Saturday, Oct 25, 2008
Is a pension a good investment though?
Scotsman: Scots urged to raise pension saving as house prices fall
Pension saving in Scotland is significantly down on the UK average, with 49 per cent not putting money into a pension scheme, compared with 41 per cent across the UK as a whole, according to research by adviser and broker Brewin Dolphin. Instead it revealed that 20 per cent of Scottish homeowners – and seven million UK homeowners in total – intend using their property to fund their retirement. As house prices fall, however, that strategy could backfire badly, warned David Rankin, assistant director of financial services at Edinburgh-based Bell Lawrie, a division of Brewin Dolphin.
Posted by quiet guy @ 10:54 AM (538 views) Add Comment
12 Comments
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1. mark wadsworth said...
They are mad.
Right now, the least-bad asset has to be cash. Sterling has fallen so far that there's not even much mileage in swapping into another currency. All pension funds do is rake off the entire value of the tax breaks and invest your hard earned cash in sliding stock markets.
2. quiet guy said...
I've just noticed studdymx's posting at 08:58. It appears that I've managed to post a duplicate.
3. str 2007 said...
Hello mark
Hope you didn't have food poisening yesterday, I wondered where you were with all the news.
Thought I'd find you on this link.
I know you say about lack of performance for most pensions and excessive charges and I'm inclined to agree.
However I've been considering a SIPP recently and given a smallish 0.5 or 1% annual admin charge I feel that the charges are more transparent as I would simply be holding my shares under a tax free umbrella and using money I hadn't paid tax on.
The rules aren't 100% clear to me at maturity (and I wouldn't be interested if I was forced to buy an annuity) but given I would be allowed to run the pension fund back down again in a way of my choosing in my old age, then it strikes me that there should be an advantage to investing this way.
(I work on the basis not to expect anymore than 5% return on final investment and that to recieve £15k p/a (the bare minimum) would need to accrue £300k one way or another).
If I was to puchase these shares outside of a pension then I would be putting roughly 20% less per year and then paying 20% more at the end to cash them in. Which strikes me as a far higher figure than 1/2 or 1% pa management charge over 25 years. If I was a higher rate tax payer I'd be even better off with pension money in a SIPP.
Perhaps you'll correct me on this assumption.
4. renting2 said...
At the top of every pension fund is a potential Maxwell.
5. str 2007 said...
renting2
That's a scary thought.
6. mark wadsworth said...
@ STR2007, yes, there are tax breaks. And to be fair, the whole compulsory annuity idea seems to be gradually falling by the wayside, if we extrapolate the changes over the last decade another two decades into the future, I doubt whether there will be any compulsion at all by the time you retire.
For political parties, relaxing these rules is a win-win, and UKIP are the only ones who have said it, in fact we'd go further and allow you to withdraw all your fund provided you paid the normal tax rate on the value, but hey.
But ignoring all the bits and pieces, for a basic rate taxpayer, the tax breaks are largely worthless - you save 20% tax on the way in, but pay 20% tax when you take it out again. Yes, the funds are growing 'tax free' but so what? Basic rate taxpayers don't pay tax on dividends, and you have an annual capital gains tax exemption of £9,000 for you plus £9,000 for Mrs STR2007. And if your money's in cash, isn't it better to earn 5% and pay 20% of that in tax = net income 4%, than it is to earn 5% and pay 1% to the fund trustee, net income 4%?
Again on a political note, the way that the Pension Credit works, the first £3,000 or so of your pension is taxed at an effective rate of 100%, so for lower earners, you might as well spend it while you are young. And the smaller your fund, the larger the total cost of all the various charges - estimated at up to 25% I read in the FT a while back.
7. last_days_of_disco said...
Due to a change in my employment coming up, I am thinking of ditching my entire pension and taking the money and turning it into
cash or gold. What do you think about that Mark?
Is it legal? I am tired of seeing a chunk of my income being put into a pension fund I know isn't going to be worth thrupence.
8. str 2007 said...
Thanks for your feed back mark.
Yes to my mind if I had 300k (for example) (in fact 330k) then I could use my 1st 2 years of retirement using 30k of capital (while 30k of interest built up) so I'm a year or 2 in hand so to speak. I'd plan to go along like that for 20 odd years and then as I needed a little help here and there start to use up my capital aswell which should be good for another 10-15 years. Admittedly my funds will be running dry as I approach 100 years old but I reckon I had too much fun in my youth to be concerned with get much past 90 !
If it turns out I really had too much fun in my youth and I peg out early, at least I'll have something left for the wife & kids, which wouldn't be the case with an annuity. Which is why I wouldn't entertain one.
LDAD
CAn you actually get at money again once it's in a pension ?
I thought it was locked up for good (until retirement at least).
You might be able to transfer it into a SIPP where you would have more control. Im not an FA so don't take my word for any of this.
9. jack c said...
@last_days_of_disco - what age are you?
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