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Isambard

Is It Actually Worth Investing Into A Pension

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Just wanted to know everyones thoughts - Is it worth investing in a pension (I am in a GPP which I contribute the min in)

Cant withdraw until 55

money locked in

mortgage rates and interest rates are historically low

If I take draw the pension and get divorced\partner passes away - money cannot be passed on to my son or the money goes to the divorcee.

Tax relief is a bonus (not a higher tax rate taxpayer)

Seems to be your better off investing in shares and ISA's and houses!!

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IMO you're always better off investing in shares rather than cash deposits; but you can do it in a SIPP and get the tax relief paid in on top.

The restriction on withdrawals until you're 55 may or may not be a problem, depends upon your circumstances.

I just see it as a very tax beneficial form of investing with the only downside being the upper annual limit (£40k, but this is for all pension and company contributions to a defined benefit scheme will take a huge chunk out of this because of their ascribed value).

I haven't looked into it but if in a SIPP then I presume you can steadily take it all out and transfer it into an ISA post 55 so you keep the tax benefit and can then just leave your ISA to your dependents.

Houses, hmmmm..... It's nice to have one but I think BTLers are exposed to a lot of things that coudl potentially go wrong, plus it's hassle.

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I agree Frank - i meant taking on a massive mortgage. Its better to take that on than to save - You've got low IR etc.

I am just a renter so it seems odd to save into something (a pension) when I havent even started paying off a house.

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It's worth it if you can save "40%" (or higher) tax.

It's worth it if it gets you an employer contribution.

It's worth it if you can pay by "salary sacrifice" and save NI.

If none of the above apply, the tax advantages compared to an ISA get fairly marginal, and your main motivations might be things like financial discipline.

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I agree Frank - i meant taking on a massive mortgage. Its better to take that on than to save - You've got low IR etc.

I am just a renter so it seems odd to save into something (a pension) when I havent even started paying off a house.

Ah got you.

Um, difficult one.

In your position I would probably (and I may get banned for this!) buy a house with a big mortgage and minimum depoist as long as the level of mortgage payments allows you to save up a side fund that will allow you to pay off a big chunk of the mortgage when interest rates go up. Who can tell when this will happen but I think you'd have 5 - 8 years of making hay and possibly 8 years would be enough to save up the cash to pay it off.

So you may well (and I think you will) have overpaid on your house but you'll be better off in ten years because of the low mortgage rate and non-existent savings rates if you're in cash.

There are many advantages to having your own place, especially freehold, so it is nice in itself if not the wildly aspirational dream that the TV shows present it as.

The example I've given before is that I now have enough room to have a homebrew cupboard!

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Yes Frank - Thats why this site has been wrong, wrong for years. Lots of good advice on here- but if I had bought in pre 2007 I would be sitting pretty. I havent and now I will pay the price.

Maybe a crash will come who knows - its been a long long long time.

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Yes Frank - Thats why this site has been wrong, wrong for years. Lots of good advice on here- but if I had bought in pre 2007 I would be sitting pretty. I havent and now I will pay the price.

Maybe a crash will come who knows - its been a long long long time.

It has only turned out to be wrong because the normal inflation / interest rate cycles were broken in 2007; there is now a vast amount of investment by governments in the absolute need to keep interest rates on the floor and they will try to do so with talk of the "new normal". Carney would have them negative tomorrow if he thought he could get away with it.

US rates are creeping up a snail's pace but Euro rates will be on the floor for ages and they'll continue to act as a drag upon us.

It's all hypothetical for me these days, for which I feel fortunate, but if I hadn't already bought then I would be happy to max out mortgage / minimise deposit and would keep existing investments and then add to them ready to pay off the mortgage in the event of an interest rate spike and hope that what I gained on the investments and saved in rent was greater than the capital loss on the house; and the longer interest rates stay low before rising the greater chance there is of that being the case. If they shot up in two years' time then this strategy would be a disaster, if they stayed low for twenty years then it would be a winner. It's a punt.

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I agree again Frank - but you say

It has only turned out to be wrong because the normal inflation / interest rate cycles were broken in 2007; t

Well its a bit like saying we only lost a football match because of the referee. Trouble is thats the end result. High housing prices through government intervention, but they are high and continue to rise- Nothing appears to break it I cannot see a black swan (although i COULD be wrong) I am no expert.

Trouble is the site is flawed- we are still clinging on to that hope of a crash (me included trust me) as the years go ticking by.

Sorry slightly off subject!

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I agree again Frank - but you say

Well its a bit like saying we only lost a football match because of the referee. Trouble is thats the end result. High housing prices through government intervention, but they are high and continue to rise- Nothing appears to break it I cannot see a black swan (although i COULD be wrong) I am no expert.

Trouble is the site is flawed- we are still clinging on to that hope of a crash (me included trust me) as the years go ticking by.

Sorry slightly off subject!

Yes, don't let Off Topic drift On Topic.

The important things that the On Topic part of this site teaches you is caution; that there are no one way bets.

My knowledge of peak oil meant I went heavily into oil stocks and then came along fracking. Overall I'm slightly up but it wasn't the path to wealth that I thought it was.

You can go wrong with bricks and mortar, house prices do crash despite the government not wanting them to. A home is however an important part of your life so as long as you protect yourself such that you won't get wiped out by a crash you'll be fine. No heavily-leveraged BTL empires for example.

I can see lots of things that could make house prices crash but the government would not want any of them to happen and so would work to prevent them. My opinion is that they can't prevent them all for ever and there will be another crash; but it's not worth putting your life on hold while you wait for it.

If the crash happens after I've stopped working then I might buy somewhere special with some land and do something with it (orchard, grow food, don't know) but I'm not waiting upon that; there are plenty of other things that I want to do that don't involve having a lot of land or moving house.

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It's an interesting thing. OK we all philosophically agree that we want houses as homes, not as investments and speculation is to be discouraged. But generally I wouldn't attempt market timing for stocks and shares (e.g. pension) because the long term game is important. So why are we all obsessed with timing buying a house? I guess the whole affordability and ridiculous debt leveraging adds a very different dimension to the risk than plonking in spare money in a pension.

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A bird in the hand is worth two in the bushes.

Unless you're a higher rate tax pay and/or your company matches your contribution then I'd personally use the ISA wrapper. The employer contribution has to be meaningful like 8% against your 5%.

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It's an interesting thing. OK we all philosophically agree that we want houses as homes, not as investments and speculation is to be discouraged. But generally I wouldn't attempt market timing for stocks and shares (e.g. pension) because the long term game is important. So why are we all obsessed with timing buying a house? I guess the whole affordability and ridiculous debt leveraging adds a very different dimension to the risk than plonking in spare money in a pension.

I think anybody who remembers previous crashes: negative equity, people handing their keys back, houses as unsellable liabilities, would see the huge importance of timing as they have seen (or may have themselves) got it very very wrong. It's because it's for most people a debt-funded purchase that it's far more risky than just buying shares with cash. When it goes wrong it can bankrupt you.

If you view a house as an investment then IMO it's a poor investment with huge downside risk. If you don't view it as investment then if you can purchase somewhere you want to live for the next decade or more without taking a big risk then why not?

If I didn't have a house then I would absolutely buy a modest one today; as I already have one I would not consider buying another because that would be as an investment and my opinion is that it would be a dreadful investment.

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A bird in the hand is worth two in the bushes.

Unless you're a higher rate tax pay and/or your company matches your contribution then I'd personally use the ISA wrapper. The employer contribution has to be meaningful like 8% against your 5%.

Um, what's wrong with a SIPP wrapper? Full tax relief and the only downside relative to an ISA is you can't touch it until you're 55. Unless you're specifically saving for something then that shoudln't be a problem, you don't tend to start dipping into your investmenst until you retire, and some not even then.

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Timing's important with houses because of (A) it's one Big Feck Off lump sum, and (B) people tend to lever up. Timing wouldn't be so important if you never had to sell - but with leverage you're not in control of that side of the equation any more.

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This is a question that I'm asking. I started bat a new place a couple of years ago, and my company pension is getting about £5k per year going into it. If I stay for 10 years about £50k (plus whatever real growth, if any, that the markets generate).

I'd probably get a piddling £1.5k per year at 60 with that. I'd rather see if I can get the lot out over 2 or 3 tax years and 'pay' myself £10k per year for 4+ years instead. I hardly know anyone who lives healthy and expensive lives into their 80s, but maybe that's just because it pie n chip munching Rotherham I'm from?

I'm hoping that the Tory pension freedom rules will allow me to do that. At a company pension presentation the pension company reps were very sniffy about the new pension freedom rules. I found myself thinking that if they didn't like them so much, then the rules were probably good for me instead.

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This is a question that I'm asking. I started bat a new place a couple of years ago, and my company pension is getting about £5k per year going into it. If I stay for 10 years about £50k (plus whatever real growth, if any, that the markets generate).

I'd probably get a piddling £1.5k per year at 60 with that. I'd rather see if I can get the lot out over 2 or 3 tax years and 'pay' myself £10k per year for 4+ years instead. I hardly know anyone who lives healthy and expensive lives into their 80s, but maybe that's just because it pie n chip munching Rotherham I'm from?

I'm hoping that the Tory pension freedom rules will allow me to do that. At a company pension presentation the pension company reps were very sniffy about the new pension freedom rules. I found myself thinking that if they didn't like them so much, then the rules were probably good for me instead.

Chap at work is talking about cashing in several years of his final salary pension next year when he hits 55 to give him the cash to take a big holiday. I think he's mad and told him so, particularly as he has enough in savings to pay for it anyway but doesn't want to break into those - seeing pension release as free money. Hopefully he'll think again. Just because you can do something doesn't meant that you should.

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This is not financial advice, but suggest that you go into a pension (or anything long term) with eyes wide open. My particular pension has seen the goalpost moved on numerous occasions. When I first started it, it was very good with a retirement age of 55. Final salary (it still is this). But, have seen the age range of retirement move to 67 and contributions increase. If I knew then what I know now I would not throw all those monthly contributions at a startling 5.5 k a year retirement pot,

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Um, what's wrong with a SIPP wrapper? Full tax relief and the only downside relative to an ISA is you can't touch it until you're 55. Unless you're specifically saving for something then that shoudln't be a problem, you don't tend to start dipping into your investmenst until you retire, and some not even then.

Nothing per se it's only a matter of wanting your money taxed either on the way in (ISA) or on the way out (SIPP). With the latter there is always the risk that'll be taxed at both ends via governments meddling with the rules including withdrawal of 25% tax free lump and means testing the state state pension against assets and income streams already held. IMO both inevitable.

State pension will be a minimum income top up guarantee it. So to have the cash, oh to have the money. They are already reneging on other commitments such as free NHS healthcare, first they came for the fat people, then the smokers...

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Nothing per se it's only a matter of wanting your money taxed either on the way in (ISA) or on the way out (SIPP). With the latter there is always the risk that'll be taxed at both ends via governments meddling with the rules including withdrawal of 25% tax free lump and means testing the state state pension against assets and income streams already held. IMO both inevitable.

State pension will be a minimum income top up guarantee it. So to have the cash, oh to have the money.

There is this, I can't see how I'm going to be able to avoid paying tax when retired as I manage to at present.

I used to rely heavily on investing in VCTs (tax relief on way in, tax free dividends) but the rules on those have been tightened up so there are loss out there. There may be other schemes out there in time.

I would still go for the initial tax relief and a build a bigger sum in a SIPP then pay tax on what you do take out than have the lower start point and thus lower sum achieved of an ISA albeit with the tax free drawing.

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If you are a working person on a normal wage, then I guarantee you that any pension-scheme you pay into these days is completely worthless to you - and you are simply pissing your money up the wall.

When ideas like "salary sacrifice" become the norm, alarm bells should be ringing loud and clear. You are being taken for a mug. For sure the oily salesman will make some money - but the pension-scheme certainly won't..!

Take whatever you are thinking of wasting every month on this pension, and spend it on coke and whores instead. That oily salesman I mentioned earlier will certainly be doing exactly that - do you seriously wish to remain the daft bastad paying for it all...?

Trust me - There are no pockets in a shroud...

XYY

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With Pensions being in the horrible state they are I am holding off on starting one, may never start one in fact, most look like Ponzi Schemes. I have instead a Dividend Stock portfolio that I manage and contribute to every 6 months or so, I look for good companies that pay around 4% and upwards dividends usually (although some stocks I own pay less but are relatively safe and well managed so I don't mind). I view pensions as an experiment that we are reaching the end of sadly. I think their main purpose was to buy the middle aged and elderly vote but now after decades of testing out the experiment we find it to be unsustainable. Historically people worked until they died, or if they could they would have their kids support them in their final years. I think realistically we are going back to that, you can see it coming with State Pension ages rising, it will get to the point where the average pension pay out age exceeds the average life expectancy.

I like to diversify my investments and hopefully they don't all go to sh*t.

I have the following:

Dividend Stock Portfolio

Precious Metals

Art

Antiques

Musical Instruments (a very overlooked asset, a good quality guitar will outperform inflation in my experience)

Rare LP's, EP's, CD's etc

Numismatic Coins

I suppose I could class my current business as an asset too since it provides cashflow?

Anyways, I plan to add property and land to the list too someday when it becomes more affordable. I think the trick is to have a broad range of investments as opposed to just a pension and your home. I like to emulate the investing methods of the very wealthy, the Rothschild and the like. Look at how they invest their money, it certainly seems to work out for them.

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With Pensions being in the horrible state they are I am holding off on starting one, may never start one in fact, most look like Ponzi Schemes. I have instead a Dividend Stock portfolio that I manage and contribute to every 6 months or so, I look for good companies that pay around 4% and upwards dividends usually (although some stocks I own pay less but are relatively safe and well managed so I don't mind). I view pensions as an experiment that we are reaching the end of sadly. I think their main purpose was to buy the middle aged and elderly vote but now after decades of testing out the experiment we find it to be unsustainable. Historically people worked until they died, or if they could they would have their kids support them in their final years. I think realistically we are going back to that, you can see it coming with State Pension ages rising, it will get to the point where the average pension pay out age exceeds the average life expectancy.

I like to diversify my investments and hopefully they don't all go to sh*t.

I have the following:

Dividend Stock Portfolio

Precious Metals

Art

Antiques

Musical Instruments (a very overlooked asset, a good quality guitar will outperform inflation in my experience)

Rare LP's, EP's, CD's etc

Numismatic Coins

I suppose I could class my current business as an asset too since it provides cashflow?

Anyways, I plan to add property and land to the list too someday when it becomes more affordable. I think the trick is to have a broad range of investments as opposed to just a pension and your home. I like to emulate the investing methods of the very wealthy, the Rothschild and the like. Look at how they invest their money, it certainly seems to work out for them.

That's not a million miles from us (LTS en famille). We've got the dividend portfolio (held mostly in a SIPP sadly) and I've beaten the People's Pension own fund which wasn't difficult as it's been lacklustre and I'll be transferring that over too. My key rule is to only invest in companies that I use such as eSure, Sainsbury's SSE etc etc

I'm out of physical metals now but have quite an exposure to the mining of precious metals/metals.

XYY man I was thinking more along the lines of using an ISA wrapper instead but your idea is better :lol:

Frank Hovis, tax is one of two certainties in life so we have diverted a portion of surplus income to educating our children (which is like investing in the tools - they're my pension :D ).

Two other things; TPTB are keen to have the masses take equity in houses (be it 10, 25 or 100%) as it'll be easy to seize the capital to pay for nursing fees or to recover the future state pension through charging orders and whose to say TBTB won't get first refusal on SIPP balances on death via the same method.

The smartest money is on having none.

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I reckon by the time I retire the age will be 70. Unlike many others - I do think a state pension will still exist. No Government would cope with having scores of pensioners on the news living on the street having paid into the system all their lives. It will however be means tested. Only question is whether that includes your 'home' or not IMO.

Do I have a plan ? Not really. But I suppose I have thought about it. Could buy a small place outright by age of 40. I may then save up - if I can - until I am 60. Then select a cheap country I like that has some option of buying a visa for 10 years for £x amount. Move there and rent a wee place + health insurance = nice pleasant life for 10 years. Rent out place here to help that along. Run out of money come 70. Depending on the rules - because I have no 'savings' should still be able to claim the basic state pension from then on. Either stay abroad of come back home.

Lots of ifs - but then who knows what the ****** the future is like.

I think reaching pensionable age - having full years paying into it - but having zero cash savings/shares etc.. is potentially the best option. Who knows though. It's a big gamble.

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Huge gamble.

You throw yourself penniless onto the state and you get what the state provides.

You may be lucky or you may end up in a damp council flat with abusive neighbours having parties all the time; you are then powerless.

I have known for thirty odd years a woman who came from money and married money; when I first knew her she had a big house, a Jensen Interceptor and high living. She was already separated by that point.

Since then the money has steadily run out, went down to a small house, then to a one bed flat in a block used for holiday lets so there are parties to the small hours in the summer. However much she enjoyed the good times she is now in her sixties stuck living on her own, somewhere she doesn't want to live, and there is no realistic prospect of changing that. She will house sit for anybody just to get out of living in that flat. It is all her own doing and she certianly enjoyed herself at the time but I think she would have done it differently if she had the choice. Which she doesn't.

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XYY man I was thinking more along the lines of using an ISA wrapper instead but your idea is better :lol:

Might as well be a Mars bar wrapper for what good it'll do ya long tom...! ;)

The smartest money is on having none.

PAY ATTENTION EVERYBODY - Those seven words from long tom are the finest free advice you will EVER get.

The richest people I know have no visible wealth...

XYY

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