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bazzer

Pension Advice

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Hi,

Have been reading here for a while and figure you lot are probalby the best bunch to ask for any advice involving a pound sign.

Before I begin, some info about myself: I'm 27 and have no pension and it worries me slightly. I earn around 24k, rent a shoe-box with my girlfriend in south manchester and have about 9.5k in an ISA (Abbey) and another 4k ish in a savings account (Cahoot) - ive used this years isa allowance. I save, then transfer it to the ISA every year.

The company I work for have just started a pension scheme, they will do up to 6% matched contribs and I have the usual choice of a million confusing funds etc to invest in. I'm really confused. My financial knowledge is not great... What should I do? Stash it under the matress? Not bother and stick it in my ISA when I can and NSI stuff? Pension, then spare cash in March into ISA allowance? Buy gold and a shotgun - I've been reading this forum a bit ;)

I'm sort of thinking to stick 6% in the pension, as they will match it so I'm doubling my money (plus tax?). Anything spare in March is in the ISA. The pension is with Friend Priovident if it makes a diff. Im just worried about a pension balls-up what with the impending doom...

Thanks

Barry

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Very big subject, my only real advice is to research everything as much as possible so that you can make your own informed decision, because everyone you talk will fit into a category below:

a) Do not know what they are talking about

B) speculating wildly

c) making money out of you from commission

d) all of the above (I think they call themselves Independent Financial Advisors)

But here are some points to think about:

You are in for the long haul, 40 years, so don’t go worrying about any short term stuff.

Either stick in cash or invest in shares or funds of shares, or do a bit of both.

If you are up for shares (or funds of shares), then the choice is Personal Pension or Shares ISA.

Of course the laws around pensions and stuff could change, and may have already but this is what I think is correct:

Personal pension

Pros: best way to get money into a fund as you get free money,

Cons high management fees, money locked into till you retire, you get taxed on income from a pension, need to swap you pension fund for an annuity around the time you retire (10 years).

Shares ISA

I guess that your ISA is a cash one. An option is - instead of a personal pension go for a Stocks and shares ISA. (if you don’t have a cash ISA in a year, then you can invest up to 7000 in a maxi shares ISA, or you could go mini cash and mini shares, I think the limits are 3000 and 3000?)

Pros and cons the reverse of personal pension - tax free income out of the ISA but no free cash into the fund, you can spend the cash anytime you want :)

Then what to invest in:

Funds of shares – someone else does the investing but charges you money for doing it.

Buy individual shares – cheaper but you have to make some decisions.

Fund of shares, there are 1000s to choose from general eg ftse trackers to specialised eg japan small companies. A strategy would be to have a number of different funds eg 50% in a FTSE tracker, 20% in Europe, 20% in USA 10% in China. Obviously I gave that 2 seconds thought, you could come up with something better. (See - making your own decisions is fun)

Individual shares – not as scary to invest in as one might imagine, but you need to be relaxed about the risk involved. Image x years from now and you have a fund worth say £100,000 and it is fluctuating in value 5% a week, if this scares the **** out of you then don’t bother. You don’t need to trade all the time you could just buy and hold some shares – what do think £1000 of HSBC or Tesco shares will be worth in 40 years, more or less than putting £1000 in a cash ISA? And that is the gamble, err I mean investment decision.

If you have no debt and are saving money then you have already made the best decision. The only temptation will be: if there is a severe HPC, do you wade in and join the mortgage debt slaves?

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Hi Bazzer,

may not the best to give advice here, as being in the public sector, I'm fortunate in having a final salary pension scheme. However, I'm pretty certain that it will end up getting watered down considerably before I end up drawing it, for all the various economic\demographic reasons that have been discussed many times. I'm therefore also taking personal responsibility for my savings by investing elsewhere, whilst taking a worst case view that I may get nothing back from my years of pension contributions.

I may be sadly misguided here, but I think that it's unlikely that any government backed scheme will completely default on it's obligations, as so many private schemes have, and for this reason I've stuck with it. A glib suggestion would be to get a public sector job!

So, in a rather roundabout fashion, I'd say that it depends on your faith in the pension fund management - also your investment knowledge and your attitude to risk. Looks like your company isn't running it, directly and you get the non-contrib benefit, so should be unable to do a Maxwell, but make sure that you hold all the important paperwork. Talk to Friends Provident and check what the situation would be if your company goes under. Even if you lost the company's contribution for whatever reason, it's probably still worth doing. Even if it all seems safe as houses, do you trust the fund managers to invest and manage your money wisely - what's the previous performance like? If your future plans involve starting a family, does the scheme make payments in the event of your death, if so, how and when, etc, etc? Re choosing the FP funds, it's really DYOR - if you're not sure what to go for, then play safe and diversify maybe with 5 or 6 funds - Japan, Europe, US, a 'cautiously' managed fund, and maybe one or two more high risk options. There also seem to be single price funds, whereas most of the others seem to have a 5% spread between the buy and sell price, that you'll be paying for. Check these out and see what their overall performance is like, 5% saved on the spread is 5% earned, though I have to say, I'm not au fait with how these work.

Obviously many people no longer trust pension funds, hence the 'my property is my pension' view held by many, as it appears to be a simple and understandable alternative. However, in the current phase of the economic cycle this seems much more dangerous, whether relying on BTL, or MEWing off a primary property.

Whether you pay into a pension or not, as a very conservative (small 'c') investor who's trying to learn more, in your position, I might be putting aside maybe half of my surplus cash into something low risk and if possible tax-free, like cash ISAs and NS&I index linked certificates (currently RPI+1.35%, and yes, there's all the arguments about what real levels of inflation really are), which look better once you get into the 40% tax bracket. You have to squirrel them away for 3 or 5 years, though to get the full benefit, though you can draw the cash early and take a hit on the interest.

The other half, I might be using the rest of my ISA allowance and drip feeding into the stock market every month to ride out the peaks and troughs. Maybe select a few funds if you're not happy selecting individual companies. Check spreads, commission and charges, though, as these can heavily eat into your yield, even if tax free. Religiously reinvest dividends and interest, and let the miracle of compounding do it's thing for 30 years or so, then switch to a more income based portfolio and start taking the dividends and interest, and you've pretty much got your own self managed scheme, without too much hands on time. Maybe also a small exposure to gold and PMs (maybe 5% unless you're really swayed by the goldbugs), either via a fund or physical. Whichever options you choose, and whatever level of risk, the preservation of capital is key. As you learn more, and economic climates change, the balance of your holdings will probably shift.

Important point, though, however disciplined you are, it's always best to stash the cash as soon as you get paid, if possible by DD. Treat as sacrosanct and not to be dipped into under any circumstances. However, always keep a fighting fund of three to six months cash for emergencies - even this can be earning you fairly decent interest in something like Nationwide's e-savings currently at 5.8%, albeit taxed, and it's fast to switch cash between accounts.

I'd also be trying to learn more about markets and economics in general, try paper trading before jumping in if you're not sure where to invest to begin with, or try one of the trading demo platforms at T D Waterhouse or Selftrade. It is empowering taking responsibility for your own finances. It's worth checking out DrBubb's site over at GEI, it's not all exotic options and charts, there's also lots of beginners stuff, though you might have to dig a bit, and the tone tends to be a bit more measured than on HPC. As with all things, DYOR and take all advice and opinion with a pinch of salt....

Best,

TLM

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Thanks for the detailed replies guys, much appreciated. Will take the info on board and attempt to make a go of getting some sort of financial security, if such a thing exists..

Cheers

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Thanks Bazzer for asking the question and the others for the responses. I thought I'd share my experience as I'm in a similar position but have already been paying about 12% into a similar sounding pension scheme for a few years now and have about £35k saved up. The key advantages of my scheme over my own saving I believe is that a) the money comes from pre-taxed income, and B) my company matches what I put in. For these reasons I have favoured putting money in here rather than saving or investing myself beyond accumulating an emergency reserve.

However, recently I have discovered some of the disadvantages of my scheme - although you can modify your choices of the 10 or so funds on offer, this takes a week or so to process so you can't move quickly if you want to. So, before the current market correction I decided to move to 60% cash from 30% cash by getting rid of some of my stock funds, unfortunately I missed the peak by a couple of days (although I did avoid most of the fall). Another disadvantage is of course that you can't access these funds - that £35k could be pretty useful if I lost my job and was in risk of losing my house due to inability to pay the mortgage....

So I have started to wonder whether I might be better off trying to pay my 60k mortgage off more quickly and invest myself than pay stacks into my pension. I guess I'm somewhat skeptical of pension schemes in general - what with the current state of our debt ridden economy, global warming and peak oil although we probably will not get armageddon there's nothing to guarantee that all this money I pay in now will get me as much benefit in 30 years time as I'm promised. The persistent downside though is that money put into my pension is worth more because it's untaxed and my company matches it - my £100 pre-tax pay turns into £200 in my pension but only £60 off my mortgage once it's been taxed as I'm just at the 40% tax threshold.

Anyway, just some stuff to think about.

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Very big subject, my only real advice is to research everything as much as possible so that you can make your own informed decision, because everyone you talk will fit into a category below:

a) Do not know what they are talking about

B) speculating wildly

c) making money out of you from commission

d) all of the above (I think they call themselves Independent Financial Advisors)

But here are some points to think about:

You are in for the long haul, 40 years, so don’t go worrying about any short term stuff.

Either stick in cash or invest in shares or funds of shares, or do a bit of both.

If you are up for shares (or funds of shares), then the choice is Personal Pension or Shares ISA.

Of course the laws around pensions and stuff could change, and may have already but this is what I think is correct:

Personal pension

Pros: best way to get money into a fund as you get free money,

Cons high management fees, money locked into till you retire, you get taxed on income from a pension, need to swap you pension fund for an annuity around the time you retire (10 years).

Shares ISA

I guess that your ISA is a cash one. An option is - instead of a personal pension go for a Stocks and shares ISA. (if you don’t have a cash ISA in a year, then you can invest up to 7000 in a maxi shares ISA, or you could go mini cash and mini shares, I think the limits are 3000 and 3000?)

Pros and cons the reverse of personal pension - tax free income out of the ISA but no free cash into the fund, you can spend the cash anytime you want :)

Then what to invest in:

Funds of shares – someone else does the investing but charges you money for doing it.

Buy individual shares – cheaper but you have to make some decisions.

Fund of shares, there are 1000s to choose from general eg ftse trackers to specialised eg japan small companies. A strategy would be to have a number of different funds eg 50% in a FTSE tracker, 20% in Europe, 20% in USA 10% in China. Obviously I gave that 2 seconds thought, you could come up with something better. (See - making your own decisions is fun)

Individual shares – not as scary to invest in as one might imagine, but you need to be relaxed about the risk involved. Image x years from now and you have a fund worth say £100,000 and it is fluctuating in value 5% a week, if this scares the **** out of you then don’t bother. You don’t need to trade all the time you could just buy and hold some shares – what do think £1000 of HSBC or Tesco shares will be worth in 40 years, more or less than putting £1000 in a cash ISA? And that is the gamble, err I mean investment decision.

If you have no debt and are saving money then you have already made the best decision. The only temptation will be: if there is a severe HPC, do you wade in and join the mortgage debt slaves?

let me just say I am an IFA and I find this sort of "advice" disturbing. As usual, we start of with the premise that all IFAs are greedy, ignorant commission grabbing salesmen. Then, again as usual, we get advice which is actually useless.

All of your so-called routes to riches involve investment with various degrees of risk. You have confused wrappers and tax treatment with underlying investment considerations. You have made no attempt to find out what the risk profile is of the person who asked the original questions (who incidently seems to be doing a very good job of getting started in accumulating wealth) nor what their aims and aspirations are.

The guy asked a very reasonable question and really deserves better than this! What I would suggest is that he finds a fee based Chartered Financial Adviser who has the relevant Pension Qualifications. In the meantime, if someone offered to match my contributions to any type of savings scheme, I would definitely go with that. How I would invest that money is a different question!

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What I would suggest is that he finds a fee based Chartered Financial Adviser who has the relevant Pension Qualifications.

This is spot on - removing the commission incentive is the only way to get properly impartial advice from someone who knows what they're talking about. Some things that I would expect someone that knows what they're doing to do are:

- assess your general level of risk aversion

- discuss the impact of fees on long term returns (0.5% pa vs 1.0% pa might not sound much but makes a big difference over 40 years)

- ask about your general life plans

- go through your existing investments, income etc in detail

- point out the existance of NS&I tax efficient products

As a separate point, it really is worth ploughing through a decent book on general investment even if it's hard going at times. This one is a classic, although quite US specific on the tax side:

http://www.amazon.co.uk/Random-Walk-Down-W...548&sr=1-60

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First post here, so firstly, hello.

Our current financial system is based on the belief that you can "invest" into a pension now ("saving" your working effort) and that you will then receive at a date in the future a regular sum of money that will enable you to to live in the future whilst doing nothing. :rolleyes: This is a great, no wonder we all want to believe in it.

The more you invest now (so the richer you are or the more frugal you are now) the more you will be able to benefit later. What you will spend your money will be up to you but will probably include food, holidays, new things, gifts to family members.

Great but rather than trying to work out which investment type is right surely we should be thinking more along the lines of how has this great miracle of retirement worked (really has only worked for the last 50 years or so) and how do we see this miracle of investment working in the future.

The way I see it is that pensions have worked for a short period of time only because in this roughly same period of time we have benefited from increases in population, food and fosil fuel energy (interestingly these are linked - food is energy, fosil fuel used to be food, population can be both!)

We rely on the assumption of increases, company share values go up as they produce more and more, more people are born to do the work, more energy is extracted to create surplus etc.

However, in the UK our economy is now largely based on service and finance rather than production. Our production of real things is in decline, our debts (or maybe our belief that things in the future will be better) are huge and more and more people are crossing the line to receive benefit - whether that be through unemployment, disability or state or private pension.

A larger and large number of factors are now becoming public knowledge which highlight the frailty and deception that is rife in our current system. The scandal of pensions probably started with Maxwell but will develop alarmingly as more truth about the implosion of debt reveals itself. We will painfully begin to realise that the idea that you can save something now for the future is sadly wrong. Everything we have or make as humans has a shelf life and therefore it will always be used, consumed or thrown away in that time.

I personally think that its folly to believe that you can invest in a system now that will give you a decent future later. Better therefore to do the best that you can for yourself today because today is all that you have to rely on. If I held a minority view (which I do) I would also not take much notice of those educated to believe the majority view - by which I mean that I would not listen to the advise of a person brainwashed to believe in an unsustainable set of beliefs and I definitely wouldn't pay for the advise (or expect it "for nothing").

Edited by peaches

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I personally think that its folly to believe that you can invest in a system now that will give you a decent future later.

I hope you enjoy your retirement which will, if you take that approach, consist mostly of living on Tesco value brand baked beans on toast cooked over a one-ring gas burner in an HMO on a sink estate somewhere awful. On second thoughts, make that cold Tesco value brand baked beans on bread, you won't be able to afford the gas.

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Since I was born in the early 60,s the world population has more than doubled from around 3 to 6 1/2 billion people, the UK population was about 53 million and now stands at about 64, an increase of about 20%.

We need to deal with the truth of the here and now let alone put stuff aside for a comfy future.

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I have some sympathy for Peaches' view to be honest. We're talking 40 odd years from now, a lot can happen in that time (Peak Oil almost certainly!) and whilst it's very hard to predict what the world will look like I think that it's sensible to strike a balance between the here-and-now and the long distant future. I'm not advocating frivolously spending every penny you earn, but having funds available in case something unforeseen comes up in the short term is sensible even if it's not the most tax-efficient way of saving. And of course, you might not still be alive by the time you get to retirement age so it's good to have a bit of fun now!

My current strategy is 12% to pension (mostly in safe funds just now), overpay the mortgage by £250 a month, save £250 a month whilst maintaining an emergency fund of 3 months pay (holidays and goodies come out of that if i have extra). So of what I save I'm roughly a third pension (long term), a third mortgage (medium term) and a third savings (short term).

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Hello. I'd thought I would bump this old thread. Its got loads of useful info on it, and I need some advice also.

My IFA advised me to go into the Friends Prov property fund. It crashed, its only 5% up on 3 years ago now. I told him property would crash at least 2 years ago but he said it wouldn't trotting out the usual bull arguements. He said even if it did crash this fund is immune because it commerical property. Should I now trust any new recommendations from him? He advises to switch out of property ASAP and 40% into global emerging markets. Should I?

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Hello. I'd thought I would bump this old thread. Its got loads of useful info on it, and I need some advice also.

My IFA advised me to go into the Friends Prov property fund. It crashed, its only 5% up on 3 years ago now. I told him property would crash at least 2 years ago but he said it wouldn't trotting out the usual bull arguements. He said even if it did crash this fund is immune because it commerical property. Should I now trust any new recommendations from him? He advises to switch out of property ASAP and 40% into global emerging markets. Should I?

Try here ....

http://www.h-l.co.uk/

Click tab .....funds and research discounts .

Over 1,000 funds all sectors

Choose your own funds

Initial commision usually .25% , thats nothing , what does your IFA charge 5% .

Excellent service .

ISA's , SIPP's shares etc.

Your IFA is a tosser , he knows nothing , advising you to switch out know , DO YOUR OWN RESEARCH .

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Hello. I'd thought I would bump this old thread. Its got loads of useful info on it, and I need some advice also.

My IFA advised me to go into the Friends Prov property fund. It crashed, its only 5% up on 3 years ago now. I told him property would crash at least 2 years ago but he said it wouldn't trotting out the usual bull arguements. He said even if it did crash this fund is immune because it commerical property. Should I now trust any new recommendations from him? He advises to switch out of property ASAP and 40% into global emerging markets. Should I?

He's been wrong once, and you were right. He's cost you money. Dump him.

These crystal gazers charge around £150 an hour don't they? Mystic Meg would be better value....

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He's been wrong once, and you were right. He's cost you money. Dump him.

These crystal gazers charge around £150 an hour don't they? Mystic Meg would be better value....

Can't dump him because he is the IFA appointed by my employers group personal pension scheme. At least he is not costing me directly. Or is he?

Edited by Spoony

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Pensions are good, but advisors are bad. As are pension managers. Since last November my Hargreaves Lansdown SIPP is up 4%, my Standard Life pension down around 15%. My SIPP is currently in bonds, bank shares and I've been trading agricultural commodities. There's quite a bit of cash in readiness for the next buying opportunity.

My priorities are to be mortgage free ASAP, have enough pension money for an OKish retirement (although I should be able to keep working part time) and build up the ISAs.

A pension where the employer contributes is always a good thing!

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