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Helpful ReplyPension's v ISA's

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Elvis Presley
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2011/04/05 05:50:58 (permalink)
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Pension's v ISA's

Does anybody here not believe in regular pensions?
I spoke to a financial adviser about setting up a pension through my work and he told me that there is a risk involved with pensions. He mentioned that if I paid in £100 a month through my wages I would actually be accrediting £161 into my pension fund due to the tax relief.
 
So the thing is you pay in more due to tax relief but there is a risk.
 
Does anybody understand what the risk is with a regular pension. Can the bank/BS gamble my money and lose it?
What is the percentage for loss.
 
In a cash ISA you aint losing nothing and you accumulate tax free interest (ok, almost tax free)
 
I'm confused.
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Rosc0PColtrane
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Re:Pension's v ISA's 2011/04/05 07:04:36 (permalink)☄ Helpful
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It won't be £61. Basic rate tax is recredited via the provider, with higher rate tax via self assessment, so more like £140 tops. Though the extra £20 could be from the employer contributions?
 
Though to get £100 into your savings account, you will pay tax and NI on your earnings, though that's not £160 either.
 
ISAs and pensions can carry very much the same risk. The associated risks should have been explained by the advisor really.  Both can be invested in a variety of asset classes, in accordance to your appetite for risk. Usually a mixture of shares and bonds. As most people will have a significant time until retirement, using a volatile vehicle is desirable as regardless of ups and downs, the net position should be decent growth.
 
Using cash or deposits carries it's own risk too. Inflation has pretty much continually outstripped returns on cash. (I have data going back to 1950). So over the long term, you'd have to save a hell of a lot more for retirement. Whereas, as an example, the stock market has grown 442% over the last 25 years, including 2.5 recessions/crashes.
 
Shares are a gamble, but any decent pension provider will be investing in blue chip companies to reduce provider failure risk. This should be further mitigated by having about 200 shares/bonds within a fund.
 
The biggest issue (a downside for some, not for me, I'm rubbish at saving) is that once you put money into a pension, you cannot get it any earlier than 55 and how you get the money is very prescribed.
 
With interest rates at a very low level, a cash ISA is a token gesture. saving 20% on a 2-4% interest return isn't really going to set the thing on fire.  As inflation is set to hit 5% this year, your money's value is actually decreasing unless you look to garner better performance.  ie if a loaf of bread costs £1 today, next year it'll be £1.05. So unless your £1 has been getting a 5% return, next year you will have to find more money for the same loaf of bread.
 
There's no real percentage for loss. statistically (this is a dumb statistic, but backed up) the probability of actually losing money on a long term stocks and shares investment, reduces to near 0% over a 10+ year period. Stocks and shares are a gamble, but it's a risk/reward relationship. It really is probably your best chance at getting a reasonable income in retirement.
 
You really should be speaking with the advisor mate, rather than getting an armchair verdict (albeit there are FAs on here, me included).
post edited by Rosc0PColtrane - 2011/04/05 07:06:52
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Elvis Presley
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Re:Pension's v ISA's 2011/04/05 08:20:51 (permalink)
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Yeah cheers mate, I shall indeed take a closer look at the finer points. Your post did help me though so thanks for your time.
 
I hate people like you, you make me feel so uneducated.
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johnny bravo
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Re:Pension's v ISA's 2011/04/05 11:15:34 (permalink)
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Elvis Presley

Yeah cheers mate, I shall indeed take a closer look at the finer points. Your post did help me though so thanks for your time

I hate people like you, you make me feel so uneducated.[sm=biggrin.gif]

 
lol, thats exactly how i feel with stuff like this, Righty on occasion posted his thoughts on mortgage and pension type stuff and it just makes me feel like a dumb ass.
When Financial advisors and the like start talking to me its like the Charlie brown cartoon in my head where the teacher at the front of the class just makes these monotone noises that make no sense... lol
And im supposed to be a grown man who understands all this sh1t...
 
Apparently my companies pension is supposed to be very very good, so im told by those who have financial savvy.
I pay in a fair bit (but really its probably not enough, (but to pay enough in now we would be living on bread and jam)
the benifit i see is that my company pays in to, along with the said tax benifit, its like a sliding scale the more i pay the more they pay. I pay well over the amount i have to to ensure they pay the full amount that they will contribute. Seems like if i didnt have a pension and put money in an ISA etc then im loosing a payment from my employer, taking a voluntary pay cut...kinda.
 



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MT2006
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Re:Pension's v ISA's 2011/04/05 11:25:06 (permalink)
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If saving for the long term you really want to be out of cash (e.g. a savings account or cash ISA) - inflation will gradually eat into your returns. Inflation poses much greater risk to your money than the volatility of the markets, over the long term.
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Rosc0PColtrane
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Re:Pension's v ISA's 2011/04/05 17:44:22 (permalink)
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johnny bravo

Elvis Presley

Yeah cheers mate, I shall indeed take a closer look at the finer points. Your post did help me though so thanks for your time

I hate people like you, you make me feel so uneducated.[sm=biggrin.gif]

 
lol, thats exactly how i feel with stuff like this, Righty on occasion posted his thoughts on mortgage and pension type stuff and it just makes me feel like a dumb ass.
When Financial advisors and the like start talking to me its like the Charlie brown cartoon in my head where the teacher at the front of the class just makes these monotone noises that make no sense... lol
And im supposed to be a grown man who understands all this sh1t...

Apparently my companies pension is supposed to be very very good, so im told by those who have financial savvy.
I pay in a fair bit (but really its probably not enough, (but to pay enough in now we would be living on bread and jam)
the benifit i see is that my company pays in to, along with the said tax benifit, its like a sliding scale the more i pay the more they pay. I pay well over the amount i have to to ensure they pay the full amount that they will contribute. Seems like if i didnt have a pension and put money in an ISA etc then im loosing a payment from my employer, taking a voluntary pay cut...kinda.


 
All the knowledge in the world is effing useless if an advisor of any discipline cannot eloquate it in a fashion the audience understands. More so if you don't feel confident to ask questions. Advisors have to go through a fair degree of study and continual development to have the privilege of speak with clients. The Retail Distribution Review means the qualifications have been upscale and we're all back in school.
 
The point being is that non-experts cannot be expected to be an expert in the matter, much like I know nothing about plumbing, I'd ask a plumber. Hence it being critical that an advisor can deliver concise and tailored explanations as well as get sales. If the client doesn't understand, the business doesn't stay on the books. So cynically, it's in the advisor's interest to communicate effectively.
 
I don't mind answering questions to the best of my ability, but without a full and frank discussion, I cannot give advice. There's a massive difference.
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Dick Dastardly
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Re:Pension's v ISA's 2011/04/05 22:24:20 (permalink)
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I'm an advisor albeit I speciaise in the offshore market, the only thing I would add to RosC's initial post is that a pension as he said,
would be prescribed to you, as in you do not control how its paid out.
 
For instance if you had a pension worth £100,000 at 65 you would get a lump sum of around 20% (£20,000) you would then receive around 3% of the remaining per year as an income (not alot of money), add to this that you have no control over what the money is invested in.
 
Company pensions I like as the company contribute on your  behalf but now that the job for life concept is outdated you need to make sure you keep track of all the company pensios you acrue over you lifetime and know how to ascertain their values.
 
I prefer savings vehicles where the client has greater control over the investment and how the funds are paid out, makes a lot more sense to me than pensions (not a fan). The main thing to consider in the UK is how the tax man will look at these vehicles, there are offshore products that can be taken out in the UK, Aviva do once for instance but you'd need to weigh up the benefits vs the tax liability that would stem from this

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