Personal pension strategy

In message , PP writes

1) Dont bother with a Pension. It may be 'tax free' on the way in, but it aint on the way out. Go for a monthly contribution ISA instead. Paid out of taxed income on the way in, but tax free on the way out! Far better. 2) I dont know how old you are, but the relative benefits from a 'mutual' will be small fry in comparison to your whole pension pot, so dont use that as your only measure 3) Traditional 'With Profits' (as LV are) now have to put their bonus pool into Fixed Interest, not shares as an FSA instruction. Thats really shafted the chances of decent terminal bonuses from the past being repeated in the future. 4) WP providers have been told to be more open, hence them not being 'pushed' so much. So called 'new style' with profits are generally crap. 5) If youve got 10+ years to go to retirement and can afford £200 a month (which you appear to be able to do) consider a monthly contributiojn ISA through a fund supermarket investing in some decent Unit Trust/OEICS from the likes of Jupiter/Invesco/Fidelity etc.,

Of course, if you work for an employer there's the contribution they provide to your pension. If you're self-employed I guess it's a bit different but I doubt you can make the employer match their pension contributions to an ISA.

Pensions, to me, seem like a big old ripoff. There's no other way to get "free" money from your employer though (unless you nick paperclips from the stationery cupboard and flog them on ebay).

What if you've already used your ISA allowance? Is it then sense to have a Stakeholder pension or similar?

KotF

One can always invest in unit trusts / shares directly. No need to get hung up on the annual 7k ISA allowance and compromising one's investment strategy as a result.

One can later cash it in, a bit each year, so that one's personal CGT allowance is not exceeded - this allows a pretty substantial tax free return, unless one has a huge pot (into six figures) and it has been growing for a long time. Especially if there are two people sharing the pot; each gets their a CGT allowance.

Bitstring , from the wonderful person john boyle said

Depends on your tax rates. I rather enjoyed getting 40% or better tax break on what I put in, and only paying 22% on (some of) what I take back out.

Also the ISA limit is rather lower than the pension contribution limit (and it's actually possible to do both - max the ISA contribution and still contribute to a pension).

Thanks for the various replies. I accept that the ISA route may be better than the personal pension route due to no annuity requirements, etc. However I'm only doing 3600 gross per year in a PP and doing an ISA as well, henece my question was particularly looking for: Thoughts on "WP" personal pensions such as Liverpool Victoria which has in the past been a great performer vs "Managed fund" types. Thanks.

Hmm, I wouldnt myself because a) most stakeholder funds arent worth investing in and b) at the moment you've still got to buy an annuity at a rate you wont know until you retire. Id invest directly into UNIT trusts and use my CGT allowances to draw quasi income in retirement.

In message , GSV Three Minds in a Can writes

..... and losing access to all your capital. With the 'non pension' routes your capital remains available and you could draw quasi income using your CGT allowance and not even have to pay the 22%

Fair comment.

But (a) could be addressed by simply not investing in any fund, and just cashing the stakeholder in immediately, having taken the tax free top-up and the 25% tax free lump sum.

This also addresses (b), you don't have to wait until you retire, so long as you're at least 50, you can do this (can't you?). OK, so at 50 you won't get a brilliant annuity rate, but hey, you get 15 or so more years' worth of dosh.

In message , Ronald Raygun writes

Yes, there is a place for immediate vesting annuities like this.

Yes, in general it is better to take an annuity now rather than later 'cos it generally takes about 11 ish years before the increased annuity makes up for the lost year.

This has its disadvantages. For instance, if you lost your job and your "non pension" savings were over 8000, you wouldn't get any means tested benefits, you'd be expected to use your savings to support yourself.

Yes, but you've already paid 40% tax on what you've put in.

In message , Andy Pandy writes

Yes, you need to make a judgement. I know what mine would be!

Yes, I think we all know that. But dont you think that 0% on the way out on the enhanced value + preservation of capital is better than 22% (typically) on the way out plus no capital?

Sounds like it could be a no-too-bad idea to go for one of these immediate vesting steaks every year for each of the next 12, getting the annuities to pay annually (since they'll all be for a puchase value of only £2700 and so hardly worth chopping up the income into monthly payments) but timing them to they each pay out in a different month.

What sort of annuity rates could one get at 50, assuming one were a non smoking slightly overweight male in good health with no varifocals, on a single life basis with no guarantee beyond death?

In message , Ronald Raygun writes

If you take max TFC the premium will be £2808, less the TFC makes £1908 for a basic rate payer and £1260 for 40%.

Whilst you will get a higher annuity rate for yearly in arrears you will always lose out on the last year, whereas with monthly rates you will only lose out on the last month and have the benefit of the dosh earlier.

Ahh, its me!

5.16 % for monthly in arrears. I cant get an annual quote on a Sunday.

Yes, but in both cases that leaves a gross pot of 3600-900'00 to fund the actual annuity purchase. You'd get 5.16% of £2700 for a net payment of £1908 or £1260 as the case may be, would you not?

What last year/month? Don't you mean the first year/month? It's a question of how long you wait for the first payment. These are annuities which go on forever until you die. Once you've died, whether you miss out on the next payment will no longer weigh on your mind, since you'll be out of it.

You? 50? Don't flatter yourself. Anyway, I said *no* varifocals.

Not bad. By the way, the free top-up from £2808 to £3600 is handed out to every non-HRTP, right? Not just to people who pay tax at 22%.

I think you are saying: If I throw 1908 pounds (net) into an immediately vesting PP, it will return me 5.16% for the rest of my life. Isn't 5.16% totally miserable when they get to keep the £1908 ? (I get 5.2% on my mini cash ISA, and I keep the 3K!) Please confirm.

Another plan seems to be do the above each year, but also make certain other PPs come to no more than 15K (I think that's the allowed number), then take the lot in cash with no annuity requirement.

Thanks, PP

You pay £1908 but get 5.16% of £2700. That's worth 7.3%.

In message , Ronald Raygun writes

As you say below, the one after you die. It would just be a rat to die on the 364th day of the annuity year and have lost all that dosh.

But you could have had 11/12ths of it (almost) to spend if youd taken the monthly option.

Sorry I couldnt read that bit because I didnt have them on cos I cant find them without my glasses on.

Thats right.

One snag with these things is that annuities pay 'income', whereas ISAs etc., pay 'withdrawals' The former is taxed and can effect pensioners entitlement to age allowance on the 2 for 1 rule, whereas the latter isnt taxed and doesnt reduce the age allowance and the capital is still there.

The benefit of the tax allowance on the way in is negated by the tax on the way out. A decent high yield corporate bond fund in an ISA can pay an 'income' just as good with some degree of capital return.

In message , PP writes

See my other post in reply to Ronald.

The 3600 maximum contribution to a stakeholder pension attaract basic rate tax relief at source so you need only write a cheque for £2808. You then take 25% of the 'fund' as tax free cash - £900 which reduces the 'cost' to £1908. You get 5.16% on the £3600 - £900 = £2700 which is £139.32, but to get this you only invested £1908, so your actual gross return is 139.92/1908 which is 7.3%. This is taxable so a BRT gets 5.69 net.

A HRT payer gets a further 18% back from the thoiught police reducing his net investment to £1260, and £139.32 is 11.05% of this. After the

40% nicked this comes down to 6.63%. I havent got my varifocals on so I apologise if Ive hit the wrong keys in the wrong cells in my spreadsheet.

Having said all that, I hate pensions!

Im not sure about this.