topic Re: Anybody understand pensions and the like? in The Round Table

Anybody understand pensions and the like?

blackburn_stevie — Sat, 16 Nov 2013 12:41:01 GMT

A bloke I know has a dilema. What we are trying to work out is how old would you have to be to make it a viable proposition to have a works pension as opposed to saving the same amount of cash in a high interest savings account.

Re: Anybody understand pensions and the like?

right-then-petal — Sat, 16 Nov 2013 12:45:30 GMT

high interest savings account.can go up or down

best to ask citizen advice Steve

Re: Anybody understand pensions and the like?

blackburn_stevie — Sat, 16 Nov 2013 14:01:06 GMT

Cheers, Petal.
I'll pass it on.

Re: Anybody understand pensions and the like?

millielilac — Sat, 16 Nov 2013 20:49:10 GMT

Just asked my OH who worked in this field ....

It is not possible to save an amount of money in a savings account that will be better than a pension . Other factors come into consideration as whatever you put in to a pension you get tax breaks etc...

You need to seek help from a qualified independent financial advisor .....

Re: Anybody understand pensions and the like?

duck_a_lorange — Sat, 16 Nov 2013 21:40:26 GMT

@blackburn_stevie wrote:
A bloke I know has a dilema. What we are trying to work out is how old would you have to be to make it a viable proposition to have a works pension as opposed to saving the same amount of cash in a high interest savings account.

The younger you start and the more you put in the better. When I started work we had a choice of 3% or 6% contributions - being young and ignorant I chose to pay the lower rate for six years - that choice will cost me at least five grand a year on retirement. There is nothing I can do to "catch up".

There are also the tax breaks mentioned above - you don't pay tax on pensions contributions, but any savings you put away come out of your taxed income.

So for example, if your take home pay is £1000 a month, and you decide to put £100 a month into a savings account, you will have £900 left.

If you decide to put £100 a month into a pension, it comes out before tax, so you will have £920 left.- you only contribute £80 of your take-home pay for every £100 you pay into a pension.

Re: Anybody understand pensions and the like?

**caution**opinion_ahead — Mon, 18 Nov 2013 11:36:10 GMT

Also, say Person A saves £150,000 in a building society account and Person B saves the same in a pension.

Both retire at 65. Person A starts using his capital, whilst Person B uses his pot to buy a pension giving him an annual amount. Given longevity, Person A will run out of money, but Person B will not.

Re: Anybody understand pensions and the like?

caryl576 — Mon, 18 Nov 2013 14:38:30 GMT

A work pension will also mean the employer also kicks in some cash each month,

plus the tax relief from the government on pension savings

so even if you could find an account offering similar returns to a pension you'd have to put in substantially more of your salery to save the same amount

Re: Anybody understand pensions and the like?

blackburn_stevie — Mon, 18 Nov 2013 14:44:25 GMT

Thanks for all the info, guys.
I think it may be better to just send him a link to this thread and let him have a read of it.
I told him I was going to write a post about his pension and his exact words were, "What will people on a auction site chat room know about pensions?" .... I enlightened him to the fact that there are folk from all walks of life on these forums with vast knowledge on all topics.

Re: Anybody understand pensions and the like?

papko — Mon, 18 Nov 2013 17:46:41 GMT

If you are self employed pensions are a tax efficient way to save .

If you are a higher rate tax payer its even better , as whatebver you put into your pension in a given tax year the Govt tops up 40% , up the amount of tax you have paid

So you can put in 12 k say , the govt puts in 8k , and you have 20 k to invest in stocks and shares , say you go for standard blue chips like Glaxo or Vodafone , they pay 5% dividend , so you can buy more shares with that .

eventaully after 20 years or so , you will cash in your pension and purchase an annuity , whereby a Insurance company offers to pay you a fixed some for the rest of your life , in lieu of the large sum you have depostied with them (your pension )

You also get the option to draw 25% of what you saved , as a tax free lump sum ,

bear in mind you will get taxed on your pension , once you draw it , like any other income , if you draw over 10k a year (the tax allowance )

Although you may find you state pension puts you over the tax free limit sooner ,

So theri are tax advanatcges to saving in a pension , and any gains you make on stocks and shares are tax free (whilst they are contained in a pension )

As opposed to a building society , where you will be taxed on interest , and where the rates barely keep up with inflation

Downsides to pensions would be investing in a lot of funds where you are charged high annual charges of 1.5% say .

You are really better getting a Self invested pension SIPP , and investing in your own choice of stocks and shares .

Alternatively there are stocks and shares ISAS , you can invest up to 12k a year in those , and pay no tax at all whilst the moiney is in the ISA wrapper .

that may be abetter option for your freind as it is more flexible , another point to note is that , all investing shoud be done for the long term , minimum 5 years , 20 years ideally (and more )