:
I currently have a pension through my employeer that ive had since i was 16 and i am currently 24.
With the way the world is going i thought about maybe paying into some kind of a private pension fund as a top up.
Im not sure on the exact details of my current pension as the scheme has changed a few times over the last few years.
Anyone have any recommendations, thinking about paying in around 30-40 pounds a month into it.
Is your employer's scheme a defined benefit ("final salary") or defined contribution scheme?With the way the world is going i thought about maybe paying into some kind of a private pension fund as a top up.
Im not sure on the exact details of my current pension as the scheme has changed a few times over the last few years.
Anyone have any recommendations, thinking about paying in around 30-40 pounds a month into it.
Assuming the latter (most likely), then your employer's scheme may allow you to make additional voluntary contributions into the scheme, which would have the simplicity of having your investments in one place.
Alternatively you could contribute to a separate private pension.
Note that if you invest in a pension, although you wil get tax relief on your contributions, this money is locked away until you retire. An alternative is to invest in an ISA which still has some tax benefits but where you can access your money (which may be a good or bad thing, depending on your willpower!)
Sidicks
ISA is a good bet imo.
Pensions are over-regulated, overly complex and confusing messes. The only saving grace is a company matched contribution in some cases... but that might change to cover ISA or something in future.
De-annuitisation (sp?) is also very likely by the time our generation retire, so a 'retirement fund' will be an inflexible lump in 2050 vs a big lump of raw cash with tax already paid on it! (tax for instance, isn't on contributions now, but tax might be 40% when you retire... still a risk assuming it won't be)
Basically, pensions are just a long-term gamble. I asked Scottish Widows to move my investments to cash in about 2008 but alas they asked me to write in person (despite being with their rep at the time), because I was worried about the economy
Then they crashed, my fund halved, and now 3yrs later it's just about back where it was + a bit more from contributions.
Glacial response. I *think* now my Scottish Widows scheme allows me to manage online, but I'm not sure. Technically an ISA allows you to do the same investments they do, safe, risky, ethicals etc...
So many options really. I'd not put all your eggs in a pension basket though. Imo, they are the biggest risk for such a large chunk of wealth for someone 30-40yrs from retirement, vs relatively liquid ISA's!
I also tend to think annuity rates are a bit skewed.
All depends how much control you want really, but I think a very average person could do better managing their own savings for retirement.
Dave
Pensions are over-regulated, overly complex and confusing messes. The only saving grace is a company matched contribution in some cases... but that might change to cover ISA or something in future.
De-annuitisation (sp?) is also very likely by the time our generation retire, so a 'retirement fund' will be an inflexible lump in 2050 vs a big lump of raw cash with tax already paid on it! (tax for instance, isn't on contributions now, but tax might be 40% when you retire... still a risk assuming it won't be)
Basically, pensions are just a long-term gamble. I asked Scottish Widows to move my investments to cash in about 2008 but alas they asked me to write in person (despite being with their rep at the time), because I was worried about the economy
Then they crashed, my fund halved, and now 3yrs later it's just about back where it was + a bit more from contributions.
Glacial response. I *think* now my Scottish Widows scheme allows me to manage online, but I'm not sure. Technically an ISA allows you to do the same investments they do, safe, risky, ethicals etc...
So many options really. I'd not put all your eggs in a pension basket though. Imo, they are the biggest risk for such a large chunk of wealth for someone 30-40yrs from retirement, vs relatively liquid ISA's!
I also tend to think annuity rates are a bit skewed.
All depends how much control you want really, but I think a very average person could do better managing their own savings for retirement.
Dave
Mr Whippy said:
ISA is a good bet imo.
But without the significant tax beenfits (currently) outlined above.Mr Whippy said:
Pensions are over-regulated, overly complex and confusing messes.
"Pension" is effectively a tax-efficient wrapper - it doesn't need to be complex or confusing.Mr Whippy said:
The only saving grace is a company matched contribution in some cases... but that might change to cover ISA or something in future.
Tax relief is the chief benefit. Employer contribution is irrelevant for the OP.It is highly unlikely that an employer would ever be able or willing to match contributions into an ISA!
Mr Whippy said:
De-annuitisation (sp?) is also very likely by the time our generation retire,
The rules for annuitisation at retirement have already been sunstantially relaxed, offering much more flexibility.Mr Whippy said:
so a 'retirement fund' will be an inflexible lump in 2050 vs a big lump of raw cash with tax already paid on it! (tax for instance, isn't on contributions now, but tax might be 40% when you retire... still a risk assuming it won't be)
As above, pension flexibility has been greatly improved, and due to the impact of tax relief that fund will be MUCH bigger in a pension than outside.Mr Whippy said:
Basically, pensions are just a long-term gamble. I asked Scottish Widows to move my investments to cash in about 2008 but alas they asked me to write in person (despite being with their rep at the time), because I was worried about the economy
Pensions are just a wrapper. It is the underlying investments that are risky, and the OP can choose investments that match his risk tolerance.It is standard practice for instructions to be required in writing to avoid any misunderstandings!
Some policies allow you to manage the asset mix on-line making it even more straightforward.
Mr Whippy said:
Then they crashed, my fund halved, and now 3yrs later it's just about back where it was + a bit more from contributions.
Why didn't you provide the instruction in writing as required? Whose fault is that??Mr Whippy said:
Glacial response. I *think* now my Scottish Widows scheme allows me to manage online, but I'm not sure. Technically an ISA allows you to do the same investments they do, safe, risky, ethicals etc...
Exactly - same risky investments, less tax efficient, more flexible.Mr Whippy said:
So many options really. I'd not put all your eggs in a pension basket though. Imo, they are the biggest risk for such a large chunk of wealth for someone 30-40yrs from retirement, vs relatively liquid ISA's!
As per my post the OP needs to weigh up tax efficiency with flexibility.Mr Whippy said:
I also tend to think annuity rates are a bit skewed.
In what way?Mr Whippy said:
All depends how much control you want really, but I think a very average person could do better managing their own savings for retirement.
Dave
As above, given that you have broadly the same investment options how can 'an average person' make up for the loss of tax relief outside of the pension wrapper (assuming that a sensible, low cost pension plan is chosen)?Dave
???
Sidicks
anonymous said:
[redacted]
I think that with the internet and various advice forums etc, it is much easier to find a competitively priced fund and be able to monitor performance etc, than it was in the past. Plenty of low fee tracker funds etc available.anonymous said:
[redacted]
I think it likely that the ability to pay pension contributions from gross salary rather than net salary might well be removed or restricted sooner rather than later. However, I think it much less likely that retrospective changes will allow any government to "steal" money already set aside.I do think that the flexibility offered by an ISA can be useful, and is obviously still tax efficient, but for some people being able to dip into the ISA money may be too much of a temptation!
Of course, the ISA contribution limits are relatively low too.
Given that people tend to save far too little for retirement, I think that having the money locked away is a positive as well as a negative!
Sidicks
Edited by sidicks on Tuesday 26th July 13:20
sidicks said:
As above, given that you have broadly the same investment options how can 'an average person' make up for the loss of tax relief outside of the pension wrapper (assuming that a sensible, low cost pension plan is chosen)?
???
Sidicks
Pension tax relief is great, today.???
Sidicks
What might it be tomorrow?
Is salary sacrifice going to be seen as tax avoidance? Will it disappear? Will it stay forever?
Will matched contribution policy (pretty big benefit imo, especially if you are contributing from 20yrs old) stay, or go, over the long term.
The tax savings NOW are good. 5yrs? 10yrs time? Taxation on the pension when you take it might out-weigh the savings now to a fair extent...
It might be better to pay tax now, but not in retirement. How can you know?
Stochastic projections on growth are quite iffy, they seem to ignore large forcings. Lets take out all the big stock market hitters from the last 100yrs to base our projections on, ie wars, large natural disasters, financial market crashes...
Pensions are a wrapper yes, but they are still technically complicated due to tax regs at each end, how you take them etc.
ISA is a great deal more flexible. No tax on the growth NOW, no tax on the cash when you use it. Just tax on the earnings pre-contribution.
As for annuity rates being iffy. Well, lets put it this way. You are best moving to Glasgow and "taking up smoking and burger eating" a few years before getting your annuity
Then quickly stop smoking and move away once you are in retirement...
All a bit iffy really isn't it?
Best to clue yourself up about the realism of stochastic projections for pension growth, and the likelihood of what the future might be. It's pretty random.
A good idea to keep your security for your future diverse and flexible imo!
I have a pension, but I see it as half, or a third, of what I want for myself when I retire. I want to do other things for myself for income in retirement (including some work)
I guess for some people pensions make great sense. But mostly they are people who earn enough so the sums are so large the savings make good sense. For your average person things are less clear cut in my view.
Dave
Edited by Mr Whippy on Tuesday 26th July 13:38
Mr Whippy said:
Pension tax relief is great, today.
What might it be tomorrow?
So pay contributions now and get the relief - if the goalposts change then change your strategy in the future!What might it be tomorrow?
Mr Whippy said:
Is salary sacrifice going to be seen as tax avoidance? Will it disappear? Will it stay forever?
Who knows?? All I am saying is that it is a worthwhile benefit now, so take advantage while you can.Mr Whippy said:
Will matched contribution policy (pretty big benefit imo, especially if you are contributing from 20yrs old) stay, or go, over the long term.
Again, who knows?? All I am saying is that it is a worthwhile benefit now, so take advantage while you can.Mr Whippy said:
The tax savings NOW are good. 5yrs? 10yrs time? Taxation on the pension when you take it might out-weigh the savings now to a fair extent...
It might be better to pay tax now, but not in retirement. How can you know?
You can't know, but it seems unlikely that the advantages of tax relief at your highest marginal tax rate plus gross accumulation of investment returns will be worse than the alternative.It might be better to pay tax now, but not in retirement. How can you know?
Mr Whippy said:
Stochastic projections on growth are quite iffy, they seem to ignore large forcings. Lets take out all the big stock market hitters from the last 100yrs to base our projections on, ie wars, large natural disasters, financial market crashes...
Irrelevant - you can invest your pension in 'cash' if you don't want to take on market risks - you still get the tax benefits etcMr Whippy said:
Pensions are a wrapper yes, but they are still technically complicated due to tax regs at each end, how you take them etc.
ISA is a great deal more flexible. No tax on the growth NOW, no tax on the cash when you use it. Just tax on the earnings pre-contribution.
Agreed - as I said above, it's a trade off between flexibility and tax efficiency.ISA is a great deal more flexible. No tax on the growth NOW, no tax on the cash when you use it. Just tax on the earnings pre-contribution.
Mr Whippy said:
As for annuity rates being iffy. Well, lets put it this way. You are best moving to Glasgow and "taking up smoking and burger eating" a few years before getting your annuity
Then quickly stop smoking and move away once you are in retirement...
Feel free to do that!Then quickly stop smoking and move away once you are in retirement...
Mr Whippy said:
Best to clue yourself up about the realism of stochastic projections for pension growth, and the likelihood of what the future might be. It's pretty random.
A good idea to keep your security for your future diverse and flexible imo!
Dave
Yes, the future is pretty random, and the more risk you take the more diverse the potential outcomes, but that's the same for any investment inside or outside of a pension wrapper. What are your ISA contributions going to be invested in?A good idea to keep your security for your future diverse and flexible imo!
Dave
Mr Whippy said:
I have a pension, but I see it as half, or a third, of what I want for myself when I retire. I want to do other things for myself for income in retirement (including some work)
I guess for some people pensions make great sense. But mostly they are people who earn enough so the sums are so large the savings make good sense. For your average person things are less clear cut in my view.
I'm not saying that pensions are necessarily the best or only solution!I guess for some people pensions make great sense. But mostly they are people who earn enough so the sums are so large the savings make good sense. For your average person things are less clear cut in my view.
Sidicks
Edited by sidicks on Tuesday 26th July 13:51
The goal posts are moving all over the shop.
I think there is an element of people bricking it because they just don't know what will happen, so have gone from rose tinted projections (DB schemes of a decade ago), to everyone will live to 100 but still retire at 65 projections with 3x more money needed to pay them for 3x longer in retirement...
All I know is, money in my pocket into an ISA is safe, all the tax I'll ever have to pay is all gone, and I know that if I make it perform beyond inflation, I'm getting growth. Stock/share ISA seem to do a good job, and the £10k limit per year means for most mere mortals it's easily enough to cover what they might add to a pension!
I'm just not sure how tax savings on pensions in are so good though. You compound grow money pre-tax, which makes obvious sense, but is that basically it for anyone under the 40k earnings threshold? Sans some extras they might get from salary sacrifice if their employer offers it?
Surely employer matched contributions are way more effective and worth having than piddly tax savings for under 40% tax earners?
Ie, I pay 3%, my employer throws in 6%, total of 9%... tax savings can't tripple your after-tax contribution if made before tax can they?
In my case, it's a great deal. But if there was no company contribution I'd not bother at all for the ~20% benefit because it was pre-tax contribution. It's still tied up money, I still have to worry about future tax rates, annuity rates, yadda yadda.
An institution and system that has worked fine for a while during post-war boom/growth, but it's showing it's limitations now big variables are actually changing in the world! I don't think the pensions industry is dynamic enough to suit the modern world. It'll get there eventually, but with an under-current of government fiddling/meddling it's made even more complex for many.
How about an ISA that has tax returns on investment, no tax on interest/growtg, but whenever you realise it, you get taxed as per the rates at that time for the sums realised? Just YOU have control... which is exactly what DC schemes want to have you do now. YOU make the choices. Then why are the providers still in the loop any more taking their cut every month or year? Why don't the investors just pitch straight to the individuals?
Hmmm
Dave
I think there is an element of people bricking it because they just don't know what will happen, so have gone from rose tinted projections (DB schemes of a decade ago), to everyone will live to 100 but still retire at 65 projections with 3x more money needed to pay them for 3x longer in retirement...
All I know is, money in my pocket into an ISA is safe, all the tax I'll ever have to pay is all gone, and I know that if I make it perform beyond inflation, I'm getting growth. Stock/share ISA seem to do a good job, and the £10k limit per year means for most mere mortals it's easily enough to cover what they might add to a pension!
I'm just not sure how tax savings on pensions in are so good though. You compound grow money pre-tax, which makes obvious sense, but is that basically it for anyone under the 40k earnings threshold? Sans some extras they might get from salary sacrifice if their employer offers it?
Surely employer matched contributions are way more effective and worth having than piddly tax savings for under 40% tax earners?
Ie, I pay 3%, my employer throws in 6%, total of 9%... tax savings can't tripple your after-tax contribution if made before tax can they?
In my case, it's a great deal. But if there was no company contribution I'd not bother at all for the ~20% benefit because it was pre-tax contribution. It's still tied up money, I still have to worry about future tax rates, annuity rates, yadda yadda.
An institution and system that has worked fine for a while during post-war boom/growth, but it's showing it's limitations now big variables are actually changing in the world! I don't think the pensions industry is dynamic enough to suit the modern world. It'll get there eventually, but with an under-current of government fiddling/meddling it's made even more complex for many.
How about an ISA that has tax returns on investment, no tax on interest/growtg, but whenever you realise it, you get taxed as per the rates at that time for the sums realised? Just YOU have control... which is exactly what DC schemes want to have you do now. YOU make the choices. Then why are the providers still in the loop any more taking their cut every month or year? Why don't the investors just pitch straight to the individuals?
Hmmm
Dave
Mr Whippy said:
All I know is, money in my pocket into an ISA is safe, all the tax I'll ever have to pay is all gone, and I know that if I make it perform beyond inflation, I'm getting growth. Stock/share ISA seem to do a good job, and the £10k limit per year means for most mere mortals it's easily enough to cover what they might add to a pension!
I'm confused as to why you think that governments may change pension legislation (to include penal tax charges) but won't go after ISAs in the same way????
Sidicks
sidicks said:
Mr Whippy said:
All I know is, money in my pocket into an ISA is safe, all the tax I'll ever have to pay is all gone, and I know that if I make it perform beyond inflation, I'm getting growth. Stock/share ISA seem to do a good job, and the £10k limit per year means for most mere mortals it's easily enough to cover what they might add to a pension!
I'm confused as to why you think that governments may change pension legislation (to include penal tax charges) but won't go after ISAs in the same way????
Sidicks
Because a pension is tied up until you can retire, you are stuck with the legislation of the day as to how that impacts your nest egg for retirement!
Dave
Mr Whippy said:
Well that is a good point. But they can't retrospectively do things to it.
Because a pension is tied up until you can retire, you are stuck with the legislation of the day as to how that impacts your nest egg for retirement!
Dave
I think this all comes back to the classic argument of not putting all your eggs in one basket. I pay into my pension, into an ISA and overpay my mortgage. That way I have some flexibility in how/when I can access my savings. To be honest though, any increases in my savings now go into my pension as I'm more than happy to lose some control over my money in order to save £1 instead of £0.60.Because a pension is tied up until you can retire, you are stuck with the legislation of the day as to how that impacts your nest egg for retirement!
Dave
The way I look at it, if the money is wrapped up in something I can't get my hands on, that's probably a good thing. And based on the projections of pension I'll be receiving at 60, I won't be paying any income tax on it when I get the money back out the other end as I'll be under the personal allowance!
I guess you are a little older than me...
I'm 31 and for me, retirement is a looong way away.
£1 in my pocket can earn me more money than a pension returns. So I'm investing my money in a small business, which also has tax benefits.
So I have savings, isa, mortgage overpayment, and some business investment.
I am sure as I get older then a pension might make more sense to me, but the worry I have is that even over the last 10yrs the only certainty is that things are highly volatile. If it continues then pensions feel less and less viable as a sole means to a happy retirement in my view.
So deffo worth looking at ISA's I think. Especially if you are young you can take some good risks on high growth investments and try get a chunk of money by 30yrs/old.
I did a calc a while ago, working out the lump sum to give a child which would compound up to a decent pension for retirement. It was fairly small given the 65yrs accumulation time...
Basically, the OP is young, get a big ish chunk in now (if you can), and let it compound.
Dave
I'm 31 and for me, retirement is a looong way away.
£1 in my pocket can earn me more money than a pension returns. So I'm investing my money in a small business, which also has tax benefits.
So I have savings, isa, mortgage overpayment, and some business investment.
I am sure as I get older then a pension might make more sense to me, but the worry I have is that even over the last 10yrs the only certainty is that things are highly volatile. If it continues then pensions feel less and less viable as a sole means to a happy retirement in my view.
So deffo worth looking at ISA's I think. Especially if you are young you can take some good risks on high growth investments and try get a chunk of money by 30yrs/old.
I did a calc a while ago, working out the lump sum to give a child which would compound up to a decent pension for retirement. It was fairly small given the 65yrs accumulation time...
Basically, the OP is young, get a big ish chunk in now (if you can), and let it compound.
Dave
Mr Whippy said:
I guess you are a little older than me...
I'm 31 and for me, retirement is a looong way away.
£1 in my pocket can earn me more money than a pension returns. So I'm investing my money in a small business, which also has tax benefits.
So I have savings, isa, mortgage overpayment, and some business investment.
I am sure as I get older then a pension might make more sense to me, but the worry I have is that even over the last 10yrs the only certainty is that things are highly volatile. If it continues then pensions feel less and less viable as a sole means to a happy retirement in my view.
So deffo worth looking at ISA's I think. Especially if you are young you can take some good risks on high growth investments and try get a chunk of money by 30yrs/old.
I did a calc a while ago, working out the lump sum to give a child which would compound up to a decent pension for retirement. It was fairly small given the 65yrs accumulation time...
Basically, the OP is young, get a big ish chunk in now (if you can), and let it compound.
Dave
I'm only 32! I'm 31 and for me, retirement is a looong way away.
£1 in my pocket can earn me more money than a pension returns. So I'm investing my money in a small business, which also has tax benefits.
So I have savings, isa, mortgage overpayment, and some business investment.
I am sure as I get older then a pension might make more sense to me, but the worry I have is that even over the last 10yrs the only certainty is that things are highly volatile. If it continues then pensions feel less and less viable as a sole means to a happy retirement in my view.
So deffo worth looking at ISA's I think. Especially if you are young you can take some good risks on high growth investments and try get a chunk of money by 30yrs/old.
I did a calc a while ago, working out the lump sum to give a child which would compound up to a decent pension for retirement. It was fairly small given the 65yrs accumulation time...
Basically, the OP is young, get a big ish chunk in now (if you can), and let it compound.
Dave
You're right about starting young though. I saw a similar calc not long ago giving the amounts of money you would need to save for the same pension at age 60 starting at birth and at age 18. The difference was huge and the amount you needed to save if you started at birth seemed pretty reasonable.
The business investments sounds interesting, although if you're worried about the volatility of a stock market linked pension, I wouldn't look at the failure rates of small business ventures!
anonymous said:
[redacted]
He must be playing on a council golf course or he will be eating into his £100k just with the fees alone never mind living costs!You don't have to buy an annuity anymore and 5.7% is still better than any deposit account that pays monthly interest!
I am not championing pensions by any means but the 40% tax relief is the best non risk return you will get anywhere!
Tonker if you have only a £100k you won't have to worry about 50,55,60,65 you will be working till you drop!
Gassing Station | Finance | Top of Page | What's New | My Stuff