Pension Vs personal investments, what's the view?
Discussion
Some years ago I took out a private pension and it performed dreadfully. As such, I closed it down (paid a penalty) and decided to invest in stuff which I can control - most noteably property, which has been fine (8% rent yield plus a modest increase in the asset base). However, I can't help thinking that I need to take out a personal pension beofre I get too old, not least of all for the tax breaks - which are significant. But, and this is where I struggle emotionally, I find it hard on several levels:
1) I've taken risk to generate profit in the first place so I'm loathed to take risk once that income has been generated. As such, if I did take out a pension it would be a low risk / low yield one;
2) With other investments I can get the financial payback immediately and not wait until I'm 55 (or whatever);
3) I'm used to being in control of my investments and something inside me bulks at the fact that I'll have no control. If some fund manager somewhere cocks it up I end up paying for his bad day at the office.
Now the logical part of my brain says "go for a (Tax free) pension contribution as part of a range of investments". However, the emotional side of my brain is saying the above (1, 2 and 3).
Am I alone in the world or do other people feel similar at all? Also, how should I view it in order to get the emotional part of my brain "on side" so to speak?
1) I've taken risk to generate profit in the first place so I'm loathed to take risk once that income has been generated. As such, if I did take out a pension it would be a low risk / low yield one;
2) With other investments I can get the financial payback immediately and not wait until I'm 55 (or whatever);
3) I'm used to being in control of my investments and something inside me bulks at the fact that I'll have no control. If some fund manager somewhere cocks it up I end up paying for his bad day at the office.
Now the logical part of my brain says "go for a (Tax free) pension contribution as part of a range of investments". However, the emotional side of my brain is saying the above (1, 2 and 3).
Am I alone in the world or do other people feel similar at all? Also, how should I view it in order to get the emotional part of my brain "on side" so to speak?
My father 20 years ago was banging on about pensions to me, same with a couple of uncles, and I never did. The little I've had goes under the bed so to speak. My father and an uncle have now admitted to me personally that i made the right call somehow.
The problem with pensions that I see is that its an investment outside your control. Other people have an influence on what happens to your money, not least the Govt. And who is to say that in 30 years time another Labour Govt doesn't help itself to your pension pot again "redistributing the excess" to the scroungers who made no provision themselves?
Its the unknown that I don't like.
I also don't like the tax breaks. They will be removed and the gains removed at the stroke of a pen by a Govt in trouble. And again, you will be up the creek without a paddle.
The problem with pensions that I see is that its an investment outside your control. Other people have an influence on what happens to your money, not least the Govt. And who is to say that in 30 years time another Labour Govt doesn't help itself to your pension pot again "redistributing the excess" to the scroungers who made no provision themselves?
Its the unknown that I don't like.
I also don't like the tax breaks. They will be removed and the gains removed at the stroke of a pen by a Govt in trouble. And again, you will be up the creek without a paddle.
Edited by tinman0 on Wednesday 3rd October 21:47
Tough one. An IFA will always say 'go for the pension' but then they are paid £££ to sell pensions. If I paid them to sell turds they'd sell turds.
Looking back at mine, it's worth about the same as if I'd paid th esame premiums into a good savings account. What bothers me a bit is that a pension is linked to an annuity and you have to take the rate that applies at the time. As srebbe64 says, at least with your own cash you can say where it goes and when.
My view is: six of one and half a dozen of the other.
Looking back at mine, it's worth about the same as if I'd paid th esame premiums into a good savings account. What bothers me a bit is that a pension is linked to an annuity and you have to take the rate that applies at the time. As srebbe64 says, at least with your own cash you can say where it goes and when.
My view is: six of one and half a dozen of the other.
I know somebody who took the same approach and just saved up money that would have been his pension contributions, and invested it himself.
Unfortunately after being made redundant he found that he wasn't entitled to any support from the state because of his investments. If the same money had been in a pension it wouldn't have been counted when he was means tested.
Unfortunately after being made redundant he found that he wasn't entitled to any support from the state because of his investments. If the same money had been in a pension it wouldn't have been counted when he was means tested.
The problem with pensions is that most people don't realise that it is possible to do it yourself. If you look at a SIPP by Alliance Trust or Hargreaves Lansdown then it is basically a wrapper to enable you to buy shares, hold money on deposit and buy unit trusts/OEICs at very low cost, only marginally ore than a no fees broking account. You have the control not the fund manager - so many people seem to choose "pension funds" with the attendant high fees and often lacklustre performance. If you're confident in DIY investing then one of these ultra low cost SIPPs is interesting (though as a low cost you can't buy property directly, just property shares/REITs etc). For a higher rate tax payer it's an excellent deal. You don't need an IFA to buy such a SIPP either.
In the days before I took out a personal pension, I put my AVC's with the fund manager permitted by my employer; the fund has gone up by 10% over 7 years - truly pathetic compared to what my self managed share portfolio has done in the same time frame(and I don't claim to be an investment genius).
I agree that there is a risk that the government may do something nasty to pensions, but in the meanwhile 100% of my money has been working for me in my pension rather than the 60% that the government would have let me have as post tax salary.
In the days before I took out a personal pension, I put my AVC's with the fund manager permitted by my employer; the fund has gone up by 10% over 7 years - truly pathetic compared to what my self managed share portfolio has done in the same time frame(and I don't claim to be an investment genius).
I agree that there is a risk that the government may do something nasty to pensions, but in the meanwhile 100% of my money has been working for me in my pension rather than the 60% that the government would have let me have as post tax salary.
Assuming you pay tax at 40% and use your ISA allowance in full, go for a SIPP - self invested personal pension. You'll pay a little more in admin and you'll have your dealing costs, but you'll retain full control of the investments and the risk. The tax breaks can be very worthwhile.
Percy Flage said:
Assuming you pay tax at 40% and use your ISA allowance in full, go for a SIPP - self invested personal pension. You'll pay a little more in admin and you'll have your dealing costs, but you'll retain full control of the investments and the risk. The tax breaks can be very worthwhile.
My issue is what happens when a future Govt decides to go after SIPPs? I mean, our pension industry was rock solid until Labour went after it. Just strikes me that any scheme that has a tax break is liable to be raided sometime in the future.tinman0 said:
Percy Flage said:
Assuming you pay tax at 40% and use your ISA allowance in full, go for a SIPP - self invested personal pension. You'll pay a little more in admin and you'll have your dealing costs, but you'll retain full control of the investments and the risk. The tax breaks can be very worthwhile.
My issue is what happens when a future Govt decides to go after SIPPs? I mean, our pension industry was rock solid until Labour went after it. Just strikes me that any scheme that has a tax break is liable to be raided sometime in the future.Simpo Two said:
What bothers me a bit is that a pension is linked to an annuity and you have to take the rate that applies at the time.
Thats not accurate. You do not have to purchase an annuity. you can draw down on the funds to provide an income through retirement purely from erroding the capital.trunnie said:
The problem with pensions is that most people don't realise that it is possible to do it yourself. If you look at a SIPP by Alliance Trust or Hargreaves Lansdown then it is basically a wrapper to enable you to buy shares, hold money on deposit and buy unit trusts/OEICs at very low cost, only marginally ore than a no fees broking account. You have the control not the fund manager - so many people seem to choose "pension funds" with the attendant high fees and often lacklustre performance. If you're confident in DIY investing then one of these ultra low cost SIPPs is interesting (though as a low cost you can't buy property directly, just property shares/REITs etc). For a higher rate tax payer it's an excellent deal. You don't need an IFA to buy such a SIPP either.
In the days before I took out a personal pension, I put my AVC's with the fund manager permitted by my employer; the fund has gone up by 10% over 7 years - truly pathetic compared to what my self managed share portfolio has done in the same time frame(and I don't claim to be an investment genius).
I agree that there is a risk that the government may do something nasty to pensions, but in the meanwhile 100% of my money has been working for me in my pension rather than the 60% that the government would have let me have as post tax salary.
Exactly. On the point about property, I believe it is currently under review to allow property to be included in a pension pot.In the days before I took out a personal pension, I put my AVC's with the fund manager permitted by my employer; the fund has gone up by 10% over 7 years - truly pathetic compared to what my self managed share portfolio has done in the same time frame(and I don't claim to be an investment genius).
I agree that there is a risk that the government may do something nasty to pensions, but in the meanwhile 100% of my money has been working for me in my pension rather than the 60% that the government would have let me have as post tax salary.
I'm looking at starting a SIPP with www.hoodlessbrennan.com once I have a grand to chuck in as the initial fund. (too bad as a contractor my pay scheme only gets me lower rate relief
)srebbe64 said:
tinman0 said:
Percy Flage said:
Assuming you pay tax at 40% and use your ISA allowance in full, go for a SIPP - self invested personal pension. You'll pay a little more in admin and you'll have your dealing costs, but you'll retain full control of the investments and the risk. The tax breaks can be very worthwhile.
My issue is what happens when a future Govt decides to go after SIPPs? I mean, our pension industry was rock solid until Labour went after it. Just strikes me that any scheme that has a tax break is liable to be raided sometime in the future.Everyone was making hay with pensions right up until 97 when they got raided. I mean, who saw that coming?
With hard assets its a much more difficult proposition for them to help themselves to it. I mean - imagine them raiding peoples bank accounts? They can't easily do it, and plus money is fluid, so the moment they announced their intentions cash would flow out of the economy at a fabulous rate of knots.
I think its my personal view to be honest. The less i have to do with a Govt and their schemes, the better.
Sorry if it wasn't clear, but my point about the property was just that the low cost SIPP's don't allow you to invest in property because they're cheap and cheerful. A full SIPP (whose charges are a lot more) does allow direct investment in commercial property. SIPP's can just be used as a wrapper for the investments that you'd normally have.
You can also normally take a 25% tax free lump sum from a pension and use the balance to buy an annuity.
The thing that people don't focus on in buying investments is the charges, which over the years can really make a huge dent in otherwise good performance if you choose an investment/structure with large charges.
The government removing tax relief on dividends was more of a straw that broke the camels back. The real damage to pensions was done by the government in the last century deciding that they had to limit the surpluses building up in company pension schemes (so they could tax the money) so lots of companies took payment holidays and thus the schemes had less of a cushion for the bad investment times.
You can also normally take a 25% tax free lump sum from a pension and use the balance to buy an annuity.
The thing that people don't focus on in buying investments is the charges, which over the years can really make a huge dent in otherwise good performance if you choose an investment/structure with large charges.
The government removing tax relief on dividends was more of a straw that broke the camels back. The real damage to pensions was done by the government in the last century deciding that they had to limit the surpluses building up in company pension schemes (so they could tax the money) so lots of companies took payment holidays and thus the schemes had less of a cushion for the bad investment times.
I have no pension to speak of; the private one I had performed so comically that I've not kept track of it. And since then Gordon has made it abundantly clear that he'll help himself when he wants to. Despite all the tax incentives, I don't bother.
In the UK at present, you need to either retire very rich, or broke. Anywhere in the middle and your prudence will be held against you.
In the UK at present, you need to either retire very rich, or broke. Anywhere in the middle and your prudence will be held against you.
tinman0 said:
With hard assets its a much more difficult proposition for them to help themselves to it. I mean - imagine them raiding peoples bank accounts? They can't easily do it, and plus money is fluid, so the moment they announced their intentions cash would flow out of the economy at a fabulous rate of knots.
Are you familiar with the "reclamation" team Gordon is setting up to raid peoples dormant accounts for funds which will only be given back if the people whose accounts it came from ask for it?As in, they will raid the dormant account and take the money. Should the person do their own digging off their own back and discover they had said account, after a no doubt lengthy process, the Govt will give it back.
The fact they call it a "reclamation" as if claiming back what is rightfully theirs says it all.
emicen said:
tinman0 said:
With hard assets its a much more difficult proposition for them to help themselves to it. I mean - imagine them raiding peoples bank accounts? They can't easily do it, and plus money is fluid, so the moment they announced their intentions cash would flow out of the economy at a fabulous rate of knots.
Are you familiar with the "reclamation" team Gordon is setting up to raid peoples dormant accounts for funds which will only be given back if the people whose accounts it came from ask for it?As in, they will raid the dormant account and take the money. Should the person do their own digging off their own back and discover they had said account, after a no doubt lengthy process, the Govt will give it back.
The fact they call it a "reclamation" as if claiming back what is rightfully theirs says it all.
Also, a dormant account iirc is where a bank has somehow lost contact with you, eg you moved and forgot about the account, or died and no one knew about the account. Its not an account where you get a monthly statement that you keep an eye on.
Another point about SIPPs and all personal pension is that you can reclaim HRT in your tax return.
So if you're a high rate tax payer then, for example, you pay in £5,000 into a SIPP, the govt then adds £1,410 to the SIPP (Basic rate refund), then the govt pays you back £1,154 cash(higher rarte refund).
A decent retirement plan would include some or all of the following (IMO):
-SIPP
-Company pensions
-ISAs
-Direct investments
-Property
-Classic cars
Within the SIPPs/ISAs and direct investment should be a mixture of funds spread across all regions and risk, cash, bonds etc etc
So if you're a high rate tax payer then, for example, you pay in £5,000 into a SIPP, the govt then adds £1,410 to the SIPP (Basic rate refund), then the govt pays you back £1,154 cash(higher rarte refund).
A decent retirement plan would include some or all of the following (IMO):
-SIPP
-Company pensions
-ISAs
-Direct investments
-Property
-Classic cars
Within the SIPPs/ISAs and direct investment should be a mixture of funds spread across all regions and risk, cash, bonds etc etc
tinman0 said:
emicen said:
tinman0 said:
With hard assets its a much more difficult proposition for them to help themselves to it. I mean - imagine them raiding peoples bank accounts? They can't easily do it, and plus money is fluid, so the moment they announced their intentions cash would flow out of the economy at a fabulous rate of knots.
Are you familiar with the "reclamation" team Gordon is setting up to raid peoples dormant accounts for funds which will only be given back if the people whose accounts it came from ask for it?As in, they will raid the dormant account and take the money. Should the person do their own digging off their own back and discover they had said account, after a no doubt lengthy process, the Govt will give it back.
The fact they call it a "reclamation" as if claiming back what is rightfully theirs says it all.
Also, a dormant account iirc is where a bank has somehow lost contact with you, eg you moved and forgot about the account, or died and no one knew about the account. Its not an account where you get a monthly statement that you keep an eye on.
tinman0 said:
emicen said:
tinman0 said:
With hard assets its a much more difficult proposition for them to help themselves to it. I mean - imagine them raiding peoples bank accounts? They can't easily do it, and plus money is fluid, so the moment they announced their intentions cash would flow out of the economy at a fabulous rate of knots.
Are you familiar with the "reclamation" team Gordon is setting up to raid peoples dormant accounts for funds which will only be given back if the people whose accounts it came from ask for it?As in, they will raid the dormant account and take the money. Should the person do their own digging off their own back and discover they had said account, after a no doubt lengthy process, the Govt will give it back.
The fact they call it a "reclamation" as if claiming back what is rightfully theirs says it all.
Also, a dormant account iirc is where a bank has somehow lost contact with you, eg you moved and forgot about the account, or died and no one knew about the account. Its not an account where you get a monthly statement that you keep an eye on.
The moral of the story is this government clearly believes they can do whatever the hell they like financially. This reclamation nonsense is not that different to the Spanish land grab, it was yours, now its ours, want it back, fight for it.
emicen said:
Thats ok then. The account my hypothetical godfather set up for me at birth before being so inconsiderate as to die, that nobody told me about, well thats not really mine and they government should absolutely be able to plunder at will.
The moral of the story is this government clearly believes they can do whatever the hell they like financially. This reclamation nonsense is not that different to the Spanish land grab, it was yours, now its ours, want it back, fight for it.
I am in no way supporting reclamation. I think its morally wrong for a Govt to help itself to money that is nothing to do with it.The moral of the story is this government clearly believes they can do whatever the hell they like financially. This reclamation nonsense is not that different to the Spanish land grab, it was yours, now its ours, want it back, fight for it.
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