Private Pensions

Stephen

To put it simply, a pension fund with only 15 years to run is a bit of a gamble and like you say, when you die, it dies with you. If you pay 40p in the pound tax then it becomes more of an attraction but for the average guy, the returns look poor.

In your shoes, I would take a bit of a gamble, buy a £50k holiday property in Bulgaria (you will need to become a limited company) and just take the rental income. The big gamble is capital appreciation. Personally I think you should do ok.

The advantage is you can sell in 5 yrs or 15yrs time to suit yourself. You can easily get a £50k mortgage and that will not cost much. Also you get a cheap holiday.

Regards

Mick



Regards

Mick

If buying abroad check out the capital gains tax implications in the country you choose. Some, like Spain, are quite draconian, in some others, like Italy, there is none.

Mike

I have 4 houses and have just sold one. The cash goes into my portfolio. I sell at peaks and one does not need to wait until retirement age to do it. My profit on that transaction, after tax, exceeds £100k and that beats my profits on shares hands down.

Basically you need to spread your risks, you need a pension, lump sums in cash and equities.

Any pensioner who depends on a pension is either an optimist or a fool.

Having said that, property will always do well in the overcrowded and underhoused UK.

A property purchased in Bulgaria stands a good chance of making a decent return over a 10 - 20 time frame.

As regards to CGT, that should be harmonised within the EU which Bulgaria is now applying to join.

Spain currently imposes a straight 35% CGT on non nationals but this is being challenged in the EU courts and is less likely to be a problem. Property is a good constituent of a balanced portfolio.

Regards

Mick

I agree totally with Mick on this, though I never had the spare money to aquire properties. Twenty years ago I advised a friend who does have the income (and is just a year younger than me) that if could buy properties he would be tied to no one's competence but his own, while I started in small private pension for myself. I stopped it ten years ago, as it was quite clearly never going to keep me in old age, and the stock crash meant it is now worth something rather less than it was five years ago, but it is useless. I cannot get to it. It would make a nice deposit, but I have to get to retirement age to touch it, which may be of no relivance at all...

My friend now owns three houses outright after twenty years, so I was right, and unable to follow my own advice.

If you have the income I am sure it is advisable to spread your money round different investments. Buying a Private Pension as the sole investment is utterly useles, and should not be attempeted if your aim is to live on the proceeds. It ain't happening!

All it will do is mean that when you fill in your means test, you will get less help from the state, which you have been paying into involuntarily all your working life in whatever case. Examine why your prudence and skrimping should keep the likes of Pension Robber Brown in high office and happy, and then decide!

All the best from Fredrik

quote:

Pension Robber Brown

That would make a great headline - lets hope one of the most worthless individuals in the history of mankind is never prime minister - Britain would be even more of laughing stock than it is already if that happened. Lets hope the press can find something on him and destroy his career as soon as possible - the press are useful sometimes.

Best regards, Rotf

BTW - to me the disadvantage of investing in property is you've got to take an interest in it and read loads of boring stuff about finance, when you could be doing something enjoyable.

Unless you are interested in finance, I tend to think zero-risk investments are the best bet - premium bonds are quite good.

Dear ROTF,

Premium Bonds (in a reasonable tranch) make at least as fine am investment as Stocks! The problem comes with any amount of inflation, but then we are assured that inflation is between 2 and 3 per cent. Beleive that and you would beleive anything!

How do fuel (electricity gas and motor fuel), Water Rates and Council Tax fit into this description when they can account (with rent) for half the income of a low paid house hold.

What use is it that a cheapo DVD player can be had for a fifth of price three years ago, if it does not allow you to keep and roof and servies in place! Hardly a necessity. I will not run a tele because I consider a licence an imprudent expense given what is broadcast!

I do believe that inflation should include only necessary expenditure with all else kept in a separate index!

Fredrik

To play Devil's advocate on this 'tween Mick and TMP, one can of course invest in Property through pension funds whether direct bricks & mortar or property portfolios/umit linked funds and get the relative stability of property and the facility to switch in and outof the sector, all with the massive benefit of tax relief too. Though, never let anyone tell you that seeking and investing in any particular market, whether Property or Tech stocks for instance, doesn't bring risks. Capital investment will rise and fall in value.

I would also agree that hedging one's bets is never a bad idea and in looking for a 'gamble' I've used some of the more specialist equity funds such as the Financials (e.g Jupiter's fund has made 370% since inception 8 years ago, now that's performance and better than a house even measured in this strong residential market since '96). If you're going to specialise, then property and banks have always suited me...and property rent and bank dividends are a jolly nice way to smooth those capital peaks and troughs.

A caveat. This in no way represents financial advice!!!

Oh and when you buy your annuities (and since A Day you no longer necesarily have to)- then buy capital protection and/or a ten year guarantee and then it doesn't absolutely stop when you do and a 60 year old will still get 5%+. Or, of course, consider an investment linked annuity. OK, I know, too deep here. Go see an IFA. Get personal advice.

Chaps

The best advice is not to put all your eggs in one basket.

You need accessable cash, you need a good pension plan but you need to compliment that with property as it always does well. Even living in an enormous house from which you can down size at a later date is also a good bet.

The advantage of spreading your bets is that you are better able to select a good time to sell which is of paramount importance.

Regards

Mick

Thanks for the replies, definitely food for thought.

Yes, I do need to see an IFA.

Of course, being self-employed there is always the option of carrying on working past 65, part-time at least.

Dear Mike,

I have not seen this year's statement yet [available in November], but it had not recouped it value at the peak two years ago when I made enquiries.

The recomendation used to be to put aside 15% of income for a Pension, but as everything unavoidable (Council Tax, Water Rates, Fuel etc) have risen far faster than wages in the lower end of the spectrum [Smiley], it became apparent that not only would I never be able to achieve a viable Pension Pot. It would have been better to struggle a mortguage even for me at the time (1985 or 1986) which I could just have swung with hindsight, if I had not been paying into the PP.

Everything else I said about inflexibility and the fixed nature of the system I still hold as true.

Let me put it like this. There is definately a lower cut off point where (being on a low enough income) makes it positively imprudent to start a Private Pension. I did to be prudent, but have been proved wrong!

Even if I could afford to add to the Plan now, which I cannot - there is a list of overdue items of some necessity such as new specs, six months overdue etc - so there is no chance I could ever now contribute enough to do more than feed the electric meter at retirement age!

If I had bought a flat in '86, at least I would not be paying a rent in retirement, assuming I ever get there.

So I remain convinced that a Private Pension is only a reasonable idea, if you are already wealthy enough for it not to be important in the bigger picture of retirement planning in the first place!

All the best from Fredrik

Mike

I have an indexed linked pension which I started drawing at the age of 55 as part of an EVR package.

The pension is good but the annual increase is only linked to inflation. This means that because wages tend to rise more than prices, I shall become poorer compared to most people as the years roll by. My pension is currently in excess of the average wage but in ten years it could be below it.

Therefore pensions are not ideal and you need wealth creating assetts such as property and equities to give it a boost.

Regards

Mick

Dear Mick and Mike,

There was an awful lot we not told as young innoscents about investments when we started out on this road. I am not saying this was miss-selling, but merely that when I was twenty three or so I was pretty wet behind the ears. I am not that anymore, but I think it is fair to share my experiences of this. As always caveat emptor, even if this is no way intentded to suggest thatIFAs or Pension organisation are wrong in what they say, but merely that it ceratinly would be advisable to look at the lowest rates of ptoential growth, and not the middle of the projection to find a truly accurate picture of what is the likely outcome!

Differential rates of inflation, as I hinted out earlier, and relative rises of wages comapared to inflation are all effects not usually mentioned at all, which is fair enough, as it is all speculation in any case.

It is just that in my experience these things tend to move against the relatively poor individual and in favour of the relaitively wealthy one.

I have no answer to the system, but I doubt if people are going to fall over themsselves to start spending all their disposable income (15% of my income certainly now represent more than my dispoable income!) on saving in a risky (though as you say quite good value from the tax point of view) investement, where we are in the hands of such [in]competent idividuals as the new Govenor of the Federal reserve!

Or any unforseen war or what ever.

At least you can live in a house, and cheaply too if you own it! You could sell it and emigrate. Yes the advantages are legion of a degree of flexibility not inherent in a Pension Plan.

All the best from Fredrik

quote:

Originally posted by Tarquin Maynard-Portly:

If you look at the value of your pension plan - assuming it is linked to the Stock Market - you will almost certainly get a pleasant surprise.

I've just received the annual statements for 3 of my pensions. I have had them open for bettween 8 and 10 years and each one is worth significantly less than the amount that I have paid into them so far. It looks to me that pensions, rather than a means of keeping you comfortable in old age are more a means of ensuring that you are poor throughout your life

Dear jcs,

My pension is about 20 years old, and not paid into since 1998.

At its peak it got to £28K, and two years ago had 'recovered' to £22K! This is rather below what the middle projection would have got, on the basis of the inputs made.

Even if I had continued to make contributions it would have come out at £60 to 80 K on retirement, which at 4% on the anuuity would have yielded £2,400 to £3,200 PA. Having kept me short for a whole life time, and yes it increasingly kept me painfully short of money on a monthly basis, it would not be likely to pay the rent on a studio flat in retirement. Clearly this is not for those on lower than average wages, whatever messages we were given in those days. I am sure people can soon work this out for themselves!

It is a waste of time... Fredrik

Blimey.

Just go and get professional advice from an IFA. Clearly some are better than others, as in any industry, ask yourself if he/she is talking common sense rather than spin. Print out this forum discussion if you like (I get all sorts brought in, from MoneyMail pages to Overseas Retirement Development Prospectuses) and go through each point, positive and negative, and see if you are satisifed by the answers. If so, then consider a pension or some form of investment vehicle without the restrictions of pensions but without the tax relief too, or maybe a combination of investment types. If not, then bury your head in the sand.

FF, I can only assume you are aged only marginally greater than a spring chicken, or you've been quoted with every annuity 'insurance' attached (from indexation, through spouses benefit to capital guarantee), some or all of which you may not need, if you're only being offered a 4% annuity rate. Maybe you should shop around with your OMO. A 60 year old should be able to get about half as much again at the moment.

Dear Jamei,

Neither spring chicken, nor retirement age... 45 in December. No I have not seriously sort out quotes on an annuity, but just gone on the typical values found in the Financial Press.

It is all a bit accademic now anyway, as there is no way I can contribute further. The ususal fixed costs (rent, water rates, and council tax) and the ususal variables (such as fuel) are enough to guarantee no form of saving in any form is any longer a possibility. It used to be possible twenty years ago, but not now.

Sadly I tied my disposable income up in a Pension Plan! A course of action I would advise against in the light of my own experience, as I said above, unless it forms only a small part of an overal investaments plan that takes in other investements one can access should this be desirable...

Fredrik

quote:

Originally posted by JamieWednesday:
Blimey.

Just go and get professional advice from an IFA. Clearly some are better than others, as in any industry, ask yourself if he/she is talking common sense rather than spin. Print out this forum discussion if you like (I get all sorts brought in, from MoneyMail pages to Overseas Retirement Development Prospectuses) and go through each point, positive and negative, and see if you are satisifed by the answers. If so, then consider a pension or some form of investment vehicle without the restrictions of pensions but without the tax relief too, or maybe a combination of investment types. If not, then bury your head in the sand.

I'm sorry but I don't get the big deal about independent financial advisers. I have used a few and through them bought PEPS, Tessas, Pensions and ISA's. It is clear to me that they have no more idea about which is a good product then I do. None of their advice has proved to be particularly insightful. In fact some of my Peps are virtually worthless now and yet they assured me that they were the best performing funds when I bought them. In the future I will stick to high interest accounts and guaranteed savings and I will sort things out myself

quote:

In fact some of my Peps are virtually worthless now and yet they assured me that they were the best performing funds when I bought them

Ah, seems like you're one of those folk looking at the "What's it made for other people?" figures, as opposed to seeing whether it's doing what it says on the tin and whether that tin (or tins as preferred) is right for you? If you don't like risk, don't take risks.

When I started working I obidiently paid into a pension scheme as my elders advised. If I had paid that money instead into a mortgage for property I would be nicely set for retirement. As it is, I paid it to Equitable Life, so it now isn't worth what I paid in.
No matter what the facts are regarding tax breaks and incentives, I wouldn't trust a pension scheme again for one second. I now am back on course for retirement, but not with the help of a pension scheme, and I consider myself robbed of many years of contributions and I would probably be retired already if I hadn't been brainwashed and done the conventional thing.
I don't know about the specifics of where to buy, abroad or here, but in principle, I totally agree with Mick. An IFA is just a middle-man waiting to make money out of your investment; they're not doing it because they love you.
One thing I've learnt is that I'll take responsibility for myself from here on in, and I'll make a better job of it too.
Paying money into a pension scheme will make a very nice pension... but for the Chief Exec, not for you.
We've all heard of what happened with Standard Life this week, but do you remember this ?:
And now another lot of trusting souls have been sold down the river.

quote:

Originally posted by JamieWednesday:

quote:

In fact some of my Peps are virtually worthless now and yet they assured me that they were the best performing funds when I bought them

Ah, seems like you're one of those folk looking at the "What's it made for other people?" figures, as opposed to seeing whether it's doing what it says on the tin and whether that tin (or tins as preferred) is right for you? If you don't like risk, don't take risks.

What I find amusing, in a sick way, is how people who've been ripped-off by some previous mis-selling scam (eg endowment mortgages or private pension schemes) are told to 'speak to an Independent Financial Advisor', when IFAs tend to be the ones who did the mis-selling in the first place.

quote:

Originally posted by JamieWednesday:

quote:

In fact some of my Peps are virtually worthless now and yet they assured me that they were the best performing funds when I bought them

Ah, seems like you're one of those folk looking at the "What's it made for other people?" figures, as opposed to seeing whether it's doing what it says on the tin and whether that tin (or tins as preferred) is right for you? If you don't like risk, don't take risks.

So what the hell is that supposed to mean? I asked for low to medium risk investments. That may have been what I got, but the fact remains that none of my investments have done very well. I would have been better putting the money in a building society account and I don't see any evidenced that amy IFA would have done much better. The people I dealt with clearly did not know what they were talking about. Maybe that is ok, after all the governor of the bank of england doesn't seem to have realised that the stock market was going to crash. So maybe the problem is that these investments are basically a lottery - no-one knows what they're doing and no-one is willing to admit it

I wonder if....oh yes....Maybe you just need to look at Jamie's Public Profile to find the answer.

quote:

Originally posted by jcs_smith:
So maybe the problem is that these investments are basically a lottery - no-one knows what they're doing and no-one is willing to admit it

Well, they are a gamble, if not a lottery. I suppose an IFA is akin to a racehorse tipster; he may know more about 'form' than the average bloke but there's still no guarantee he'll be right in his predictions about winners.

quote:

The people I dealt with clearly did not know what they were talking about.

I'm afraid you may very well be right. Many people give advice on subjects they know little about.