Pensions

[greencreeper]

I've been thinking about a pension. I already have one but it's dormant at the moment because it's for HE/FE and public sector workers. My current company doesn't have a pension scheme, though it can recommend a stakeholder scheme. I was just wondering about financial advisors. I've had a look on the web and it's not been much help. I don't want some cowboy who'll sell me the products that benefit them, but methinks most will be like that - these days it's all about money. I'm not sure how much they cost neither. A run down of the options in English might be helpful.

[Tricky]

Financial Advisors should not cost you anything, the biggest problem is the majority are now tied to a number of companies and therefore sell the products from those companies. My recommendation is go see a number of FA's from different banks, building societies, specialists etc. look for the IFA (independant) sign (blue circle) : http://www.searchifa.co.uk/

You probably get one chance to get this right and at your age you should do it sooner rather than later (no offence!)

[Graham]

Well I was about to answer, but I see Tricky has beaten me to it!

I'd second his advice.

[skyblueheroes]

I used to work for AXA, so have a little understanding of pensions.

I would go to an IFA as already mentioned. They are not tied to a company and will (should) scour the market for the most suitable product. Their fee is *usuallly* the commission that the product generates.

You old pension should be safe, but best call and get a maturity value from the provider. That will tell you what it will be worth if left with them. Don't forget that charges may eat away at growth (or capital).

If you want to, you can always transfer to your new provider to keep it in one bunch if you like. But, you will be charged to transfer.

I can't give advice, but number 1 should be to root out a good IFA. There are probably standards they have to adhere to so the FSA may have a list of good ones in your area.

[greencreeper]

That's the problem: you have the advisors who are tied to one company and will only sell that company's products regardless, and you have the advisors who aren't tied to one company but make money from commission, so if product A gives more commission than B, then they'll recommend A. It's a no win scenario. Normally I'd ask around but no one I know is likely to use a financial advisor. It seems too important to rely on the Yellow Pages and a pin :erm: Being working class, I feel out of my depth with anything like this.

[danielf]

That's the problem: you have the advisors who are tied to one company and will only sell that company's products regardless, and you have the advisors who aren't tied to one company but make money from commission, so if product A gives more commission than B, then they'll recommend A. It's a no win scenario. Normally I'd ask around but no one I know is likely to use a financial advisor. It seems too important to rely on the Yellow Pages and a pin :erm: Being working class, I feel out of my depth with anything like this.

Well, seeing they get their money on comission, and therefore they don't charge you: visit a couple, and see what they come up with. If anything, that'll give you a feel for the market (which undoubtedly will turn out to be one where you can't see the forest for the trees :( )

[Nikko]

I have paid into a pension fund for over 30 years - its called NHI and any contribution I have made is effectively worthless.

I paid into a private pension on good advice, which is now worthless.

I arranged a mortgage on an endownment scheme based on the pension markets at the time - you guessed it - its worthless.

My house, meantime, has gone up by a massive amount on paper, but they are wise to this now and are currently making plans to render it worthless.

Spend your first month's contribution on a crystal ball, and spend the rest on what you enjoy.

[greencreeper]

Spend your first month's contribution on a crystal ball, and spend the rest on what you enjoy.
:D

I plan on living fast and dying young at 55, but knowing my luck I'll be still hanging around long into my 90s :( Hence me asking about pensions. I know many have lost out but isn't everything in life a gamble :shrug:

[Nikko]

If you die at 55, then you win. You save 10 years (soon to be 15 years) NHI and any possible extra contributions you are now planning.

If you last into your 90's then you will need an income that takes you above the State minimum for 25+ years, so at 27 you need to calculate how much you need to pay in now to beat all the systems designed to rob you, and leave you with an appreciating annuity that will last the term.

Yes its a gamble. Many have lost out. Many will continue to lose out. If you find something that looks like working, they change the rules.

[iron25]

If you are young then invest in buy to let properties. Allow the rent to pay for the mortgage and put the rest in a savings account. After 25 years, you own the property and hopefully make quite a bit of money. Over the years build up your property portfolio and when you come to retire, you should not have a care to worry about.

Okay, it's not that easy :erm: but it ain't that difficult either :)

[MovedGoalPosts]

Pensions are a minefield. Certainly they are a long term proposition, and even then you need to spread the risks so that eggs aren't all in one part of a fund which does well one year and horribly the next. Pension companies invest in shares, stocks, property and all sorts. Trying to understand it all is impossible, unless you are an actuary for a living.

The biggest drawback of pensions is that once you pay into a fund, you will no longer be able to get at that money. You can never cash in a policy. True currently when the policy matures you can get up to 25% as a lump sum, but will those rules change by the time your retirement happens? In the meantime the theoretical "tax free" contributions (i.e. what you pay in gets a standard rate tax payment added back in from the government)suggests pensions may be worthwhile investments. But after Gordon Brown's raid on pension funds a few years ago, who knows whether those advantages will continue.

Any firm with over I think 5 employees has to offer a stakeholder scheme. All that is is a private pension scheme where the fees charged by the pensiion company are low. Any pension management company will have charges for managing your investment.

Look at whether the pension company is a mutual, or shareholder / other company owned. If the former profits from managing may be poughed back for the benefit of the investors, the latter means somebody else gets your money. Very few mutuals are left.

If you have a fair bit of money to invest consider carefully whether it all should go in a pension. You may be better off placing some in an investment you can liquidate at any time, rather than just retirement age. Consider that when your pension matures, you have to but the annuity, the rates that exist at the time of maturity, which will set what income you get for years to come. If you are unlucky with the time of your maturity you could get a poor deal. At least stagger your so called retirement age.

Look for policies that allow flexibility in contributions. What you can afford now, may change.

Get independent advice, as stated by others. If you trust your employer, and don't know any other adviser, the firm may have a FSA broker who sorted out their stakeholder scheme.

[MovedGoalPosts]

If you are young then invest in buy to let properties. Allow the rent to pay for the mortgage and put the rest in a savings account. After 25 years, you own the property and hopefully make quite a bit of money. Over the years build up your property portfolio and when you come to retire, you should not have a care to worry about.

Okay, it's not that easy :erm: but it ain't that difficult either :)

It's not that easy anymore. The yields have dropped to an extent you might earn as much just placing the money in a building society account.

You still need a sizeable cash deposit.

The market for lettings in many areas, as buy to let become more popolar, is saturated such that too many properties chase too few tenants, with void (empty) periods being high and rents low. Don't rely on increasing property prices to bail you out. That's not happening now. Then there's the lettings fees, and such like.

But at least yes, by paying into a mortgage, you are creating an asset for you that you can eventually realise.

[etccarmageddon]

dont put money into a pension - firstly, despite the propogana, you're taxed on it. since labour got in, the tax situation on pensions has got worse.

secondly the government means tests and those who have put money asside lose out compared to those who couldnt be arsed saving for retirement.

I would suggest paying more on your mortgage/paying it off quicker and if you dont have one then invest elsewhere - e.g. an ISA which has an argueably better tax situation than a pension. and with an ISA any money you put in can be taken out for emergencies unlike a pension.

you will always you to pay off your mortgage - so why not do it sooner rather than later and save on interest payments. at least you can have something to show for your mortgage - you 'live' in the money you pay in rather than a pension which is just a piece of paper with numbers on it.

[skyblueheroes]

You should not have an IFA concerned only about commission.

As part of the FSA guidelines IFA's have to provide or suggest the most suitable product. It should not matter about commission.

I have taken my Financial PLanning Certificates 1, 2 and 3 (which in theory makes you a qualified Financial Adviser), and to be honest unless you have a works one, I wouldn't touch a pension. The maturity values and the subsequent annuity rates are ****** poor. You are better off looking into ISA's or property.

[Graham]

I used to work for AXA, so have a little understanding of pensions.

I would go to an IFA as already mentioned. They are not tied to a company and will (should) scour the market for the most suitable product. Their fee is *usuallly* the commission that the product generates.

The problem is that this has changed recently. What's happenend is that IFAs working for Banks etc can be "multi-tied" ie instead of just giving advice on their own range of products, they can give advice on those from several but *not* all providers. This does give you better coverage, but it won't necessarily give you the best product on the market.

Regrettably one of those changing to the multi-tied option is the one I used to use, Bradford and Bingley who *used* to give advice from the whole market but will now only be offering it from a selection of suppliers :(

For more information, see this guide from the BBC's Working Lunch programme:

http://news.bbc.co.uk/1/hi/programmes/working_lunch/4055831.stm

And for pensions see:

http://news.bbc.co.uk/1/hi/programmes/working_lunch/2181442.stm

[greencreeper]

I already have an ISA but I tend to put money into it for specific purposes. So recently, for example, I used it to pay for college. Next thing is a washer. As for property - my own experiences tell me to avoid property like the plague. I've never seen the logic in buying property anyway - makes more sense, to me, to rent.

My company has a stakeholder scheme - I've printed out a form for more details which has to be sent to the provider (Friends Provident). I'll see what that says. I'd never save enough cash to retire on, so it's either a pension or the stock market - both the same really, only difference is risk.

[MovedGoalPosts]

IAs for property - my own experiences tell me to avoid property like the plague. I've never seen the logic in buying property anyway - makes more sense, to me, to rent.

Hmm, in the last 20 years what else has increased it's value by as much as the average house?

Renting is only beneficial for those who are likely to stay somewhere for a short period of time. These days there is very little long term security of tenure with average lettings only lasting 6 months or at most a year before renewal, which can be refused. Meanwhile, the tenant may not have to directly pay for maintenance, but indirectly is through the rent. The only person making out of the deal is the landlord (assuking he's got his sums right).

OK so it costs money to sell a house, and buy another, what with stamp duty, solicitors, estate agents, etc. But moving costs will be the same, and you still pay some fees to a lettings agent for the new tenancy, inventory etc.

Yes these days tax relief on homeowner mortgages is non existent, however ignoring discredited endowment or similar schemes, repayment mortgages mean you are gradually gaining mor an more equity in your investment, somethign you can one day cash in on. Your mortgage will be less than rent (assuming you can make the salary multipliers work to get you the mortage in the first pace), leaving you money to spare for maintenance. In the long term youv'e created an asset. For the individual I still think bricks and mortar is the best place to put much of your dosh.

[Robert Atkins]

My dad says that he makes AVCs (additional Voluntary contributions). For every 100 quid he puts in the taxman adds 40% (his tax bracket). So when Prudential returns 6-7% per year he is happy because its 47% overall. He does not knows whether this is the case with stakeholder pensions.

Speak to www.bestinvest.co.uk ask for the pensions guy, they are free, independent and good.

[paulyoung666]

My dad says that he makes AVCs (additional Voluntary contributions). For every 100 quid he puts in the taxman adds 40% (his tax bracket). So when Prudential returns 6-7% per year he is happy because its 47% overall. He does not knows whether this is the case with stakeholder pensions.

Speak to www.bestinvest.co.uk ask for the pensions guy, they are free, independent and good.


he is making avc's to make his pension upto the max of 40 years iirc , not a bad idea if you can afford to do it :)

[Graham]

My dad says that he makes AVCs (additional Voluntary contributions). For every 100 quid he puts in the taxman adds 40% (his tax bracket).

AVCs can be worthwhile, but it depends very much on your situation.

For me, in the lower tax brackets, making AVCs to "catch up" on the years I didn't contribute due to being unemployed etc, it's more cost effective to use that money to max out my pension contribution allowance each year.

You can always request a "Pension forecast" from the taxman to see what your pension would be at present and in the future and *always* get independant advice.

[greencreeper]

My parent's mortgage is currently around £500 a month. Add in buildings insurance, life assurance, and payment protection and the total is probably nearer £700 a month. That's not including property maintenance costs. It's likely that they'll be paying well into their 70s and may not live long enough to finish paying the mortgage or benefit from owning their own home. I pay £280 a month rent. It makes sense to me. Security of tenure is an issue if you want it to be - I know it is for me, but I put down roots easy and don't like moving. It's interesting that our country is largely home owner (more like bank owner) whereas other countries it's the exact opposite. Cultural methinks.

My state pension is a mess - I think probably about four years don't have their full contribution and at the time I received notification, I didn't have the hundreds of pounds needed to top them up. When all's said and done, my life expectancy isn't that great anyway - family history and lifestyle all make it unlikely I'll see 70.

[edit] To be honest, the only real way to make money is to turn to crime and stash the proceeds in a foreign bank somewhere :D :erm:

[Matth]

One mistake, is to judge the future by the present - the way "Minimum Income Guarantee" works at the moment, penalizes those who have made some provision over those who just spent it all - I would guess on that being revised.

In general, better terms on finacial products of any kind can be obtained by going through a discount broker, where part of the commission is rebated to you as a bonus, or is effectively rebated into the plan in improved terms.

You don't get advice, other than a newsletter (Hargreaves Lansdown's is quite informative), but on pension products, the charges are normally 0.1% or so lower than going direct - not a huge gain, but one that would be going into the pocket of the IFA - HL also do a SIPP, even at the basic stakeholder level, if you want to select from their normal range of funds.

[iron25]

I know this thread is not about renting over getting a mortgage but seeing as this issue has been raised, most people will advise that unless you don't intend staying somewhere for a long period, then a mortgage is the only way to go. Renting is just thowing money away and paying for someone else's mortgage. Obviously, deciding on a mortgage is a big decision and it depends on the current financial climate but if interest rates and borrowing rates are at a good level then there really is only one choice.

I have a mortgage on a 1 bedroom flat and I will be paying £260 a month until 01/01/2010. If I were to rent a similar sized flat I would expect to pay around double without having any returns on my expense.

[iron25]

Back to pensions :)

Stakeholder pensions were introduced to make the entire pension business more simple for people to understand and also less expensive with regard to administration fees. I looked into stakeholder pensions and considered one from virgin, I did all the calculations and based on a 7% annual growth, I think I need to start investing about £300 a month but that 7% is not a guaranteed and that is where the risk lies. Also, I'm pretty sure that if you earn under £30,000 you can have both a personal pension and a stakeholder pension.

I am one of the lucky ones that are in a company pension scheme which is a final-salary scheme. Unfortunately, alot of companies are stopping these schemes. My company is stopping any new people from joining the pension scheme, instead you get the choice of joining an investment scheme where both you and the company contribute and the money is then invested for you or you can decide how it is invested. Again, unlike the final salary scheme, the returns are not guaranteed. The only drawback to the final salary scheme is that you need to stay with the company.