Pension or other investments for future - I'm a contractor
Discussion
Apologies if this is well-trodden ground already in here, never browsed or posted in this section before.
My situation - I recently (1 year ago) became a self-employed IT contractor, having worked mostly in staff IT positions until now. I'm 35 years old and have some money in a few different pensions I've accumulated along the way, mostly company private pensions.
I need to get some sort of investment or pension set up for retirement. I understand that pensions aren't performing very well at the moment and if I do go down that route I won't have an employer matching my own contributions so I'll be doing it off my own back.
Question is, am I better off looking into other types of long-term investment rather than a pension?
My situation - I recently (1 year ago) became a self-employed IT contractor, having worked mostly in staff IT positions until now. I'm 35 years old and have some money in a few different pensions I've accumulated along the way, mostly company private pensions.
I need to get some sort of investment or pension set up for retirement. I understand that pensions aren't performing very well at the moment and if I do go down that route I won't have an employer matching my own contributions so I'll be doing it off my own back.
Question is, am I better off looking into other types of long-term investment rather than a pension?
8bit said:
I understand that pensions aren't performing very well at the moment...
Question is, am I better off looking into other types of long-term investment rather than a pension?
A pension is just a 'wrapper' for holding investments in. They perform based on what your pension invests in.Question is, am I better off looking into other types of long-term investment rather than a pension?
In short yes, tax advantage over other forms of invetment does come in to play, as you can invest in what you like and charges can be much of a muchness.
However, you need to consider the access piece.
Do you, or would you, possibly need some access to your funds before 55? If so a pension does not offer this at all, and only 25% now post 55 can be removed in one lump, in most cases.
If its feasible I'd look at some pensions and some others, such as ISAs, to get you a mix of tax advantage and flexibility.
Speak to a fee paying IFA before making any final decisions.
However, you need to consider the access piece.
Do you, or would you, possibly need some access to your funds before 55? If so a pension does not offer this at all, and only 25% now post 55 can be removed in one lump, in most cases.
If its feasible I'd look at some pensions and some others, such as ISAs, to get you a mix of tax advantage and flexibility.
Speak to a fee paying IFA before making any final decisions.
very much dependant on your tax status. I prefer to call it 'retirement planning' these days as pensions often form no part of it whatsoever due to the restrictions associated with that particular type of investment.
if you are a 40-50% tax payer currently then the pensions are still very viable as you are unlikely to be in that tax bracket when retired, so when factoring in the tax free cash and tax relief at highest marginal rate it can make sense to contribute.
however, due to the restrictions on how you take the funds (minimum age 55, drawdown limits or s
t annuity rates) if you are in the lower income tax bracket and can save money without dipping into it everytime a car catches your eye or a new watch, then a stocks & shares ISA is probably a better option imho.
that comparison is just about the tax wrapper and flexibility; both vehicles can hold a pretty wide range of investments; you might prefer to look at property via buy to let, with the potential benefit of a geared investment and the greater possible returns. Horses for courses.
hope that helps; PM me if you want some 121
if you are a 40-50% tax payer currently then the pensions are still very viable as you are unlikely to be in that tax bracket when retired, so when factoring in the tax free cash and tax relief at highest marginal rate it can make sense to contribute.
however, due to the restrictions on how you take the funds (minimum age 55, drawdown limits or s
t annuity rates) if you are in the lower income tax bracket and can save money without dipping into it everytime a car catches your eye or a new watch, then a stocks & shares ISA is probably a better option imho.that comparison is just about the tax wrapper and flexibility; both vehicles can hold a pretty wide range of investments; you might prefer to look at property via buy to let, with the potential benefit of a geared investment and the greater possible returns. Horses for courses.
hope that helps; PM me if you want some 121
+1. If you're a higher rate tax payer then you should take full advantage of the tax breaks a 'pension' can give. If you're on the standard rate then it's not so attractive.
You should be using up your ISA allowance every year. But you need disciplined so you don't spend it!
You also need to think about what you will need when you retire and are your expectations achievable. Current annuity rates are bad, £100k will get you £5kish a year in income. Rates may improve (I hope so) but you need to be aware of the size of the final pot you'll need to achieve the income you desire.
You should be using up your ISA allowance every year. But you need disciplined so you don't spend it!
You also need to think about what you will need when you retire and are your expectations achievable. Current annuity rates are bad, £100k will get you £5kish a year in income. Rates may improve (I hope so) but you need to be aware of the size of the final pot you'll need to achieve the income you desire.
98elise said:
As you're a contractor I expect you're not a high rate tax payer.
Invest in property, thats what I'm doing (also a contractor)
Money is still paid out pre CT and is not drawn down as income and would normally be subject to higher rate tax though.Invest in property, thats what I'm doing (also a contractor)
To the OP, I pay into a pension and fund and have been investing in ISAs, although not for last two years as building house!
Having everything invested in property is unwise from a diversification stand point. Choose wisely and your pension pot should grow well. I self select my funds within my company pension was up 18% last year. My investment trust holdings did between 23 and 39 %. If you do not understand what you are doing seek professional advice. Taking a punt is not wise and will have a high chance of losing money or inhibiting potential gains elsewhere. Yes I work in the industry and have investment Material on hand whenever I need it. It's highly complex and can take years of experience to have the best chance of getting things right.
Thanks for the feedback, everyone. Much appreciated. So I guess I have some options and probably could do with some decent advice.
I did think about property. The very-soon-to-be Mrs. 8bit kept on her flat when we bought our house a couple of years ago, she's renting it out at the moment with a view to selling that come retirement. It did cross my mind to look at doing the same sort of thing, buy one or maybe two flats over time to do this.
ISAs did also cross my mind, I have a cash ISA with RBS at the moment which I am able to pay in the maximum amount over the year and still be able to save more money besides that. If I was to look at a stocks and shares ISA, is it the case that the first £5k-ish has to go into the cash ISA and whatever I can save over and above that can go into the S&S ISA? What I'm saying is, I understand that I have a higher allowance for a S&S ISA but I don't understand if that is in addition to my cash ISA or whatever I put into the cash ISA comes off the allowance of the S&S one?
I did think about property. The very-soon-to-be Mrs. 8bit kept on her flat when we bought our house a couple of years ago, she's renting it out at the moment with a view to selling that come retirement. It did cross my mind to look at doing the same sort of thing, buy one or maybe two flats over time to do this.
ISAs did also cross my mind, I have a cash ISA with RBS at the moment which I am able to pay in the maximum amount over the year and still be able to save more money besides that. If I was to look at a stocks and shares ISA, is it the case that the first £5k-ish has to go into the cash ISA and whatever I can save over and above that can go into the S&S ISA? What I'm saying is, I understand that I have a higher allowance for a S&S ISA but I don't understand if that is in addition to my cash ISA or whatever I put into the cash ISA comes off the allowance of the S&S one?
Gassing Station | Finance | Top of Page | What's New | My Stuff