What's the issue with Company pension contributions?

[Hiram King Of Tyre]

I have 2 SIPPS. I use Hargreaves Lansdown for funds and Alliance Trust for shares

[Waldorf]

I do not bother with pensions anymore, whilst I do save for my retirement I choose not to do it via the pension route.

The enforced purchase if an annuity etc and the tax savings are not that great, if I have to pay a larger salary, I expect the 40% relief to go soon and I prefer to have control over my savings.

With an annuity you loose out from future capital and income growth, it is ano bainer to me.

[Lewis]

I do not bother with pensions anymore, whilst I do save for my retirement I choose not to do it via the pension route.

The enforced purchase if an annuity etc and the tax savings are not that great, if I have to pay a larger salary, I expect the 40% relief to go soon and I prefer to have control over my savings.

With an annuity you loose out from future capital and income growth, it is ano bainer to me.

There was an interesting article comparing ISAs with Pensions in this Saturday's Guardian. In concluded that multiple studies have shown a pension is better than an ISAs in almost all circumstances. The only exception being low earners. For 40% tax payers the tax advantage makes it a much better proposition. Plus the fact that life expectancy has gone up so much (it was smething crazy like into the 90s for current newborns) means that you run the very real risk of running out of money when you are very old! (which is probably the last thing you need). Annuities are good for people who expect to live a long time and not so good for those that don't (as obviously they pay for the others!). My family has had three 100+ members, having an annuity was fantasic for them. Any other form of money pot would have run out a long time ago. I certainly wouldn't write off pensions but I agree with other comments about having a mix of preparations such as ISAs, Pensions and properties that can be rented to provide an income. But then there is the very real risk that you might lose the property in order to pay for care! I recently opened a pension for my 1 year old. I wish someone had done that for me! Just paying the max (£3600) for 1 year results in a hefty pot at retirement.

[IR35 Avoider]

I can't see why is should be a problem. After all, paying money into a pension isn't avoiding tax, it's deferring tax

For a basic rate taxpayer making personal contributions, it reduces the tax from 20% to 15%, due to the tax-free lump sum.

For a higher-rate taxpayer who makes personal contributions and who becomes basic rate in retirement, it reduces tax from 40% to 15%

For a higher-rate taxpayer who is an IR35-caught contractor and who makes employer contributions and who becomes a basic-rate taxpayer in retirement, it reduces tax from something like 48% to 15%, as he also avoids employers NI.

[IR35 Avoider]

I do not bother with pensions anymore, whilst I do save for my retirement I choose not to do it via the pension route.

The enforced purchase if an annuity etc and the tax savings are not that great, if I have to pay a larger salary, I expect the 40% relief to go soon and I prefer to have control over my savings.

With an annuity you loose out from future capital and income growth, it is ano bainer to me.

Annuities are a wonderful concept, and everyone who has a pot of money dedicated to providing them with the maximum possible income in the last 15 years of their life, without any risk of running out of money, should want one.

The kind of people who don't need one are those that have so much money that leaving something to their kids is actually more important to them than anything extra income could buy them. People in this situation who are forced to buy an annuity can use the extra income to buy life insurance. Since life insurance is just the inverse of an annuity they effectively nullify the annuity. Obviously there is a downside in that they will have two insurance products that cancel each other out, so they will be contributing to the insurance companies profits twice. It's also worth remember you can have an option within an annuity to protect the capital so it goes to the kids.

If you divide your money into two pots, what you want to leave behind and what you are going to live off, you can only maximise the income from the second by buying an annuity.

[glashIFA@Paramount]

There isn't really an issue, though for a while after A-day HMRC were talking tough, but they've now backed down.

From A-day pension contributions have had to pass the same test as any other company expense, to be tax-deductible when calculating Corporation tax. The current advice is that if the company contributions are for a worker in a one-person company who's generated all that company's income via contracting, they cannot be excessive for the purposes of allowing them as an expense against Corporation tax. On the other hand, if he pays contributions to his wifes pension, meaning her overall remuneration (salary+pension) is more than the market rate for whatever work she does for the company, the excess would be disallowed as an expense.

There is an annual limit on how much can be put into a pension without incurring a penalty, but I'm assuming that's not the issue you are worried about, i.e. you were not thinking of putting more than a couple of hundred thousand per year into the pension.

This might give a bit of clarity with regard employer contribs.

http://www.moneymarketing.co.uk/cgi-...id=136528&d=11

[Hiram King Of Tyre]

I do ISA's too but the big advantage to me for SIPPS is their "willability" and status outside of IHT

[electronicfur]

Annuities are a wonderful concept, and everyone who has a pot of money dedicated to providing them with the maximum possible income in the last 15 years of their life, without any risk of running out of money, should want one.

I think being forced to buy an annuity is one of the pension's biggest drawback. You loose all your capital this way. I'd rather invest all the money in a High Yield Portfolio where you keep all the capital.

Cheers,
EF

[Lewis]

I do ISA's too but the big advantage to me for SIPPS is their "willability" and status outside of IHT

Sounds like there are some benefits I'm not aware of. Elaboration would be much apprecirated.

[IR35 Avoider]

I think being forced to buy an annuity is one of the pension's biggest drawback. You loose all your capital this way. I'd rather invest all the money in a High Yield Portfolio where you keep all the capital.

Cheers,
EF

Pension money is by definition money that you are going to spend to sustain yourself in your old age, i.e. you are going to get rid of the capital anyway.

The difference between buying an annuity or not is that with an annuity you will spend your last pound on the day you die, but with money you invest yourself either (a.) some of it will be wasted, i.e. left over, not used for its intended purpose, or (b.) you will run out before you die.

Let me put it in the simplest terms I can: for the pot of money that is going to provide you with an income in old age, you get an equal or higher income with an annuity than if you invest it yourself, plus you get the security of knowing you will never run out of money.

The reason people don't like annuities is because people cannot think probabilistically. They don't understand that an annuity returns all your money, with interest, when you calculate the probability-weighted average of your returns across all possible futures.

I would say people are thick, but hedge fund manager Nicholas Taleb in "Fooled by Randomness" made the point that people are not wired for probabilistic thinking, by telling of the time he was diagnosed with cancer. His inital emotional reaction was 100% correlated to the idea he was going to die. Then when he read up on his cancer and found the probability of survival was 70%, his emotion changed to 100% correlated with the idea he would live. The correct rational response of seeing himself as 70% alive was impossible for him, even though he has a highly developed intellectual understanding of probability.