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tennaval

Quandry....pension Or Isa

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Any help, views much appreciated. Long story short I look after my girlfriends pension/savings. She's 50 yrs old and has accrued circa 50,000 in AVIVA (formerly NU) in Uk and Euro funds. I stopped the contributions last year as she was made redundant. However she has just started a new job @ £40,000 pa. She has very small outgoings/mortgage so could probably afford £600 per month, however taking into account her age and any real chance of building a significant pot, do I continue pumping money in on the basis that something is better than nothing. Or make a complete step change and channel her money into ISAs instead? Which, if we avoid meltdown could accumulate into a sizable sum over say 10 yrs? (or not). Its not a position I relish, as I really dont trust any of it, pensions or advisors, but at the same time, when its not your money and somebody elses future security its particularly worrying........Is anybody else in the same postion?

Edited by tennaval

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Any help, views much appreciated. Long story short I look after my girlfriends pension/savings. She's 50 yrs old and has accrued circa 50,000 in AVIVA (formerly NU) in Uk and Euro funds. I stopped the contributions last year as she was made redundant. However she has just started a new job @ £40,000 pa. She has very small outgoings/mortgage so could probably afford £600 per month, however taking into account her age and any real chance of building a significant pot, do I continue pumping money in on the basis that something is better than nothing. Or make a complete step change and channel her money into ISAs instead? Which, if we avoid meltdown could accumulate into a sizable sum over say 10 yrs? (or not). Its not a position I relish, as I really dont trust any of it, pensions or advisors, but at the same time, when its not your money and somebody elses future security its particularly worrying........Is anybody else in the same postion?

Don't take that on, unless you're entering into a state of shared finances. If things don't go well, you're lining yourself up for endless guilt and blame.

A pension as such has little to recommend it if she's on basic rate tax (save tax now, but pay it later). The exception to that is if she falls below the threshold for any tax at all in retirement (bearing in mind pensioners have a higher threshold than working people).

ISAs are pretty-much useless now, but it's somewhere to be for the future: for cash when interest rates rise; for stocks&shares it's somewhere to be if her income rises into higher-rate tax. Put money in each tax year to use up your allowances.

Apart from that, one to consider is VCTs, for a much bigger tax advantage than a pension. A £10k investment gets £3k back from the taxman in next year's tax return, plus a tax-free income for the future. Repeat over ten or fifteen years to retirement, and you've got a respectable pension! The downside is higher risk, and I certainly wouldn't put all my eggs in that basket.

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I have a similar question. My girlfriend's pension is also non-existent. She is coming into ~£40k soon, but that's about it. What suggestions would you have for putting this money aside for retirement?

I'm only 25 and starting out. I have an ISA but rates are rubbish. I understand pensions are tax-free but I know there are fees galore and it may not be shining when you finally get it.

One question before I go on. Whatever you live off when you retire, be it pension or ISA savings.... is that taxable?

Anyway... I'm reading up left right and centre online and there are no really good bets. I've got the option of paying into a pension with my work and am wondering whether I should take it or have an increase on my salary instead. Looking at pensions calculators online the return when I retire is PITIFUL for the large sums put in. More and more I reckon I should join the police, if just for their incredible pension!

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I have a similar question. My girlfriend's pension is also non-existent. She is coming into ~£40k soon, but that's about it. What suggestions would you have for putting this money aside for retirement?

I'm only 25 and starting out. I have an ISA but rates are rubbish. I understand pensions are tax-free but I know there are fees galore and it may not be shining when you finally get it.

One question before I go on. Whatever you live off when you retire, be it pension or ISA savings.... is that taxable?

Anyway... I'm reading up left right and centre online and there are no really good bets. I've got the option of paying into a pension with my work and am wondering whether I should take it or have an increase on my salary instead. Looking at pensions calculators online the return when I retire is PITIFUL for the large sums put in. More and more I reckon I should join the police, if just for their incredible pension!

You need to have about £1m in a private pension for a decent (c.£40-50k) retirement income - the simple answer is - get saving

(With an ISA you wont pay tax on the income so you would need at c.£750k pot)

Investment returns are rubbish (5% after charges and inflation pa is the best you can sensibly hope for), so look for the lowest cost plans OR plans where your employer contributes

Either approach means you will not have to take so much risk with your investments

If you are a higher rate tax payer or your employer contributes, a pension is a no brainer win over an ISA, ideally you should have both though

Either that or work till you are 70....your choice <_<

Forget the Police pension scheme (or any other public service scheme) - it is certain those benefits will change dramatically for the worse in the next five years ;)

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[...]

Apart from that, one to consider is VCTs, for a much bigger tax advantage than a pension. A £10k investment gets £3k back from the taxman in next year's tax return, plus a tax-free income for the future. Repeat over ten or fifteen years to retirement, and you've got a respectable pension! The downside is higher risk, and I certainly wouldn't put all my eggs in that basket.

To put that into context VCT have to invest in small (therefore high risk) UK companies and many VCT share prices have halved this year and not recovered :(

They arent really suitable for someone who doesnt have at least £500k to invest <_<

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You need to have about £1m in a private pension for a decent (c.£40-50k) retirement income - the simple answer is - get saving

(With an ISA you wont pay tax on the income so you would need at c.£750k pot)

Investment returns are rubbish (5% after charges and inflation pa is the best you can sensibly hope for), so look for the lowest cost plans OR plans where your employer contributes

Either approach means you will not have to take so much risk with your investments

If you are a higher rate tax payer or your employer contributes, a pension is a no brainer win over an ISA, ideally you should have both though

Either that or work till you are 70....your choice <_<

Forget the Police pension scheme (or any other public service scheme) - it is certain those benefits will change dramatically for the worse in the next five years ;)

Thanks for your excellent input!!

I'm by no means a higher-rate taxpayer unfortunately......

Regarding police pension - totally out of interest - if new recruits are signing up for final salary pensions, surely they will get them when they retire? They've signed for it, they will get it, no?

£750k+ in an ISA... the mind boggles, huh!! I think I'm going to play it safe while I'm not making big money and split it between employer contributed pension and my ISA. And I will keep on reading!

Still need to find out more to be able to help the girlfriend somewhat.

God, life must be grim for those with 25+ year mortgages who put little into a pension...

Edited by thomasross20

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Thanks for your excellent input!!

I'm by no means a higher-rate taxpayer unfortunately......

Regarding police pension - totally out of interest - if new recruits are signing up for final salary pensions, surely they will get them when they retire? They've signed for it, they will get it, no? £750k+ in an ISA... the mind boggles, huh!! I think I'm going to play it safe while I'm not making big money and split it between employer contributed pension and my ISA. And I will keep on reading!

No , they accrue it with years of service

The government changes their pension terms, they accrue at the new terms

(There will probably be some industral action and a pay increase in the middle)

Im afraid the reality is most people who are 25 now will be working until they are 70-75... :(

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No , they accrue it with years of service

The government changes their pension terms, they accrue at the new terms

(There will probably be some industral action and a pay increase in the middle)

Im afraid the reality is most people who are 25 now will be working until they are 70-75... :(

So they don't 'accrue' with the same terms they signed up for initially? If that was the case, the new police pension would have been adopted by all of them, surely? I know that several coppers remain on the old style pension..? No arguing here, simply interested!

I agree though - it's almost too good to be true, right?

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So they don't 'accrue' with the same terms they signed up for initially? If that was the case, the new police pension would have been adopted by all of them, surely? I know that several coppers remain on the old style pension..? No arguing here, simply interested!

I agree though - it's almost too good to be true, right?

The final salary schemes in the private sector were initially closed to new joiners

Then they were closed to existing members of the final salary scheme accruing extra entitlements

Its very easy to do the latter once the former is in place (same wages / benefits for doing the same job etc.)

The public sector is just a bit behind the private sector in doing this, but its inevitably that or much (c. 20%) lower public sector wages <_<

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To put that into context VCT have to invest in small (therefore high risk) UK companies and many VCT share prices have halved this year and not recovered :(

They arent really suitable for someone who doesnt have at least £500k to invest <_<

Many halved? I think you exaggerate a little. My view: in an environment where the biggest of the big (think, banks) are a casino, and cash savings are guaranteed to lose, the risk profile is turned upside down.

I have a long, long way short of £500k, but I'm budgeting £25k for VCTs this year (to use up my "basic rate" tax) and I certainly hope to turn a profit on it. Even if I don't, at least my money isn't going to the bunch of crooks who govern us. And finally, because of means-testing I'm not really any worse off if I lose the lot compared to saving the little that remains after tax.

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Many halved? I think you exaggerate a little. My view: in an environment where the biggest of the big (think, banks) are a casino, and cash savings are guaranteed to lose, the risk profile is turned upside down.

I have a long, long way short of £500k, but I'm budgeting £25k for VCTs this year (to use up my "basic rate" tax) and I certainly hope to turn a profit on it. Even if I don't, at least my money isn't going to the bunch of crooks who govern us. And finally, because of means-testing I'm not really any worse off if I lose the lot compared to saving the little that remains after tax.

Im looking at the FT's share prices of VCTs

Of the 68 listed:

22 have share prices of 50 pence or less (which means they have halved if they were issued at 100 pence) - 33% of the total

Another 20 have share prices between 50-60 pence which means they have lost their shareholders money, before any dividends paid, even accounting for a 40% income tax break - 30% of the total

I can't find a single one with a share price of above £1.... <_<

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Im looking at the FT's share prices of VCTs

Of the 68 listed:

22 have share prices of 50 pence or less (which means they have halved if they were issued at 100 pence) - 33% of the total

Another 20 have share prices between 50-60 pence which means they have lost their shareholders money, before any dividends paid, even accounting for a 40% income tax break - 30% of the total

I can't find a single one with a share price of above £1.... <_<

[1] Share price doesn't mean the same for VCTs as for "conventional" equities. The prices you see quoted are basically saying low liquidity.

[2] VCT rules make it advantageous to pay out most or all profits in dividends. A VCT you paid £1 for (60p after tax rebate) that is now listed at 35p might look like a big loss, but not if it's paid out £1.90 in tax-free dividends (that's, from memory, the lowest-current-price VCT I hold).

[3] Some VCTs set out with the express purpose of terminating and returning money to investors. They do that by running the share price down to zero as they exit investments and pay dividends from that.

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Im looking at the FT's share prices of VCTs

Of the 68 listed:

22 have share prices of 50 pence or less (which means they have halved if they were issued at 100 pence) - 33% of the total

Another 20 have share prices between 50-60 pence which means they have lost their shareholders money, before any dividends paid, even accounting for a 40% income tax break - 30% of the total

I can't find a single one with a share price of above £1.... <_<

not a recommendation etc

but maybe worth a look

link

In order to align the interests of Shareholders and the Investment Manager, Octopus will only be paid its annual management

fees if investors receive back a minimum of 105p per Share (in the form of dividends or other distributions). This means that

investors will have to receive a minimum return of 50% on the net investment of 70p per Share (after taking into account the

30% upfront income tax relief) before Octopus receives any of its management fees. This equates to an annualised return

(net of fees) of 7.85% (equivalent to a return of 13.08% per annum for a 40% taxpayer).

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not a recommendation etc

but maybe worth a look

link

You'll notice in the brochure for that one, they've published the intention to close it down after 2015. So when they exit investments, they will pay out the proceeds to shareholders, and run the value down fairly rapidly to zero. Investors will get back their money tax-free, less management fees, but with whatever gains and losses the investments have made.

Haven't decided whether to invest in that one (I do have a very small investment in one other Octopus VCT). I'll make most of my decisions nearer the end of the tax year.

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