Half-Way To Retirement - Is my pension doing ok?

[tighnamara]

AdamV12V said:

ukwill said:

Yes, but it would seem the only benefit (over investing in a pension) is your ability to access it before 55. For the same amount of money invested (given the same market conditions), you'd have considerably more than £1m in your pension pot, over the same period. I think it's fair to say that both have their place in an investment portfolio.

This ^^

They both have a place in a balanced portfolio, so do both.

If you only have say £20k to invest, then it would be a harder choice I think. Pension always has the advantage of locking it away from temptation, whereas an ISA piggy bank could be smashed open and squandered early on a deemed essential such as moving house or a new car.

Temptation aside, an ISA is nice after several years of snowballed compound tax free interest. Especially now when you can fairly easily get >4% again. Anyone who's been maxing out their ISA since introduction should have over £200k in one by now, more come 6th April. Thats a decent chunk of tax free drawdown whatever way you look at it.

Pension, yes its tax free on input but the tax restrictions on withdrawl take away a fair chunk of what was gained on input, so its by no means as black and white as some would like to make out. Best of both worlds is to put £60k p/a into your pension and £20k into a top tier ISA of course, but not everyone will have that level of spare cash each year.

I agree with you in that investing in both pension and ISA is the best option, but you have missed the pension benefit of 25% tax free chunk (LTA limit) on all £££ invested and compounded over the pension period.

[Shnozz]

okgo said:

But pension is basically a political hot potato, you've got fk all control over any of it. While an ISA may 'only' offer flexibility, it is a massive pro to ISA over pensions, not to the point of outweighing the tax relief leverage for growth, but not miles away IMO.

This could happen with ISA's but given so few people make much use of it I can't see that it'll be an issue. Also ISA as a concept is too much for your average man on the street to even know enough about to feel upset about it if they increased the limit for example, so can't see it being attacked as readily (as proved these last few weeks) as a pension.

And lastly, people maximising ISA/Pension benefits probably aren't the people who would give in to temptations anyway, and the ability to get at the cash for an opportunity/emergency over a pension which obviously you cannot without hefty penalty is also a huge plus.

Edited by okgo on Thursday 30th March 11:55

This is my issue. Twice now the government have meddled with my private pension and nearly completely fked a plan I had with an IO mortgage pegged initially for repayment at the date I could take my 25% tax free. Thankfully the plan altered but I have zero trust in planning on when I might be able to take my pension. Royally pisses me off when it’s a private contract and shouldn’t be anything to do with the government.

[sociopath]

Mr Pointy said:

Condi said:

SpunkyGlory said:

But surely, on a like-for-like basis in terms of investment amount/period/return, the pension would be a far better financial decision given the compound growth on the tax relief, especially at higher tax rate. In fact, given the greater accumulated wealth and the IHT benefit, the only upside I can see to an ISA is the flexibility of access.

Yes, you're far more likely to be a higher tax payer on the way into a pension than the way out, so pension is arguably 20% better for a 40% tax payer or 25% better for a 45% tax payer than an ISA. Then if you have children the more you put into your pension the more tax credit you get so another incentive to put into a pension pot. Plus obviously the 25% you can take out tax free, saving 20/40/45% tax vs an ISA.

The only benefit of an ISA is the flexibility.

But how you got there isn't the issue - I was saying if the end result is a £1m pot I'd prefer it as an ISA not as a SIPP. Need £100k to refurbish the house/buy two new knees/put your wife into care? Tax free from an ISA, tax paid out of a SIPP although of course there's the 25% tax free consideration if you crystallise enough of the SIPP. That's just me though - I don't care about IHT .

This is my constant argument with my IFA, he keeps trying to get me to spend my ISA fund and leave my pension as its better for IHT. But we don't have kids, so anything left after we die will go to ungrateful nieces and nephews. fk that!


To the OP, one thing to consider:

obviously pay as much in as you can as early as you can, but at your age my pension savings were pitiful, but as you get older, the need to pay more for the same result is somewhat counteracted by (hopefully) promotions and higher incomes.

I probably invested over 50% of my pensions and ISAs in my last 5-10 years of work, because my Income was so much higher.
It obviously didn't grow as fast as it would have if I'd paid it earlier, but that was counteracted by the much larger sums I could afford.

I wouldn't assume that will save you of course, but it's not all as black as it gets painted sometimes.

[deja.vu]

Shnozz said:

okgo said:

But pension is basically a political hot potato, you've got fk all control over any of it. While an ISA may 'only' offer flexibility, it is a massive pro to ISA over pensions, not to the point of outweighing the tax relief leverage for growth, but not miles away IMO.

This could happen with ISA's but given so few people make much use of it I can't see that it'll be an issue. Also ISA as a concept is too much for your average man on the street to even know enough about to feel upset about it if they increased the limit for example, so can't see it being attacked as readily (as proved these last few weeks) as a pension.

And lastly, people maximising ISA/Pension benefits probably aren't the people who would give in to temptations anyway, and the ability to get at the cash for an opportunity/emergency over a pension which obviously you cannot without hefty penalty is also a huge plus.

Edited by okgo on Thursday 30th March 11:55

This is my issue. Twice now the government have meddled with my private pension and nearly completely fked a plan I had with an IO mortgage pegged initially for repayment at the date I could take my 25% tax free. Thankfully the plan altered but I have zero trust in planning on when I might be able to take my pension. Royally pisses me off when it’s a private contract and shouldn’t be anything to do with the government.

I get the sentiment, but...
They are paying for the privilege by giving you great tax benefits when paying the money in.
If they weren't ( like in the case of an ISA) your argument would stand up.

[NowWatchThisDrive]

I think the value of control is difficult to overstate. When I was working, I prioritised investing through ISAs and taxable accounts over maximising my pension for precisely that reason. I was always conscious that while I was doing very well, one day the music would stop and I didn't want to end up in a situation where I needed/wanted to pack work in but couldn't afford to because a load of my money was tied up in a pension that I couldn't access for another decade or more (and even then only to be forced to buy a lousy annuity). Towards the end, the introduction of annual allowance tapering effectively took the decision out of my hands anyway, as I'd have lost any tax relief on the way in.

As it transpired, the point where I'd had enough came even earlier (41) than I'd have expected, but having the freedom to just call it a day was incredibly liberating. If I were younger and weighing these things up now, some of the freedoms introduced in recent years - tax free lump sum, not having to buy an annuity - would probably cause me to shift the balance slightly, but not drastically as my core reasoning would be the same: you never know when or why you might need/want the money, and to what extent governments will conspire to interfere with that in the meantime.

[xeny]

SpunkyGlory said:

But surely, on a like-for-like basis in terms of investment amount/period/return, the pension would be a far better financial decision given the compound growth on the tax relief, especially at higher tax rate. In fact, given the greater accumulated wealth and the IHT benefit, the only upside I can see to an ISA is the flexibility of access.

The question was asking about £1000000already in the wrapper, so no tax relief to see a benefit of, and tax to pay on the way out.

[Marumi]

I think it'd be useful for you to just do some reading about pensions and really get a grasp of what they are and how they work. You don't need to read any complicated financial documents, just websites like MoneySavingExpert etc.

If you have a look at;

- What is the difference between a defined benefit and a defined contribution pension?
- Why are pensions tax efficient?
- What is the difference between a 'draw down' pension and an annuity?
- Where is a pension invested?
- What is the 4% rule?

Then you'll be on you way towards building an awareness of how it all works.

The numbers you received using the website calculators differ because they're giving you completely different pension income options. The Unbiased one assumes you'll die at 88 years old and just divides the pot between the remaining years (with growth still occurring of what's left invested). The MoneyHelper one is an annuity.