Stone me - my pension performance
Discussion
After many years of steadfastly refusing to have a private pension I finally caved in to the significant Tax breaks and general good housekeeping that a pension policy is. I've decided to go for fairly chunky contributions for a few years and see how it all pans out. As such, I told my IFA I'd like a "medium risk" policy which I can view online. He ended up flogging me a Scottish Widows policy. The first payment went in about two and a half weeks ago and today I received a password and PIN so I could have a gander at its peformance. My initial reaction was delight that it got paid with no Tax or NI deductions - the novelty factor will obviously reduce in time. The next thing which surprised me was the increase in value in the two and a half weeks. It's gone up by an amazing 2.5%. Now that would be about 4% per month which, if anualised, would be 50% per annum (Tax free). Now I'm long enough in the tooth to know that it'll probably drop by 2% in the next couple of weeks, but it gave me a nice warm feeling even if temporary!
I just got a pension statement from May 2007 showing 38% year-on-year growth, so I went online and saw it's now -3% year-on-year. So it looks like I'll have to keep the day job.
You've done the right thing, and probably* you'll be a millionaire.
You've done the right thing, and probably* you'll be a millionaire.
- bearing in mind that the value of investments can go down as well as down, and a million will be worthless when you retire at 87 years old.
Mine's been doing around 12%/year for the last few years tax free so it's worth it. Friends Provident Stewardship Managed Fund, not that I have any particular preference that's just who my company use.
Whoever you choose (and I'm sure lots of brokers will be on this thread soon to offer their services!) if you get money from your employer it's worth taking it, and every pound you put in in your 20's & 30's is worth many times more than anything you can achieve in your 50's!
Whoever you choose (and I'm sure lots of brokers will be on this thread soon to offer their services!) if you get money from your employer it's worth taking it, and every pound you put in in your 20's & 30's is worth many times more than anything you can achieve in your 50's!
Edited by Ordinary Bloke on Wednesday 19th December 18:37
srebbe64 said:
What finally convinced me was that even if a pension policy lost, say, 20% per annum (which is obviously VERY unlikely) I'm still ahead of the game because I've saved 40%+ Tax. In reality, it's likely to yield about 6-8%.
But surely you are only deferring some of the tax as you'll have to pay income tax on it when you've retired (exclusing 25% lump sum)?NoelWatson said:
srebbe64 said:
What finally convinced me was that even if a pension policy lost, say, 20% per annum (which is obviously VERY unlikely) I'm still ahead of the game because I've saved 40%+ Tax. In reality, it's likely to yield about 6-8%.
But surely you are only deferring some of the tax as you'll have to pay income tax on it when you've retired (exclusing 25% lump sum)?haworthlloyd1 said:
you are deferring the tax to an extent but you get 25% tax free cash and also imagine the following:
if you put £60 in an ISA and the fund grew at 10% in a year you would have £66.
If you put £60 net in a pension it would be grossed up to £100 for a higher rate tax payer and if the fund performed at exactly the same 10% you would make £110. Ie your increase would be £10 not £6.
This doesn't sound like much but compounded over 20 years or so makes a phenomenal difference - if it grew at 10% again your £66 would go up £6.60 and your £110 would go up £11 so almost twice the increase in the second year for the same net contribution.
Yes you would have to pay tax at the end and all the other downsides with pensions but purely from a fund perspective they are better than ISA's due to this compounded growth and element of tax free cash. I don't like the access restrictions and annuity rates at present though but for some it can be a worthwhile trade off.
Exactly. A very succinct description of what I'm thinking.if you put £60 in an ISA and the fund grew at 10% in a year you would have £66.
If you put £60 net in a pension it would be grossed up to £100 for a higher rate tax payer and if the fund performed at exactly the same 10% you would make £110. Ie your increase would be £10 not £6.
This doesn't sound like much but compounded over 20 years or so makes a phenomenal difference - if it grew at 10% again your £66 would go up £6.60 and your £110 would go up £11 so almost twice the increase in the second year for the same net contribution.
Yes you would have to pay tax at the end and all the other downsides with pensions but purely from a fund perspective they are better than ISA's due to this compounded growth and element of tax free cash. I don't like the access restrictions and annuity rates at present though but for some it can be a worthwhile trade off.
haworthlloyd1 said:
if you put £60 in an ISA and the fund grew at 10% in a year you would have £66.
If you put £60 net in a pension it would be grossed up to £100 for a higher rate tax payer and if the fund performed at exactly the same 10% you would make £110. Ie your increase would be £10 not £6.
This doesn't sound like much but compounded over 20 years or so makes a phenomenal difference - if it grew at 10% again your £66 would go up £6.60 and your £110 would go up £11 so almost twice the increase in the second year for the same net contribution.
Yes you would have to pay tax at the end and all the other downsides with pensions but purely from a fund perspective they are better than ISA's due to this compounded growth and element of tax free cash. I don't like the access restrictions and annuity rates at present though but for some it can be a worthwhile trade off.
I'm not sure how this leaves you better off. If a man put £60 into an ISA and it grew at 5% compounded for 10 years he would get £98.92. £100 compounded would be £164.87. If you take off the 40% tax from the £164.87 you are left with £98.92 - the same number.If you put £60 net in a pension it would be grossed up to £100 for a higher rate tax payer and if the fund performed at exactly the same 10% you would make £110. Ie your increase would be £10 not £6.
This doesn't sound like much but compounded over 20 years or so makes a phenomenal difference - if it grew at 10% again your £66 would go up £6.60 and your £110 would go up £11 so almost twice the increase in the second year for the same net contribution.
Yes you would have to pay tax at the end and all the other downsides with pensions but purely from a fund perspective they are better than ISA's due to this compounded growth and element of tax free cash. I don't like the access restrictions and annuity rates at present though but for some it can be a worthwhile trade off.
Dr Bob said:
But the chances of you being in the 40% tax bracket when you are drawing your pension is fairly unlikely... unless you're lucky I suppose!
CH
Agree that it is tax efficient if you don't plan on being a higher rate tax payer when you retire. I wonder how long it will be before Gordon Brown/Gordon Brown's puppet takes away the 25% tax free lump sum?CH
Been paying into my pension from my 18th birthday. 1st one defined contribution for 6 years then final salary for 6 years now defined contribution.
As I effectively had it going from such a young age I didnt notice the 6% hit from the first pay packet & when I speak to others now @ my age they really are struggling to be able to take a salary cut of min 6%. Remember the sooner you start the lower % contributions you need to make over your working life - I could have gone for 3% as I started at 18 but as I intend to retire as early as possible I doubled it, anyone my age now would have to start putting in near on 9/10% to have the same size pot come retirement.
As I effectively had it going from such a young age I didnt notice the 6% hit from the first pay packet & when I speak to others now @ my age they really are struggling to be able to take a salary cut of min 6%. Remember the sooner you start the lower % contributions you need to make over your working life - I could have gone for 3% as I started at 18 but as I intend to retire as early as possible I doubled it, anyone my age now would have to start putting in near on 9/10% to have the same size pot come retirement.
My other investments are, primarily, property. So the decision was do I stick £X into property or a pension (in fact I'm doing both). Firstly, if I stick £X into property it will be after 40%+ Tax and the rent I receive will be Taxed and if I sell the property I'll pay Tax on the capital gain. Compared to that pensions are Tax efficient.
srebbe64 said:
My other investments are, primarily, property. So the decision was do I stick £X into property or a pension (in fact I'm doing both). Firstly, if I stick £X into property it will be after 40%+ Tax and the rent I receive will be Taxed and if I sell the property I'll pay Tax on the capital gain. Compared to that pensions are Tax efficient.
Well on drawing the pension you can & should take out 25% tax free then beyong that your taxed as income - however 40% starts from 18k when you 75y.o. hence it is a no brainer to take out the full 25% on retirement. You can also defer the pension and never draw it and in that case it goes to your kids tax free of course they will be paid a monthly income from it and taxed according to their own circumstances but it is excluded from your estate ;-)
srebbe64 said:
After many years of steadfastly refusing to have a private pension I finally caved in to the significant Tax breaks and general good housekeeping that a pension policy is. I've decided to go for fairly chunky contributions for a few years and see how it all pans out. As such, I told my IFA I'd like a "medium risk" policy which I can view online. He ended up flogging me a Scottish Widows policy. The first payment went in about two and a half weeks ago and today I received a password and PIN so I could have a gander at its peformance. My initial reaction was delight that it got paid with no Tax or NI deductions - the novelty factor will obviously reduce in time. The next thing which surprised me was the increase in value in the two and a half weeks. It's gone up by an amazing 2.5%. Now that would be about 4% per month which, if anualised, would be 50% per annum (Tax free). Now I'm long enough in the tooth to know that it'll probably drop by 2% in the next couple of weeks, but it gave me a nice warm feeling even if temporary!
I have been with Scotish Widows since I was 18 (now 31) and have just changed to a different account with them where I can choose the risk and level of investments. The predicted returns look excellent but only because I had built up my funds from an early age. I feel sorry for anyone starting out in todays climate. 968CSReading said:
srebbe64 said:
After many years of steadfastly refusing to have a private pension I finally caved in to the significant Tax breaks and general good housekeeping that a pension policy is. I've decided to go for fairly chunky contributions for a few years and see how it all pans out. As such, I told my IFA I'd like a "medium risk" policy which I can view online. He ended up flogging me a Scottish Widows policy. The first payment went in about two and a half weeks ago and today I received a password and PIN so I could have a gander at its peformance. My initial reaction was delight that it got paid with no Tax or NI deductions - the novelty factor will obviously reduce in time. The next thing which surprised me was the increase in value in the two and a half weeks. It's gone up by an amazing 2.5%. Now that would be about 4% per month which, if anualised, would be 50% per annum (Tax free). Now I'm long enough in the tooth to know that it'll probably drop by 2% in the next couple of weeks, but it gave me a nice warm feeling even if temporary!
I have been with Scotish Widows since I was 18 (now 31) and have just changed to a different account with them where I can choose the risk and level of investments. The predicted returns look excellent but only because I had built up my funds from an early age. I feel sorry for anyone starting out in todays climate. NoelWatson said:
Dr Bob said:
But the chances of you being in the 40% tax bracket when you are drawing your pension is fairly unlikely... unless you're lucky I suppose!
CH
Agree that it is tax efficient if you don't plan on being a higher rate tax payer when you retire. I wonder how long it will be before Gordon Brown/Gordon Brown's puppet takes away the 25% tax free lump sum?CH
srebbe64 said:
What finally convinced me was that even if a pension policy lost, say, 20% per annum (which is obviously VERY unlikely) I'm still ahead of the game because I've saved 40%+ Tax. In reality, it's likely to yield about 6-8%.
What about fees.... I thought these companies charged a front loaded commission and then an annual percentage for operating your pension fund?Red V8 said:
srebbe64 said:
What finally convinced me was that even if a pension policy lost, say, 20% per annum (which is obviously VERY unlikely) I'm still ahead of the game because I've saved 40%+ Tax. In reality, it's likely to yield about 6-8%.
What about fees.... I thought these companies charged a front loaded commission and then an annual percentage for operating your pension fund?srebbe64 said:
Red V8 said:
srebbe64 said:
What finally convinced me was that even if a pension policy lost, say, 20% per annum (which is obviously VERY unlikely) I'm still ahead of the game because I've saved 40%+ Tax. In reality, it's likely to yield about 6-8%.
What about fees.... I thought these companies charged a front loaded commission and then an annual percentage for operating your pension fund?Gassing Station | Business | Top of Page | What's New | My Stuff