Pensions Pensions Pensions

[MrC]

I've done some digging around on this forum and read up on the Which? guide to pensions and now wanted to clarify my understanding and ask a few questions on what and why others are doing WRT pensions.

1) There seems to be lots of speculation around that ISAs can a be better savings tool for retirement than pensions. I am seeing this as being plainly untrue for any contractor with their own Ltd as they have the ability to save CT on the way in. Correct?

2) Having read the Which? guide there are all different sorts of pension. Sipps, Stakeholders, Occupational, Group, SSAS, EPP. I have also read somewhere about ".....keeping you pension outside of HRMCs control.." which if i recall correctly involved putting funds into an overseas trust or similar.
Given my circumstances - early thirties, outside IR35 (this contract), one GPP and one Occupational pensions from prior employers I would want to transfer in - which of these above pensions schemes would make the most sense for me and why? (I'm wondering if post A-day, the tax breaks are the same for the above so it just comes down to admin considerations and running costs?)

3) I have read that contributions being made must be company contributions not the company making personal contributions on you behalf. This cropped up here. Is the consensus that the ONLY thing that needs to be done is for the provider to know its a company scheme?

4) How much should i contribute this year? Conventional pensions wisdom seems to be to contribute a fixed percentage of take home per year increasing that % in later years. I don't think thats the optimal action given the complelexities of a contractors finances. e.g. I'd be quite happy to contribute £50K this year and then nothing for the next 4 years rather than £10k PA. Factors such as future contracts being inside/outside, a change of IR35 legislation/enforcement, returning to permiedom could all affect this. Also would a pension compare favourably to any benefit derived from CG of company closure/entreprenuers relief? I know it's for want of a crystal ball, but what would be the smartest way to hedge my bets?

And yes, maybe I will need to seek an IFA, I'd like to try and understand these things in the first instance as i'm never sure how biased towards a particular scheme/provider they may be. Apologies for the long post

[MrC]

Bump.

Seems either people think pensions are boring or my long post is putting people off replying. Cue a torrent of rapid and informative replies

[moorfield]

Diversification is the key I think - a little bit in everything.

But as a non-IR35 dirty income shifter I prefer fill up my various cash / investment pots in this order.

Warchest / Offset Mortgage
My ISA allowance
Missus M's ISA allowance
SIPP (upto my salary level 6k ish)

[DonkeyRhubarb]

A few random thoughts.

ISAs are more flexible. You can get at the money if you need to. You can also pay in c. £10k per person per year from this April.

Also, the Government can dick around with pensions eg. minimum retirement age going up from 50 to 55 next month.

Whilst you get tax relief on the way in with a pension, when you draw the pension it is taxable. ISA is the other way round; no relief on the way in but the income is tax-free.

SIPPs tend to be cheaper and more flexible than other pension wrappers. I'm with Sippdeal but Hargreaves Lansdown (sp?) get good reviews.

If it was me, I'd go the ISA route for the flexibility. Or, you could do a bit of both.

[MrC]

I prefer fill up my various cash / investment pots in this order.

Warchest / Offset Mortgage
My ISA allowance
Missus M's ISA allowance
SIPP (upto my salary level 6k ish)

Is there any particular reason for this order?

I have ISA from previous year but these will doubtless be raided when i come to get onto the 1st rung of the property ladder. I'm really interested though in whats going to be most finanacially beneficial in the long run.

[MrC]

Also, the Government can dick around with pensions eg. minimum retirement age going up from 50 to 55 next month.

Fair point.

Whilst you get tax relief on the way in with a pension, when you draw the pension it is taxable. ISA is the other way round; no relief on the way in but the income is tax-free.

Yes but you have to pay CT on the ISA option which surely makes it 20% more expensive (all other factors remaining the same)?

[escapeUK]

Anything you put into a pension will be worthless when you come to get it out. Mostly due to interest / returns being less than inflation. Why do you think so many people jumped into property as a pension fund?

I have two grandparents, one who had a pension, one who had nothing.

The one who had nothing got free everything paid for by the government, rent, council tax, food etc etc the one who had a pension has to pay for everything herself and has to pay tax. It clearly makes much more sense to spend all your money before retirement and let the goverment pay for you. There has to be a reason why we pay so much tax, and this is it.

Personally Id rather keep all my money under my control so if I need to leave urgently or fake my own death I can without leaving all that money behind. lol

[pmeswani]

Anything you put into a pension will be worthless when you come to get it out. Mostly due to interest / returns being less than inflation. Why do you think so many people jumped into property as a pension fund?

I have two grandparents, one who had a pension, one who had nothing.

The one who had nothing got free everything paid for by the government, rent, council tax, food etc etc the one who had a pension has to pay for everything herself and has to pay tax. It clearly makes much more sense to spend all your money before retirement and let the goverment pay for you. There has to be a reason why we pay so much tax, and this is it.

Personally Id rather keep all my money under my control so if I need to leave urgently or fake my own death I can without leaving all that money behind. lol

Pensions from 30 years ago are not like the pensions of today. SIPP are tax efficient. you save up to 40% on contributions and pay 20/21% on the income from pension, so you save 20%.

Don't bet your life that the Government will bail you out when you retire. The majority of kids nowadays are happy to sponge of the system that there will be no pot or a small pot when u retire, you won't survive on the government income in 20/30 years time.

[escapeUK]

Pensions from 30 years ago are not like the pensions of today. SIPP are tax efficient. you save up to 40% on contributions and pay 20/21% on the income from pension, so you save 20%.
.

The difference will be lack of growth vs inflation.

The story about not relying on government to support you is spread by people selling pensions. Lets look into the future and imagine that somehow there is no state pension and lots of people have no money. They will either, starve, steal, goto prison to let the state pay £30k a year to house them. It will always be cheaper to pay a third of that in pension.

Can you imagine our society changing so much that people accept that they pay 50% of their earnings all through life and then when they stop working get nothing and that old people starve to death. Its never going to happen. If anything the way politics is changing the state getting bigger and bigger and the people less and less responsible for themselves.

Personally im not relying on the government. My "pension" is the property that my grandparents and parents own as the last child in the family. Im also not that attached to this life that i see myself wanting to cling onto it when Im old and unattractive.

[pmeswani]

The difference will be lack of growth vs inflation.

The story about not relying on government to support you is spread by people selling pensions. Lets look into the future and imagine that somehow there is no state pension and lots of people have no money. They will either, starve, steal, goto prison to let the state pay £30k a year to house them. It will always be cheaper to pay a third of that in pension.

Can you imagine our society changing so much that people accept that they pay 50% of their earnings all through life and then when they stop working get nothing and that old people starve to death. Its never going to happen. If anything the way politics is changing the state getting bigger and bigger and the people less and less responsible for themselves.

Personally im not relying on the government. My "pension" is the property that my grandparents and parents own as the last child in the family. Im also not that attached to this life that i see myself wanting to cling onto it when Im old and unattractive.

I can assure you that I don't seel pensions.

I can only hope that your grandparents and parents property will be enough for you to live on when it comes to you retiring. Some people chose property over pensions, and that is their choice. I don't know what the CGT will be like for you if you sell the property, but I can only hope that it won't hit you too hard.

I'm not going to rely on the state pension being adequate in 30 years time, hence why I am contributing into a pension. As a sibling of 3, I am not going to rely on the value of my parent's house to be supporting me for my retirement.