A friend of mine wants to start a pension. He’s 35 years old and on a ‘goodish’ salary. He talked to IFA the other day who told him to pay her £2000.00 for her work or pay the charges set up within the pension which will cost the same. Is it really the fact that starting a ‘good’ pension means paying thousands in charges in the first year? Is there any way around paying these charges?
I've never heard of paying charges for a pension scheme. If that is the case he is surely better off saving by other means like ISAs.
I'm sure that can't be right, but I'm no expert. So far as I am aware if you start your pension late, which 35 is, you will just pay more per month than you envisaged to be able to get a decent amount by retirement age.
He needs to get a second opinion.
*It is not necessary to understand things in order to argue about them. -- Pierre De Beaumarchais
All pension schemes have charges. However, the Government introduced Stakeholder pension schemes to try and cap the charges pension providers make. Stakeholder pensions currently charge 1%.
The comment about being better off saving into ISA's is not right. For two reasons;
1) Tax relief on contributions, so if your friend pays 40% tax, every £100 he saves, the Government contribute £40.
2) At then end of the pension plan you have the right to buy an annuity. This means that you can get an income for life from the total fund you have saved. So, if a company offers you £xxxx amount per year, index linked, it guarantees you that income however long you live. Interestingly, smokers tend to get offered more per year, as their life expectancy is a lot shorter.
So, if your friend can find any other savings scheme where if he puts in £100 they add £40, let me know!
I understand that, what I meant was if you have to hand over £2000 to someone just to get a pension then that can't be right and I would be tempted to put my money elsewhere, that's all. I didn't mean better off in the long term.
However, your friend will have to contribute quite a sizeable proportion of his salary each month if he is only just starting a pension at 35.
*It is not necessary to understand things in order to argue about them. -- Pierre De Beaumarchais
My company has just warned everyone to be very careful when buying an annuity as some are decidedly dodgy.
I would rather take the lump sum I get and invest it for if I live longer than I expected to. If I took an annuity and popped my clogs the next year, that disadvantages my beneficiaries severely. Plus I would turn in my grave to know that I had been stitched up once again!
Pensions need to be very carefully protected. There's too many people out there willing to gamble with your life savings - which is what a a pension is to some people.
Originally posted by queenstomper: I understand that, what I meant was if you have to hand over £2000 to someone just to get a pension then that can't be right and I would be tempted to put my money elsewhere, that's all. I didn't mean better off in the long term.
However, your friend will have to contribute quite a sizeable proportion of his salary each month if he is only just starting a pension at 35.
To be honest a £2000 fee to the advisor for a pension plan seems ridiculously high, the reason pension plans are not rammed down your throat every time you see an advisor is that with the introduction of Stakeholder the commission firms/advisors receive is very small. However, they make huge commission out of ISA's and other investments like bonds and oics.
Originally posted by Jamlamont: My company has just warned everyone to be very careful when buying an annuity as some are decidedly dodgy.
I would rather take the lump sum I get and invest it for if I live longer than I expected to. If I took an annuity and popped my clogs the next year, that disadvantages my beneficiaries severely. Plus I would turn in my grave to know that I had been stitched up once again!
Pensions need to be very carefully protected. There's too many people out there willing to gamble with your life savings - which is what a a pension is to some people.
I don't think you have a choice about buying an annuity. You can only take a maximum of 25% of your pension pot as a tax-free lump sum when you retire, the rest must be invested in an annuity to provide an income until you die (unless it's a final salary scheme). I'm not sure annuities are 'dodgy' (if your company are saying that are they offering you a final salary scheme?), but they definitely provide very low returns due to low interest rates.
I read something about a pension that can be passed on to your relatives when you die, so they carry on getting benefits if you pop your clogs after only just retiring.
I hate the idea of buying into a pension scheme which I have no control over, and I hate even more being forced to buy an annuity so I'm not surprised many other people are put off contributing to pensions, despite the great tax breaks on the investments.
"If you can keep your head when all around you have lost theirs, then you probably haven't understood the seriousness of the situation."
Yes, I do have a final year salary scheme. I'm supposed to get a lump sum and a monthly amount - although I could forego the lump sum and have a larger pension per month if I chose to. I'll go for the lump sum though.....a bird in the hand and all that!
I agree with you - I hate being forced into plans over which I have no control. Look what's happened to people's pension already - sold out! Not worth the paper they're written on. I would prefer to save my own money towards it - at least I'd know it would be there when I needed it - but it's too far down the line for me now.
You're lucky to have a final salary scheme. The only problem would be if the company went bust - but there's a government scheme in place now to protect you if that happens.
I'm pretty ok pension wise but I really feel for those starting out, I wouldn't have a clue what's best to do these days.
"If you can keep your head when all around you have lost theirs, then you probably haven't understood the seriousness of the situation."
I just found this on the Working Lunch website regarding annuities and having control of your own pension funds - something I'll be looking into when I eventually start working again.
Jon in Northants asks when the new pension regulations come in in April 2006 will you still have to buy an annuity/lose ownership of your pension fund at age 75 years of age?
From 6 April 2006 a new option called an Alternatively Secured Pension (ASP) will be available for people reaching 75 with a personal pension or stakeholder plan who do not want to purchase an annuity.
ASPs will allow individuals to keep their pension fund invested and draw an income from it rather than use the fund to purchase an annuity, which they have to do at the moment. You will only be able to draw income up to the equivalent of 70% of that you could have received from an annuity. But there are advantages, the main one being that you retain control of the investment of your pension savings without passing your money over to an insurance company and tying yourself into a fixed annuity.
On death, any funds remaining in the ASP must be used to provide a dependant's pension. If there are no dependants, the funds revert to the scheme where they can be re-allocated to provide pension benefits for other members or can possibly be paid to a registered charity.
It must be stressed that ASPs will not be suitable for everyone. Fund values could fall, leading to a reduction in your income. You should almost invariably therefore consult with a Financial Adviser before taking up this option.
"If you can keep your head when all around you have lost theirs, then you probably haven't understood the seriousness of the situation."
