Pensions: make plans earlier

"PENSIONS are way too expensive; pension companies make an absolute fortune and financial advisers make quite a bit too," financial adviser Richard Hunter told the March meeting of London Freelance Branch.

"It's wrong. But I have a personal pension plan myself and, according to our research, there's nothing better for long-term disciplined savings -- so I think self-employed people have to take them seriously."

Hunter, from green/ethical investment specialists Holden Meehan, said "I see people all the time who are 40 or 50 and panicking about providing for themselves when they retire. You can't start early enough but, practically, the most common age is around 30."

When he asked branch members what they would see as a comfortable retirement income at today's values, £1000 net a month was suggested -- about £14,000 a year gross. Hunter showed that, saving over a 30-year period at a conservative interest rate of 9 per cent, this required saving £400 a month, plus inflation increases over the years. (If interest rates were consistently higher than 9% you'd get more -- but they could be lower, too.) While one member said "That means freelances just can't afford pensions," Hunter pointed out that at least the premiums would be tax-deductible, reducing the cost by 23 per cent to £300 a month for those paying basic rate. He said this was an advantage of pension plans over PEPs and TESSAs, whose tax benefit does not accrue until the investment is cashed in.

The standard advice on long-term pension strategy, he said, is to pay 10 per cent of gross income up to the age of 30, 12 per cent between 30 and 40, "and after that as much as you can."

The basic criteria for picking a policy are:

  • The company's proven durability
  • The fund's past performance
  • Contract flexibility -- does it permit payment holidays during a bad patch?
  • Level of charges -- though flexibility might make higher charges worthwhile
  • Environment/ethical factors.

"Green" policies, although a relatively new phenomenon, are generally performing as well as the rest of the market, he said.

Asked whether cheaper pension plans for freelances might be achieved by a collective scheme negotiated through the NUJ, Hunter said it was possible. His company would be willing to look at it, though with caution after two previous attempts to co-operate with unions had failed. Not enough members were interested in buying the pensions on offer for the anticipated economies to kick in.

Holden Meehan are on 0171-692 1700. The Freelance is bound to say that neither LFB nor the NUJ is competent to advise on financial advisers.

· The NUJ in fact has a pension plan, through NPI. Send an SAE to Head Office for details to compare with other plans.

May 1998
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