Pensions - A semi- idiot's guide
Discussion
It's quite simple. the government will do all it can to ensure you can't save enough to pay into one, any existing scheme will be fleeced by the government and any rises in pension will be offset by massive rises in any other form of tax collecting iniative by the government.
Piccy mate
Piccy mate
You pay money into an investment fund.
The government pay in your tax on that money, up to a certain amount each year.
How the money is invested is variable, can be up to yourself and is usualy put into higher risk pots at the start and risk is reduced towards the end. (btw the govermnet tax returns on shares for pensions, £bns).
At retirement the cash generated is used to buy an annuity - no choice in this atm I believe. You get a fixed income from the annuity based o the intrest rates at time of retirement.
Theres a variety of schemes, latest is the stakeholder (best for £15k - £35k ish earners) which limits fees etc.
Oh I forgot about the compulsory pension your NI doesnt now pay for, forget about it too... The .gov have robbed it.
The government pay in your tax on that money, up to a certain amount each year.
How the money is invested is variable, can be up to yourself and is usualy put into higher risk pots at the start and risk is reduced towards the end. (btw the govermnet tax returns on shares for pensions, £bns).
At retirement the cash generated is used to buy an annuity - no choice in this atm I believe. You get a fixed income from the annuity based o the intrest rates at time of retirement.
Theres a variety of schemes, latest is the stakeholder (best for £15k - £35k ish earners) which limits fees etc.
Oh I forgot about the compulsory pension your NI doesnt now pay for, forget about it too... The .gov have robbed it.
leosayer said:
Can someone direct me to a site which explains how pensions work? I have a basic understanding of them and work in the financial services industry so I don't mind if it gets technical.
I also want to understand the changes that are happening next year.
It's very simple. You work very hard and give your money to the financial services industry. They take a big lump of it straight away and another lump every year for the rest of your life. What they don't get Gordon does. Then after many years of being robbed you retire. And you can't have your money. They let you have 25% of it, the rest you have to give back to the financial services industry so they can take even more big lumps out of it.
Instead, put your money in a bag, take it offshore where there is no tax. Open a bank account and enjoy compound interest. Then, when you retire, the money is yours to do what you want with.
bruciebabe said:
Instead, put your money in a bag, take it offshore where there is no tax. Open a bank account and enjoy compound interest. Then, when you retire, the money is yours to do what you want with.
Although you're supposed to pay tax on it when you bring the money into this country. Or you have to move abroad.
NB I've been paying £300pcm into a private pension for about 12 years. It's worth about what it would have been if I'd put it in a building society.
Should I keep contributing, or stick the £300pcm in a B/S instead? At least then the money is mine and I can't get trapped in a poxy annuity.
Should I keep contributing, or stick the £300pcm in a B/S instead? At least then the money is mine and I can't get trapped in a poxy annuity.
erm not quite right there bruciebabe most pensions are charged in the following manner
100% of premium invested with the only ongoing charge being the annual managent charge of the fund(s) invested in 1% or less for life company funds i.e. standard life or slightly more for externally managed funds managed by the likes of fidelity newton etc up to say the 2% mark.
Not really a large lump is it? Mind you agree Brown removing the tax credits on dividends sucked and caused so many problems!
100% of premium invested with the only ongoing charge being the annual managent charge of the fund(s) invested in 1% or less for life company funds i.e. standard life or slightly more for externally managed funds managed by the likes of fidelity newton etc up to say the 2% mark.
Not really a large lump is it? Mind you agree Brown removing the tax credits on dividends sucked and caused so many problems!
imp123 said:
with the only ongoing charge being the annual managent charge of the fund(s) invested in 1% or less for life company funds i.e. standard life or slightly more for externally managed funds managed by the likes of fidelity newton etc up to say the 2% mark.
But that's 1% or 2% of the whole fund. So if the stock market has an average year and your fund manages 4% growth, you're actually losing 25-50% of the growth, no...?
Yes thats about right, but how else are you going to pay the costs of administration, fund research, regular communications to members etc etc? Normally that sort of return is seen on bank deposit style funds (money market) funds which are very low risk funds.
In relation to your previous post I would say you may wish to review the contract you are in as you took it out 12 years ago it is very unlikely to have the charges i mentioned purely as the market has moved on somewhat in that period....I however do recommend that you get a financial adviser to look at the contract before you do anything in case you lose loyalty bonuses etc etc.
In addition what fund(s) are you invested in? they may be inappropriate for your attitude to risk and age where you want to take benefits.
In relation to your previous post I would say you may wish to review the contract you are in as you took it out 12 years ago it is very unlikely to have the charges i mentioned purely as the market has moved on somewhat in that period....I however do recommend that you get a financial adviser to look at the contract before you do anything in case you lose loyalty bonuses etc etc.
In addition what fund(s) are you invested in? they may be inappropriate for your attitude to risk and age where you want to take benefits.
re the merit thing, well in a way some companies do that in the form of reducing the annual management charge the larger your fund gets to....yes not strictly based on how well a fund does and can be as a result of you putting in more money but still it all helps. You'll find that with banks and the majority of non-pension investments that charges will be taken irresepective of how well the investment does.
Yes a lot of people lost money, but thats the thing if you invest in funds which are linked to say the UK equity market there will be ups and downs, if you are unhappy with this then invest in say low risk funds investing in the money market or UK Gov Gilts etc.....low risk but that goes hand in hand with a lower potential for growth and conversily loss.
Re annuities well the government is leaning more and more to removing the need to buy annuities, some changes in the new pension legislation will allow for an income to be drawn from your pension pot beyond 75, with some limits. This has yet to be finalised. But looking at annuities generally it is in essence a bet your taking with the life company that you live longer than they reckon. Annuities are useful for people with a low attitude to risk and want certainity in their life in respect of income being recieved for others you can again under current pension legislation draw an income from your pension pot rather than purchasing an annuity between ages of 50 and 75.
Yes a lot of people lost money, but thats the thing if you invest in funds which are linked to say the UK equity market there will be ups and downs, if you are unhappy with this then invest in say low risk funds investing in the money market or UK Gov Gilts etc.....low risk but that goes hand in hand with a lower potential for growth and conversily loss.
Re annuities well the government is leaning more and more to removing the need to buy annuities, some changes in the new pension legislation will allow for an income to be drawn from your pension pot beyond 75, with some limits. This has yet to be finalised. But looking at annuities generally it is in essence a bet your taking with the life company that you live longer than they reckon. Annuities are useful for people with a low attitude to risk and want certainity in their life in respect of income being recieved for others you can again under current pension legislation draw an income from your pension pot rather than purchasing an annuity between ages of 50 and 75.
simpo two said:
NB I've been paying £300pcm into a private pension for about 12 years. It's worth about what it would have been if I'd put it in a building society.
Should I keep contributing, or stick the £300pcm in a B/S instead? At least then the money is mine and I can't get trapped in a poxy annuity.
I'd stick in the bank - like that ING Direct one where they wander around with the life ring thingy.
Yr Cont IntR Int Tot Bal
Yr 1 3600 0.04 137 3737 3737
Yr 2 3600 0.04 279 3879 7616
Yr 3 3600 0.04 426 4026 11642
Yr 4 3600 0.04 579 4179 15821
Yr 5 3600 0.04 738 4338 20159
Yr 6 3600 0.04 903 4503 24662
Yr 7 3600 0.04 1074 4674 29336
Yr 8 3600 0.04 1252 4852 34187
Yr 9 3600 0.04 1436 5036 39223
Yr 10 3600 0.04 1627 5227 44451
Yr 11 3600 0.04 1826 5426 49876
Yr 12 3600 0.04 2032 5632 55509
I sympathise with Imp123 because it's clearly what you do and you need to make a living as well.
However I can't help thinking that when pensions were deregulated in 1986 (?) the financial services industry must have rubbed its hands with glee. It's human nature to grab as much as possible. I know a fund manager who spent £1,000 on a bottle of wine, yet how does that compare with my investments? Quite a difference, I can assure you! I get the impression that the City boys are having a good laugh and small investors are paying for it. (But then, if I was a City boy, I'd do the same... so I can't really blame them)
However I can't help thinking that when pensions were deregulated in 1986 (?) the financial services industry must have rubbed its hands with glee. It's human nature to grab as much as possible. I know a fund manager who spent £1,000 on a bottle of wine, yet how does that compare with my investments? Quite a difference, I can assure you! I get the impression that the City boys are having a good laugh and small investors are paying for it. (But then, if I was a City boy, I'd do the same... so I can't really blame them)
robdickinson said:
Sticking cash in the bank instead of a pension makes sure you loose out on 22% min tax rebate and tax free earnings (apart from tax on share divs).
Building society interest is taxed at source, true - but your pension payments are taxable as well - you pay tax either at one end or the other. Plus growth is severly curtailed thanks to Mr Brown.
Frankly, I think it's about equal.
robdickinson said:
Sticking cash in the bank instead of a pension makes sure you loose out on 22% min tax rebate and tax free earnings (apart from tax on share divs).
the reason i don't like pensions is this:
a) if i drop dead at 65 and 1 day the money disappears.
b) the labour govt will use it as their personal piggy bank despite the tax incentives.
simpo two said:
Sticking cash in the bank instead of a pension makes sure you loose out on 22% min tax rebate and tax free earnings (apart from tax on share divs).
Building society interest is taxed at source, true - but your pension payments are taxable as well - you pay tax either at one end or the other. Plus growth is severly curtailed thanks to Mr Brown.
Frankly, I think it's about equal.
True you pay a tax on the income from the annuity but thats minimal in comparison to the loss of compound investment.
Every £78 I invest in the pension the government puts back £22, thats huge long term, effectivly 28% intrest right there. The gov only tax income from share dividends not growth per se.
And if you die at 65+1day most pensions/annuities have something for spouses dont they?
robdickinson said:
Sticking cash in the bank instead of a pension makes sure you loose out on 22% min tax rebate and tax free earnings (apart from tax on share divs).
Building society interest is taxed at source, true - but your pension payments are taxable as well - you pay tax either at one end or the other. Plus growth is severly curtailed thanks to Mr Brown.
Frankly, I think it's about equal.
True you pay a tax on the income from the annuity but thats minimal in comparison to the loss of compound investment.
Every £78 I invest in the pension the government puts back £22, thats huge long term, effectivly 28% intrest right there. The gov only tax income from share dividends not growth per se.
And if you die at 65+1day most pensions/annuities have something for spouses dont they?
Taxwise VCTs work even better.
If you want a pension fund try the Alliance Trust, their pension sheme has the smallest fees imaginable and you can choose from a huge range of investments. They win awards for the all round excellence of what they offer.
[url]www.alliancetrusts.com/[/url]
VCT's nice tax wise, but risky...so not so good unless you like the risk and or is part of a wider diverse portfolio.
The alliance trust pension thing is a self invested personal pension this allows you to invest in a wide range of things shares, unit trusts, commercial property.
But bear in mind you will be paying the costs of investing in the unit trusts, shares, property etc etc and some of those investments are risky and require specialist knowledge....believe me this is really no cheaper than the current modern costed pension arrangements.
The alliance trust pension thing is a self invested personal pension this allows you to invest in a wide range of things shares, unit trusts, commercial property.
But bear in mind you will be paying the costs of investing in the unit trusts, shares, property etc etc and some of those investments are risky and require specialist knowledge....believe me this is really no cheaper than the current modern costed pension arrangements.
the majority of pensions plans in the market do not have an exit charge anymore!
if a fund consistently underperforms it will not bring money in....you reckon that an investment house will not seek to change the manager...if they don't i can hardly see a decent financial adviser recommending a fund that doesn't perform
if a fund consistently underperforms it will not bring money in....you reckon that an investment house will not seek to change the manager...if they don't i can hardly see a decent financial adviser recommending a fund that doesn't perform
imp123 said:
But bear in mind you will be paying the costs of investing in the unit trusts, shares, property etc etc and some of those investments are risky and require specialist knowledge....believe me this is really no cheaper than the current modern costed pension arrangements.
Of course there are costs with Alliance but they are a pittance compared with all my other pension schemes. As for some of these investments are risky, how about the people advised to invest in blue chip like GEC and ICI? There is a degree of risk in every investment, it is not rocket science to spread that risk within an Alliance portfolio.
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