Pension fund performance - do you monitor yours, how is it doing, do you actively change it?

[danlightbulb]

I wouldn't personally expect little olde England to outperform the powerhouse that is the US any time soon, if ever.

Probably.

Isnt there some currency reason as well? So if the Pound was to strengthen the value of my non-UK stocks fund would fall. But then at the same time my regular contributions would buy more of it with a stronger pound so not sure if this matters or not.

 

[danlightbulb]

I'm sure you'll make some money in the UK market, I just think you'll make more elsewhere. As ever it's a personal choice as it's your money and your future wealth you're talking about.

Im in the margins now anyway. With 80-85% in global non-uk equities, it probably doesn't make much difference if I have 5% in UK or 10% really. I'll think about it some more.

 

[danlightbulb]

With dividends reinvested the FTSE isn't quite so bad but still well behind. Since about 2008 after the crash the market has been all about very cheap money which favoured growth stocks, the UK market has very little of that. The annualised performance of the S&P500 over the last decade is well above historical norms, those trends usually do not continue forever but of course one cannot time it well.

If growth slows in the US stocks, would they switch over to dividends? Having acquired a high share price the switch to dividends could then continue fund growth going even if the share prices themselves stagnate?

 

[danlightbulb]

My personal thoughts on it, is that the more a person can place into their pension the more tax efficient they will be.. but IF they do get rid of NI; taxes will go up and I do suspect the basic tax percentage will go up before I retire even if they don't get rid of NI. It's better to pay the taxes now at 20% and put the cash into private investment than have to pay them at 22%, 25% or whatever percentage that they will raise to.

Been thinking about tax lately and my conclusion is there is no point getting hung up on it. Right now I earn c.30% more than I get paid because of tax, and if that's the same in retirement so be it. I think it's ultimately better to put more money in now (pre tax) so that more growth occurs in your pot, rather than limiting the growth to pay less tax in future.

 

[danlightbulb]

It wasnt that long ago the government was consulting on completely flipping the tax on pensions on its head and making contributions taxable, but pension taken later as tax free.
There is a massive benefit for the government here in that it increases the tax take right now, quite noticeably.
The step after that, reintroduce some tax on pensions IMO. It wouldn't be the full amount I would say, but some small amount.

Yeah if they did that I don't think people could ever trust that it wouldn't be reversed again later. Start paying tax now, then when come to retire they've changed the rules again and you pay tax again. I think the way around we have it now is right, you pay tax on income when you receive it, and so the tax on pension income is paid when we eventually start recieving it.

 

[danlightbulb]

Thanks yep I got that. What I mean is, for example if you took £250'000 out of your pension and put it in a current account you would be earning over £1000 per month in interest @5% which would immediately take you over the tax threshold of £1000 per year. You could put £20'000 in an ISA but you're still left with £230'000 of taxable savings aren't you? Perhaps it's flagged as pension funds somehow and is exempt?

You would pay tax on the interest yes, this is different from paying tax on the lump sum.

 

[danlightbulb]

Pension income is treated like wages in that the company making payments needs your tax code.
If you have multiple pensions it gets a bit more complicated like having multiple jobs.

Do they take tax at source then like PAYE, even if you're in a drawdown arrangement? Not looked into it but isn't a drawdown entirely flexible, I could take £10k one month and nothing for the next three etc?

 

[danlightbulb]

Don’t forget to check you NI records to see if you are forecast to get a full state pension.

Check your National Insurance record

Find out if you've paid enough National Insurance to qualify for the full State Pension - check gaps, contributions and credits, get a National Insurance statement, call the helpline.

www.gov.uk

A missing year could cost you £800 pounds to buy back, and it will give you an extra £300 pounds a year in retirement.

This year is the last year where you can buy back from a much earlier date, after this tax year you can only by back from the last 6 years.

Any idea what you can do if there is a mistake in your record?

Mine says I only have a partial year in 1998/1999. That was the year I left sixth form (summer 1998) and went to university (sept 1998) but then left after the first year (so summer 1999 I left) but I had a part time (min 16 hrs) job as well at the time. So I should have a full year I think.

 

[danlightbulb]

I think if you leave education before the course you originally sign up for finishes, the government removes NI contributions supplements for that period of time, kinda a double edge sword. In my case I left before the orginal course finished and took a lesser degree.

Oh that could explain it then.

I have only two years left until full state pension according to the checker, 20 years+ still to work. So its no problem, but would have been nice for it to say full for every year as the 98/99 year is a blemish currently.

 

[danlightbulb]

You're both right. Obviously time will make a smaller sum bigger but time is constrained for all of us and the more you have to start with the more you'll end up with.

Time won't compensate for being able to put in twice the amount of cash.

 

[danlightbulb]

If defer your state pension for a year, you have to live at least 20 years to make the money back from referring it.

It’s roughly 5.8% per year increase… you might as well take the money and stick it in a high interest account or in a market tracker.

As far as I’m aware, you can still take the state pension be in full time work and pay towards a private pension without any penalties. If they changed the rules on that and stopped people from paying into private pensions, then more people would consider deferring their state pensions.

Take the state pension, put it into your private pension and get 20% (or even maybe 40%) tax relief on top? That must massively out weigh deferral if you don't need the money.

 

[danlightbulb]

Don't forget if you have enough income / savings elsewhere to consider deferring state pension, your likely to pay tax on the state pension on the way out, and then get it back if you recycle into personal pension so effectively it's tax neutral.

If you've got other income so that your state pension is taxed, but you don't need the money, then if you save it in a standard savings account you'll not have recovered any of that tax, whereas putting it back into your pension fund will enable you to recover all of the tax. So against saving it directly, it would be very beneficial to reinvest in your personal pension fund instead.

Yeah I can now see it wouldn't be beneficial against deferral under that scenario though. I think it would be beneficial against deferral if you had no income and living off cash savings.

Interesting choices anyway, likely won't affect me as I'll need the money when I'm that age anyway.

 

[danlightbulb]

https://actuaries.org.uk/media/2kualjab/saving-goals-for-retirement-v08-oct-2019.pdf

I got this from a youtube video

Bear in mind those are 2019 figures and we have had a lot of inflation recently. But putting away £1,755 in 2019 for a comfortable retirement is now £2,185.34 according to the BoE inflation calculator, and £799 for a moderate retirement is now £994.92. Also this is the amount per *EDIT* month if you started working at 18 till your 67, which you will need to bump up with the yearly inflation and it doesn't include the state pension which is asumed already adjusted for inflation.

Retirement is going to be rough... lol..

I normally like his videos but found that one a bit strange. About halfway through he comes out with a different set of figures which is quite a bit lower than the first set. Then starts talking about ISAs, which to my mind is odd because if you can't afford to save much into a pension how can you then afford to save into an ISA as well.

 

[danlightbulb]

understand what you are saying, but NEST is the largest workplace pension provider, with around 12M accounts and £30B under their control. That's 12M people whose pot will have to paid out as a lump sum if they die. And whilst still contributing, no option to transfer to a pension provider that does provide the other options.

You should take it up with your employer. Only pressure from employers can make them change their behaviour (without government intervention).