Ray_li

Been 6 months at my new job and I have a chance to join the company pension.

Will a pension be better than an ISA?

pension - I pay 6% and the company puts 3% in but I cant touch it until I'm OLD

ISA - about 5% and I get to use it on a rainy day (based on me paying 6% of my income same as a pension into a ISA)

Dave uk blue mica

i've done ISA's a few times, not put huge amounts in and over 5 years made about a £1000 per year on it so not bad

Quatto

Just seen an ad saying Alliance and Leicester are doing an 8% ISA - must be a catch though.....

Jay m A

iTrader: (2)

Unless I'm missing something here...

You're comparing 9% gross (of which you pay 6%) vs 10% net (effective 6% gross I think) invested in an ISA?

Assuming returns are the same, with an ISA you'll have to spend 40% more each month to get 2/3rds the return.

I'm sure the experts will correct me!

Jay m A

iTrader: (2)

Hmm that doesn't read very well does it?

Another way of putting it is:

Assuming your income tax is 40% and you are investing 6% of your take home, and 6 % of your take home is £40 a week

with a pension

You pay £40, the company pays £20, the government gives you your 40% back = £40, so total invesment into your pension every week = £100

As opposed to £40 into an ISA every week.

Both costs you £40 a week, I'd wager a pension will return more

Brit_in_Japan

If you put money into an ISA instead of a pension then you may get a bit more freedom to control where your money gets invested, but unless you make inspired choices you may do worse than the pension funds managers. With either option it's ultimately down to the stock market how much your investments grow and so how much pension you may get at the end.

If or when you become a higher rate tax payer, pension contributions become more tax efficient as you will get relief at the higher rate. Add that to the company contribution and is should out perform an ISA.

One problem with pensions as you've noticed is that the money is not accessible and when you retire you are forced to use 75% of the fund to purchase an annuity. Also the more benefits a pension provides (payments continuing to spouse in case of death, index linking etc) the less pension a given lump sum can purchase. And if you die on day 1 of your retirement with no provision for the pension to go to a spouse, all those pension provisions were for nothing.

These are current limitations, but there is talk that they might free-up what you can do with your pension fund in a similar way as some other countries (e.g. 401K in the US). In that case you would not have your hands tied when you came to retirement, you could draw it all in cash and invest it how you want. But you would still have to wait until retirement to cash-in your pension fund.

Many people are now making diverse provisions for their retirement, some in pensions, some in ISA's, some in property etc and I think this is probably the smart route to go.

The Snug Rhino

basic rate tax payer - ISA higher rate tax payer - pension


you could do a bit of both, mix it up, bit ohhh bit ahhhh but the above is a good enough start.

speye91

My company pension,whatever i pay in the company will match it, i currently pay £100 a month into it.

Miss Speye returned £ 500 on her isa last year.

But she currently has that many things going on in the Building Society,i cant keep up.

But i do keep an eye on the figures ,and in 10 years she may be a millionare.

paulr

Wouldn't it also depend on how much your employer put in as well. If they put in a decent contribution wouldn't it be better to join the company pension?

pwhittle

Thing is they're usually around 5% tax-free. Real inflation for most people is around 4%, so you're actually ownly gaining slightly. Better than being in a current account though, and it's nice to se it going up.

I put anything spare into the offset mortgage, that way I effectively get (currently) 5.6% tax free, as it covers the mortgage interest.

With the accumalitive effects, paying extra into your mortgage if you have one, is virtually impossible to beat for long term investment.

jjones

Maz

iTrader: (34)

You plonker!

speye91

Cheers,Maz

The Snug Rhino

yes


also you should FORGET talking about growth rates and returns - a pension or ISA is NOT an investment, its a way to invest. YOu could have a good investment with either or a bad one...or the same one (almost)

to say..."i did an ISA and got X% so they are good" is like saying are bikes or cars better....just because one bike will do 150mph doesnt make all bikes fast and just because a 5 series is a nice car doesnt make all cars comfy.

fast bloke

Snug Rhino - My 5 series is faster than your pension

Bit of both is sound generic advice..... You can't really be more specific on this until you know how often someone has a dump and if it contains sweetcorn, so for anyone claiming to know the correct answer, can you direct Snug Rhino and me to the place that you qualified as a financial advisor, cos our place wasn't as good, obviously

The Snug Rhino

i wonder if for every post on here theres an expert in that field thinking "what a load of nonsense"......its possible NSR is only 5% accurate....on anything!

fast bloke

depends on the definition of accurate - It never ceases to amaze me how often people question my advice cos their mate who used to be a mechanic but is on the dole now told them how to manage their finances properly

Ray_li

so...

pension that I pay 6% in and my employer pays 3% in until I'm 70 years old only to be told i cant have it all in one go better than me paying same abount in to an ISA with 5% interest?

paulr

I use the basis of one post in 15 is of any real value. That comes from someone with direct experience of the problem you have,or is a recognised expert in that field.

The Snug Rhino

your questions is liking saying "so bike with 2 wheels that will go fast on sunny day better than car with roof that has nice stereo and goes faster through puddles"

i have been doing this 12 years and have no idea what the answer to your question is - if i did i would cancel my meetings next weeks and tell all my clients to drop me a one line email instead.

Ray_li

that's a fair statement.

I think for now i'll start an ISA as one day I'll be moving onto the property ladder and having access to a lump sum may come in handy.

Then when I'm doing better I'll so ISA and pension

paulr

Or you could get some professional advice.

Tiggs/Fast Bloke,if the question was "Where is the best place to get some impartial advice" what would your answer be?

Ray_li

Good question

Fast Bloke ..................