Is it a good time or a bad time to start a pension?

[furrycat]

I haven't had a pension since I went freelance nearly two years ago - is it a good time to start one now or given the state of the market should I wait a few more months?

The market is quite low so starting now may be a good idea as you will be buying more for your money than if you started paying in last year.

The market could drop further though, rather than going up. It depends what your view is on it whether you start now or not.

its a very good time to start. markets are low and pensions are long term. dont forget you'll also be playing catch up if you havent contributed for two years, its quite a long time to not have had one.

I am an investor and do it for a living. I do not do it for other people and am not a financial adviser but sometimes people ask me for general advice and ths is what I always say.

1. If you have any debt, includng a mortgage, pay that off rather than getting a pension - as debt costs you money.

1. If you have no debt, put aside 6 months of income to cover emergencies. Invest that in a bank acocunt that it protected by the Govt Deposit Protection Scheme or put it in a cash ISA.

1. When you have no debt and enough cash for a rainy day emergency then put the maximum amount into an equity ISA every year but do not give it to a money manager just do it yourself by usng a Self Select PEP/ISA. Most banks have them and you can just ring up or do it online and tell them to buy shares in whatever company you want. I would just put an equal amount in an equal mix of FTSE 100 shares.

The performance of money managers is absolutley criminal and the British public have been consistenty ripped off by the financial services industry for years.

Do not try to time the market - just put a consistent amount in every month or year.

If you do not own a house then I would wait until the average price of an average house price falls back to 3.5 x average salary before buying. It is the biggest investment most people make and buying a house at far above long term fair value will damage your finances for the rest of your life unless you are a very high earner.

abetadad has omitted to mention that pensions are tax efficient and that most of us dotn have time to research the best investments.

Definitely if you can. Two years is quite a long time to have not paid in - as someone else said, you'll be catching up for a while.

I find pensions a deadly dull subject and I sometimes resent the hundreds I pay in per month, but I am even more certain that I don't want the years after I stop working to be spent in poverty.

wombleprincess

Pension investors get a tax credit when they put their money in but it gets taxed on the way out (EXCEPT THE INITIAL LUMP SUM YOU CAN WITHDRAW). However you pay big fees and the managers underperform the market generally so you do far less well than the stock market market in the end.

It is the biggest con pulled by the financial services industry to tell people they are getting a tax benefit when they put money in a pension. They never say that it will get taxed on the eay out though.

The passive investment strategy of buying and holding an equal amount of a range of FTSE 100 stocks takes no research at all and that is why I recommend it to peopel that have littel time or inclination to do any research. It is designed ot be minimal effort.

If you do not want that effort then you could buy an ETF and hold it in your Self Select PEP.

An ETF trades like a share but is in reality an exact copy of the entire FTSE 100 that you can buy in small chunks.

It will cost you 1% a year in fees but should track the FTSE 100 very closely.

thanks abetadad - very interesting and sensible sounding advice