In message , pp
What do you mean by 'when'? They have done already.
Forget a pension wrapper, stakeholder or otherwise. You are young. Go
for it NOW. Invest in good equity base stock picking Unit Trusts, OEICS
and ITs. Avoid index trackers unless you are really boring and like
Avoid 'top down' funds.
Invest in an ISA wrapper if you can. Dont be put off by the flack which
says ISAs arent worth it. You'll get the ISA wrapper for free. When you
want to take the income though you can switch to fixed interest and take
the interest as income free of tax or encash capital free of CGT.
Watch out for high UT & OEIC charges.
Search the group archives as the question of what to invest in regularly crops
For information on the likelihood of consistent manager or fund outperformance
have a browse of the following -
Making derogatory personal comments like this sounds like the sort of thing a
financial salesperson would say to denigrate a better product.
A pension plan would be better than an ISA if the op is made redundant and has
to claim benefits.
"Phil Deane" wrote
Don't forget that pensions are taxed when in payment. Hence in fact, if
your marginal tax rate is the same, getting tax relief "now" then receiving
money back later after tax is removed from the payment, is the same as no
relief "now" but also no tax to pay "later" :-
Imagine you put 7,800 into a pension "now", get tax relief of 2,200 giving
10,000 initially, then get (say) 7%pa return over 30 years. You will have
a "pension pot" from which your benefits are bought of 76,123 - suppose
this buys a pension of 4,000pa. If your marginal tax rate is still 22%,
you only receive 3,120pa to spend.
Now, suppose you instead put the 7,800 into a different tax-free
investment, but without the initial tax relief being received, although the
return is the same 7%pa. You start with 7,800 now, and will have 59,376
at retirement. If 76,123 buys a 4000pa pension, then 59,376 will buy:
(59376/76123) x 4000 = 3,120pa - ie same as for a Scenario1!
Hence the only benefit of a pension policy is the tax-free lump sum - the
one that some commentators say the government should remove(!); -- unless
your marginal rate of tax will be lower after retirement than before, which
could easily be the case (eg you are a high-rate taxpayer now but expect
that you won't be after retirement!).
How could (s)he possibly know whether (s)he will "need" some money in ten
years time, let alone in 20 (or more) years times? The OP is below age 30 -
they will not be able to get money out of a pension policy for at least 20+
years (assuming they are not a professional golfer, a footballer etc etc).
Because they were asking about stakeholder pensions, not non pension investment,
and I'm sure they were aware you can't normally get to the money until 50. So
they've already accepted that condition.
My son who has a disability has hardly worked since leaving school. He
has been on many training courses, held a couple of temporary factory
jobs and is currently at college yet again trying to get a basic NVQ.
Whether it will lead to a job I know not.
He is now 27 years old and has two daughters by a relationship which has
now split. He remains on good terms with their mother and has regular
I am concerned that he has as yet no pension provision other than
whatever the state may provide in 20-30 years time, and I would not like
to fall off the perch myself thinking he would have an old age spent in
He is hopeless at managing money so it would have to be a provision that
would not be whittled away beforehand.
I have thought about Stakeholder pensions but receive so much
conflicting advice that in the end I/he have done nothing.
What do the good people here think?
What rules do they use to determine which proportion of the pension
counts as returned capital? I'll bet it's not as generous as saying
the first £59376 you draw are capital (i.e. you get 19 years' pension
tax free) and if you live longer you start paying tax. :-(
The annuity rate posited by Tim is much less than the investment growth
rate. Since scenario 2 does not require you to buy an annuity, why not
simply leave the investment in place, and live off the 7% tax free growth?
That way you'd get £4156pa tax free for life and still have the full
£59k pot to leave to the cat&dog home when you snuff it.
Well, apart from "because the 7% is not guaranteed"?
And who says the annuity *is* guaranteed? :-)
"Ronald Raygun" wrote
The regulations require you to calculate an "expectation of life" - which is
essentially just an annuity rate at an interest rate of zero. They
prescribe the mortality basis to use - this was "a(55)" last time I was
involved in these, but as that was a table designed to be valid in the year
1955, they may well have prescribed a new mortality basis by now!
So, if the annuity rate is 20.0 and expectation of life is 25.0, then for
10,000 used to buy an annuity you get 500 per annum of which 400pa is
classed as "capital content". You would get taxed (normal marginal rate) on
the extra 100pa.
Nope, afraid not that simple!
Well, they were just figures put in very quickly to try to illustrate the
point - you shouldn't be comparing them or taking any other conclusions from
such arbitrary figures!
Well, that is a possibility that you don't get with a pension policy!
"Ronald Raygun" wrote
If you want to provide for him after your death, then you need to make
provision in your will. Perhaps a trust fund to be set up from which he can
be given a regular income after he has reached a certain age? If he dies
before you, then you have retained control of the funds.
Actually it's not £122, it's £128 and a bit, you get £22 for each £78,
not for each £100.
But that's not how it works. You earn £100. You either put it all
into a personal pension (the taxman taxes £22 away, you put the £78
into the pension, and the taxman puts the £22 there too), or you let
the taxman keep the £22 and you put the £78 into the ISA.
Now you sit back and do nothing for 30 years while your money grows.
30 years growth at 7% means your money multiplies by a factor of 7.6
so the pension fund would have grown to £760 while the ISA would have
grown to £593.
Then you convert the cash mountain into an actual pension. If you use
the pension fund, it will buy you a fully taxable annuity. If annuity
rates are 5%, the £760 will buy you £38 per year minus tax, i.e. about
£30. If you use the ISA fund, you can buy an almost tax free annuity,
so the £593 will buy you about £30 per year.
And a similar number of people get out more than they paid in by
It's a gamble, yes, but which way of "losing" is preferable?
(a) lying on your deathbed thinking "drat, I wish I hadn't bought
that annuity, I didn't get very good value out of it."
(b) still being in perfect health and coming to the end of your
savings, thinking, "if I'd bought an annuity 20 years ago, I'd still
have an income and not be facing destitution".