Reply to: Stashing company money in mutual funds

[Optimus Prime]

Oh dear. All this about pensions when I just don't want to use that option for now.

So pensions aside, nobody here has a limited company account with one of the fund providers that they use for keeping company cash? Like a bond fund that can be taken as cash anytime? Or with a months notice?

[dundeedude]

1) Don't buy an annuity then, see drawdown above
2) Depressed market? Now is the time to make a killing then

Add the tax relief that investing in a pension gives you, and that you can now self manage the investments you would be crazy not to include a pension in any retirement planning.

SIPP from aged 35 onwards, if you earn over £100k per year, seems a better idea to me, than contributing from aged 20 onwards into a heavily managed pension. The fees are extremely high.

[SimonMac]

I'm in my late twenties and have no plan to start a pension for another few years.

1) As mentioned by others, annuities are currently trash
2) Inflation destroys pensions. In the last 15 years your have done reasonably well with investments, depending on how you dealt with the markets in 2008. Now? Depressive period for a while.

It makes much more sense to streamline accounting now, use money wisely in various personal investments and physical appreciating goods. When I want children and all that jazz I'll then have money to use whilst simultaneously placing large percentages in a pension whilst presumably earning a good amount from continuing to contract.

Another thing to consider is that pension high-rate relief has departed - never to return? Who knows. But I'd suggest a pension isn't all it's cracked up to be under newly existing circumstances of policy, stock-markets but can be mitigated through own endeavours.

1) Don't buy an annuity then, see drawdown above
2) Depressed market? Now is the time to make a killing then

Add the tax relief that investing in a pension gives you, and that you can now self manage the investments you would be crazy not to include a pension in any retirement planning.

[dundeedude]

That is the single dumbest thing I have ever read!

I started my pension when I was 16 so I will be living fat at 55 when you are still working long past you die

I'm in my late twenties and have no plan to start a pension for another few years.

1) As mentioned by others, annuities are currently trash
2) Inflation destroys pensions. In the last 15 years your have done reasonably well with investments, depending on how you dealt with the markets in 2008. Now? Depressive period for a while.

It makes much more sense to streamline accounting now, use money wisely in various personal investments and physical appreciating goods. When I want children and all that jazz I'll then have money to use whilst simultaneously placing large percentages in a pension whilst presumably earning a good amount from continuing to contract.

Another thing to consider is that pension high-rate relief has departed - never to return? Who knows. But I'd suggest a pension isn't all it's cracked up to be under newly existing circumstances of policy, stock-markets but can be mitigated through own endeavours.

[IR35 Avoider]

Changes Introduced From 6 April 2011

The maximum amount of income that may be drawn is reducing. The new maximum amount of income that may be drawn is 100% of the single life annuity that somebody of the same sex and age could purchase based on Government Actuary's Department rates. An individual's pension provider calculates the maximum income, using standard tables prepared by the Government Actuary's Department (GAD). Click here to view the GAD tables.

This change was reversed on Wednesday, the limit has gone back up to 120% of what an annuity would pay.

[DimPrawn]

I always took the view that if you plan to be successful financially, a pension is pretty pointless... outside plum public sector jobs, pensions are for wage slaves who need that source of income when they retire.

WHS

[d000hg]

I always took the view that if you plan to be successful financially, a pension is pretty pointless... outside plum public sector jobs, pensions are for wage slaves who need that source of income when they retire.

[ChimpMaster]

I personally would only advocate pensions as a small percentage of your investment/retirement portfolio.

From your example, you have to work 35 years and hope to achieve 8.6% annual return to eventually get a retirement income of £21,500 (I hope you mean in today's money)

That's a long time, and a lot of risk that is out of your control - such as market turbulence, pension law changes, not being able to work due to illness etc.

I have a very small pension, and I haven't put any money into a pension fund for the past 10 years. I just don't see the point of putting away a few thousand £ each year only to have it grow at a tiny rate (or dwindle away) for the next 35 years before I can get it back.

I would much rather invest my money in BTLs or other asset classes over which I have immediate, continuous control and generate free cash flow for me to re-invest. For example, have tenants pay off your BTL mortgage over 20 years. If you can, start investing early and build up a portfolio of properties. You could have 4 or 5 paid off by the time you're 40, or 50, or whatever age depending on your income/investing/requirements. No need to wait until 60 or 70 or whatever the Pension age is these days. Yes it's a little more hassle but the rewards are so much greater.

And at the end of it all when you meet your maker, your portfolio is passed down the generations, the way it should be.

[pjclarke]

I never said there wasn't any risk, at the moment I have heavily invested in LLOY which is showing a 40% increase in the last 4 months, I know this will not continue but making hay while the sun shines and all that

Me Too! It's gone from 30p to 46p in about 6 months , which does equate to about 25%/ year. But as you say it cannot continue indefinitely ....

[d000hg]

At 55. No hang on 60. No 65. Oh now it's 70.

The latest plan to raid your pension - MoneyWeek

Good luck!

Personally I'd be buying property after property to let out.

Numpty Question - if I've already got a private pension can they change the year it 'matures' (I forget the word), or is it only public pensions that do this since they work differently?

[SimonMac]

Starting early is indeed key. Assuming a 35 year career (start at age 20) and the 'conservative' rate of 0.69% / month (about 8.6% annualised) you'd need to contribute just over £200 / month to get to a £500K pot in 35 years. But that 'conservative' rate is more than twice the current average yield of the stock market and higher than the highest rate now used by the FSA for projected returns, on advice from PWC.

1.9% / month annualises to 25%. Given that the average BTL yield is around 7% I'd love to know where I could get returns like that without a huge amnount of risk....

I never said there wasn't any risk, at the moment I have heavily invested in LLOY which is showing a 40% increase in the last 4 months, I know this will not continue but making hay while the sun shines and all that

[pjclarke]

Going on a very conservative estimate of my pension pot growing at 0.69% per month a £500k pension will allow a draw down of £21,500 a year (15 year UK gilt rate sitting at 2.31%), and at the time the pot will be increasing by about £31k a year by then will mean its more than self funding.

Given my investments are currently averaging about 1.9% per month I am doing OK, add in one BTL at the moment and the prospect of more I think retiring at 55 is achievable only because I started looking out for my interests very early.

Starting early is indeed key. Assuming a 35 year career (start at age 20) and the 'conservative' rate of 0.69% / month (about 8.6% annualised) you'd need to contribute just over £200 / month to get to a £500K pot in 35 years. But that 'conservative' rate is more than twice the current average yield of the stock market and higher than the highest rate now used by the FSA for projected returns, on advice from PWC.

1.9% / month annualises to 25%. Given that the average BTL yield is around 7% I'd love to know where I could get returns like that without a huge amnount of risk....

[SimonMac]

All very good and I wish you well with it.

However, the rules change every year, the limits go down, the retirement age goes up and the tax benefits are reduced. Add in the inflexible nature of a pension, the temptation for HM govt to take the pot at whim and I think the tax benefits do not outway the risks.

If you have an employer/public sector funded final salary gold plated pension, then yep, brilliant you cannot lose. Otherwise, no thankyou, not with 20 years of deficit to pay off and all those pension pots sitting there waiting to be raided.

I actually cashed in my CS pension and transfered it to my SIPP, they are gonna screw you no matter what happens, if I have control of my pension I stand a better chance than those who don't

[DimPrawn]

Going on a very conservative estimate of my pension pot growing at 0.69% per month a £500k pension will allow a draw down of £21,500 a year (15 year UK gilt rate sitting at 2.31%), and at the time the pot will be increasing by about £31k a year by then will mean its more than self funding.

Given my investments are currently averaging about 1.9% per month I am doing OK, add in one BTL at the moment and the prospect of more I think retiring at 55 is achievable only because I started looking out for my interests very early.

(Yes I know YMMV and lots of things can go tits up between now and then but if all you do is worry you are only every gonna be screwed)

All very good and I wish you well with it.

However, the rules change every year, the limits go down, the retirement age goes up and the tax benefits are reduced. Add in the inflexible nature of a pension, the temptation for HM govt to take the pot at whim and I think the tax benefits do not outway the risks.

If you have an employer/public sector funded final salary gold plated pension, then yep, brilliant you cannot lose. Otherwise, no thankyou, not with 20 years of deficit to pay off and all those pension pots sitting there waiting to be raided.

[SimonMac]

Income Drawdown Plans - The Pensions Advisory Service (TPAS)


Changes Introduced From 6 April 2011

The maximum amount of income that may be drawn is reducing. The new maximum amount of income that may be drawn is 100% of the single life annuity that somebody of the same sex and age could purchase based on Government Actuary's Department rates. An individual's pension provider calculates the maximum income, using standard tables prepared by the Government Actuary's Department (GAD). Click here to view the GAD tables.

Going on a very conservative estimate of my pension pot growing at 0.69% per month a £500k pension will allow a draw down of £21,500 a year (15 year UK gilt rate sitting at 2.31%), and at the time the pot will be increasing by about £31k a year by then will mean its more than self funding.

Given my investments are currently averaging about 1.9% per month I am doing OK, add in one BTL at the moment and the prospect of more I think retiring at 55 is achievable only because I started looking out for my interests very early.

(Yes I know YMMV and lots of things can go tits up between now and then but if all you do is worry you are only every gonna be screwed)