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How can you achieve the perfect pension?

The perfect pension depends on getting the right mix of assets, starting saving early and making sure you're making the most out of your money.


by Michelle McGagh on Nov 15, 2012 at 10:08

How can you achieve the perfect pension?

The perfect pension for most of us is one that lets us live like a millionaire in our old age. But failing that we’d settle for a decent standard of living, and one man has come up with some rules to achieve a better pension.

The average pension pot is just £25,874 at retirement, or worked out as an income just £28 per week for a man aged 65, and falling each year thanks to inflation.

It’s a sorry state of affairs, and certainly not a decent standard of living, which is why Rod Thomas, chief executive of Axis Property Investment, wants you to ‘take back control of your pension and improve its performance’.

Thomas has written a book called ‘The pensions disaster and how to plan for a secure retirement’, in which he details ‘how to build the perfect pension’.

What should the perfect pension deliver?

Thomas has identified four things that a pension should do:

  1. Preserve your capital: many investors have seen the value of their contributions fall and ‘we want to avoid that at all costs’, Thomas said. This means your money is worth less than it was after being invested.
  2. Perform well: you need to achieve higher annual returns from income and growth investments to build up your pot. Income investments include gilts, bonds and savings accounts while growth is gained from stocks and shares.
  3. Protect you from inflation: as living costs increase your money becomes worth less in real terms so investments need to beat inflation.
  4. Let you pass money on: passing something on to your family in your old age or in the event of your death is a big deal to many people, although not essential to your immediate living standards as the other three points are.

How do I achieve this?

Most people want their pension to do at least three of these things, but achieving it is far tougher and requires dedication to saving early in life and saving regularly. It also involves making sure you get the right mix of investments.

Thomas said the structure of the pension is important, and a self-invested personal pension (Sipp) can provide the most flexibility for those who want to have a go at investing their pension pot themselves. As the name suggests, the saver invests their money rather than an insurance company investing the money, as happens with a personal pension.

Pensions are invested for the long term, which is why it is much easier to get the balance of investment growth and risk-taking right if you start saving early.

‘We should consider risk at each stage of the development of our pension. If you are at the first stage – building your capital – and you have more than 20 years until you retire, then you can afford to take a bigger risk than if you have already retired and are now reliant on a monthly income,’ Thomas said.

‘Perversely if you have left your pension provision until later in life and you have a short time to go to retirement – say, less than 15 years – you are going to need an aggressive growth strategy to build an acceptable pension pot in time. While in theory you should be taking less risks than ever, you may face the situation where the only option to successfully build the pension you need is to accept a higher level of risk in return for a potentially higher return.’

Investing in assets that are volatile should ideally be for people with time on their side, this could be anything from stocks and shares to funds that are more risky such as emerging markets.

Investors should aim to increase both the capital and income in their pension, which means investing in a mix of assets. For example, savings accounts pay income in the form of interest but the value of your capital doesn’t grow, it slowly erodes away over time.

Capital growth can be found by investing in funds and stocks and shares, as there is the potential to see your investment increase – there is even the possibility of a small income in the form of dividends paid out by companies.

To get income growth, investors need to look at bonds and gilts, which are effectively loans to companies or the government respectively, which promise to pay you back with interest (or an income) at a set point in the future.

Thomas argued that property can provide both capital and income growth – the value of a property could increase over time (capital growth) and rent from a property (income) can also go up. However, as we have seen, property does not always go up in value.

Overall, Thomas advocated a low-risk investment approach to pensions because very few people can time the market perfectly – buying at the bottom and selling at the top.

‘When your retirement is at stake, I’m not a believer in taking risks with your money,’ he said.

However, before you start tackling your pension investments Thomas said a pension review is essential to understand how the pension is performing and how much is being charged.

It will also help you understand exactly when you will be able to retire and what you can expect to live on in retirement, and whether there is a shortfall between what you want to have and what you can expect to have.

‘A lucky few will have no shortfall. If that’s you, the pressure is off. You may not have the most efficient and productive investments, but doing better will be a matter of choice, not necessity,’ he said.

‘If, on the other hand, you have identified a shortfall, it’s time to decide what to do about it.’

New to investing? Watch The Lolly Investor Programme, our weekly video guide to investing

34 comments so far. Why not have your say?


Nov 15, 2012 at 12:15

Ah, and I thought the answer to this article would be to get a job with the BOE and get a rather large RPI linked pension.

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Rob Walker

Nov 15, 2012 at 12:52

I love the way these articles ask a question then fail to answer it !! I would suggest that for professionals in their 50's with a good income, that is the ideal time to put money in a pension, not when they are in their 30's and cash-strapped with other priorities. Hopefully , they can then get 40% tax relief on any money invested, no longer have large mortgage debts (unless they are daft) and have less time (ie less period of risk) to be screwed by some pension scam or market collapse (or. specifically Property crash !). I would agree with the SIPP option but look at corporate bonds and preference shares to take into retirement. Plenty of retail bonds yield over 6% and give you your money back at the end of their term. That deal looks better than an annuity at the same sort of rates. Ideally put your full ISA allowance into a stocks and shares ISA whenever possible and invest in similar products for a tax-free income and cash to pass on when you snuff it.

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Mr Mr

Nov 15, 2012 at 12:56

On reflection (having retired) the best way to a good pension is never going to have one answer, but will depend on events throughout one's life. I'm fortunate that my life plan (if I ever had one) worked out fine. I minimised savings through the 70s and 80s, borrowing to the limit to have the house(s) I wanted and providing for my family. In the end, it is that property (home) investment which has provided me with a comfortable retirement - all thanks to inflation.

Not sure this approach would work throughout all decades, not sure shares and funds will do that either. The problem at present is that we should have higher interest rates and higher inflation, but HMG are imposing unnaturally lower interest rates, so the markets are all to cock.

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Nov 15, 2012 at 13:17

I am in my 30's and not touching pensions with a barge poll. I will also opt out of NEST when it comes around and I do not expect that anything other than pocket money will be provided by the state by the time I reach 68 / 72 or whatever the figure is then.

Instead I will buy a few gold sovereigns every year and a house every decade and take my chances. I will also use up ISA allowances if there is any money left over.

'Oh... but what about all the 40% tax relief that you will miss out on' I hear some of you cry.

To be honest I just think that is a con that shows organised pensions to be nothing more than a total scam. The rules can be tinkered with and changed by the likes of Gordon Brown, George Osborne.... or even Ed Balls and surely that is reason enough to keep away from pension funds.

Sure, these politicians can also mess up the housing market if they tried hard enough but it is not quite so easy to attack as pension funds / annuity rules / GAD Limits. Also houses and sovereigns are easier to pass on and do not die with me and are the best hedge against inflation, in my opinion.

Avoid pensions and all those who make a living flogging them to you regardless of the so called tax saving. It is a con.

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joe stalin

Nov 15, 2012 at 13:22

Oh Right so what do I have to do then?

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Nov 15, 2012 at 13:25

We're in the same position as Mr Mr - but know that our kids can't rely on house price inflation and can't afford to save much when young or with family responsibilities. More families can't afford to have children until they are older and this means that they may still not be free to make larger contributions in their 50's. This article doesn't address this and the obvious points that he makes are irrelevant to most people.

Current interest rates mean that saving is pointless for many people, other than in a Stock and Share ISA - and many people have been discouraged from this by seeing the values of their ISA's static or falling for some years.

In years past there was more point in saving in a pension, but Gordon Brown killed any chance of that. We like others mentioned above lost value in our private pension. Who can blame others for not doing this now? Something needs to be done to make saving more attractive - at the moment tax relief on pension contributions is more beneficial for those on higher rate tax.

My best pension return came from paying the maximum in voluntary contributions into a institutional pension scheme for just 5 years, in my 50's - but not everyone has this option. I've also delayed taking this pension to maximise the income later.

I feel that Gordon Brown is personally responsible for much of the difficulty facing people when contemplating saving for their old age.

I'm also in the position of waiting to receive my state pension and other benefits almost two years late and feel robbed, having worked for most of my life and paid full NI.

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Anonymous 1 needed this 'off the record'

Nov 15, 2012 at 13:28

So - lets start with the 'requirement ' - 4 - Let you pass money on:

And then consider the statement:

"Thomas said the structure of the pension is important, and a self-invested personal pension (Sipp) can provide the most flexibility for those who want to have a go at investing their pension pot themselves.". . . . .

Yes - the government will enforce something to be passed on by GAD stopping you getting at the capital . . . . . . . .

There will be the 55% tax on the capital when you die.


Now for the rest of the 'requirements' 0- they are really all one. . . . .1

You need your savings to increase in value to at least match inflation.

That means avoiding excessive charges - as in any charges that are made for the 'management' that are not covered by additional value not achieved by that management, and recompense from the managers paid in, and for every year their 'management' does not have the fund value increase by at least the equivalent of inflation.

So I would suggest that, unless you are a Higher-rate tax payer, and have an employer who will add to your fund, matching your investment (you should be so lucky) then avoid putting money into a 'Pension Fund' - consider ISA's - tax paid up-front, not how-much, and when-ever/how-ever the government decide to go-for your assetts.

Maybe buy Antiques - or Art or a home that will be a reasonable tax-exempt-hive for the money

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Dislexic Landlord

Nov 15, 2012 at 13:39

simple work for the goverment LOL

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Nov 15, 2012 at 13:41

Passing capital on is great if you have enough to make this possible, but many people realistically don't have enough money to see them through their old age let alone enrich their families.

Any surplus is better passed on early, when your children most need the cash to get somewhere to live. Hopefully they'll be getting on a bit and financially secure by the time you drop off your perch....

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Anonymous 1 needed this 'off the record'

Nov 15, 2012 at 14:24

Yes - but if it's in a pension fund - then you will be looking at

( so far only upped by 20% or should that be 20/35 %= almost 60% more to the revenue .. )

55% tax on what you take out, assuming youi can get it out.... and the 'management' fee for taking it out!

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Tony Peterson

Nov 15, 2012 at 14:51

If you want to live like a millionaire in retirement make sure that you have no pension income that would combine with your SRP to pass your tax-free


Have your self select stocks and shares ISAs maxed out in equities, and any excess in direct high yielding equities.

That way it is possible for a retired couple to enjoy an income of over £2K and more each week with no liability for income tax. Take the tax break when you need it. In retirement. And have something to pass on too.

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Neil K

Nov 15, 2012 at 15:13

Not one of Citywire's better articles. At one point he suggests if you're in your 30s investing in EM equities and then later on states he advocates a low risk approach as too difficult to time the market. Confusing stuff and I work in investment management, not sure what the guy in the street could take from this.

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Nov 15, 2012 at 16:03

Anonymous 1 - I really should have said don't pay it into a pension fund at all. There's no upside (other than higher rate tax relief): you pay tax on the income, your pay management fees, you can't get all the money out, you pay tax when you die... etc.

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Anonymous 1 needed this 'off the record'

Nov 15, 2012 at 16:23

Gwon wif yer..

Yer only saying that because you feel wrobbed.

And don't furget yeas gotta use the (currently) 25% tax-free of the pension ye saved4 tu gwantee yer kids mortgage lending.. so the govmint can get 3% 'purchase' tax on the loan, VAT etc. on t' fees, and then do t' 25% down to 10%, makin your g'ntee void, so the mrtge is calld-in & th bank gets to repossess the property -

More profits fr th bank, - more tax, more divi to the shareholders, and more more more bonus's .

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Nov 15, 2012 at 17:26

The investment suggestions made by Mr Thomas may be available via a SIPP, but not too many of the alternatives are likely to be available through an occupational scheme. Leaving the occupational scheme & foregoing the employer contributions in order to access other investment choices doesn't seem like a sound option. No business to be gained by AXA there then.

How many of us could afford to simultaneously contribute to our employer's scheme & a SIPP? For those who can afford it, they may consider a SIPP instead of AVC's, but it appears that the government has no desire to see pension pots being passed to dependants unless HMRC get their vast share.

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gggggg hjhjkl;'

Nov 15, 2012 at 18:00

So what is in this book then???

If it is what is published here, I would suggest it is not even worth as much as a pension annuity and we all know how good a buy that is!!!!

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Nov 15, 2012 at 19:24

All the experts advise that one should invest aggressively in equities when young, but then invest safely when approaching retirement. This seems good advice if you have a large enough sum to invest.

Maybe it's maybe a bit of a cynical view, but if you have a much smaller sum with 10 to 15 years to retirement, perhaps you should take a contrarian view and invest very aggressively to try to make your pension pot a lot larger. If you succeed, you might enjoy a comfortable & wealthy retirement. If you don't, you will have greatly reduced your savings, so you will be eligible for greater Govt handouts! This is only a possible strategy because of Govt policies, which will means-test you to death if you have any savings and wish to get extra benefits! I know it shouldn't be like this. A policy of thrift and careful saving should be encouraged, but sadly it isn't! That's why Europe is in the mess it is in, and this won't improve until everyone, including countries, are encouraged to live within their means and not borrow too heavily. I was brought up to not get anything on the "never-never", and kept to this all my live, except for a repayment mortgage on a house, which was less costly than renting!

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Anonymous 1 needed this 'off the record'

Nov 15, 2012 at 19:50

Considering the post from Johnnyoilshareholder -

Shell - or a Russian company?

wouldn't want something associated with British Government control and 'windfall' taxes or Offshore management problems.

Or you just bought a can of 20W50 for the car!

Next you'll be considering investing in 5 litres of PETROL

When you get near to taking your pension -

William Hill

So off to the bookies? something with reasonable odds matching shere chance

( the more affluent! can go to a casino and try roulette - odds/colour, 6 number set, 4 numbers 3 numbers 2, or for a real pusher - a single number, but do consume your free drink and food first! )

So - that's converted your - 'well it's something to add to the OAP' into a -

well at least I'll get pension credits and associated benefits


a well we'll start with having the house fixed up, then a nice holliday

National (and similar) lottery, or bingo odds are not good ----

Government take from the 'investment'

Charity take from the investment

Process managers take from the investment

Presenters take from the investment

Ticket sellers commission

and what's left for the 'prizes' is probably less than 50% of what you paid in.

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judy garland

Nov 15, 2012 at 19:51

Once again- Tony+ Robs replies are worth reading- which is more than can be said for the article itself

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Tony Peterson

Nov 15, 2012 at 20:35

Thanks, judy, but I reckon the best post so far on this thread is golfalot's.

I've got forty years on him, so I am looking back over my own experiences.

He is looking forward, with, in my view, the perfect blend of realism and scepticism. He will survive and prosper. And he deserves to.

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Anonymous 1 needed this 'off the record'

Nov 15, 2012 at 21:11

Yup - I would have gone along with Golfalot's option if I had been as experienced when I had money as I am now when I'm 'retired'

Another possibility - I have been told that in certain scandinavian countries you can get entitlement to a government pension that is paid, with inflation wherever you decide to retire, and regardless of any other assets, or income you may have acquired, or setup

So maybe I should have been there during my 'productive' more (not higher) taxpaying years .

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Tony Peterson

Nov 16, 2012 at 08:04

I would, however, like to draw to Golfalot's attention one oversight.

Sovereigns are fine, but they butter no parsnips. They'll give rough

protection against inflation, but no income.

Property has a disadvantage too. Because you can't trade houses in bitsy quantities, you could end up paying swingeing capital gains taxes on properties that have only kept their value up in line with inflation. Under the present regime CGT can easily be a tax on inflation. How clever of the Chancellor to inflate the deficit away and then make people pay taxes on inflation itself.

When Golfalot is retired it is income he wants. The bills keep coming in. I can tell him from my own experience that when the water bills, the electricity bills, the gas bills, the phone bills etc arrive, it is very comforting to know that the very companies billing you have just deposited in your bank account more (much more in many cases) than you need to pay them.

And shares can be bought cheaply, easily, and in relatively small quantities.

The one thing you don't want is a bloody ridiculous, crooked, corrupt, taxable pension.

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Dislexic Landlord

Nov 16, 2012 at 09:22

I have listed to what has been said on the above bloggs with great intrest

I still come back to property as the best investment in the UK

It has to be long term as do personal pensions Isa Ect and this is the key

You need to be in for the long haul I started investing in property in 1982 Ive seen the good Ive seen the Bad in the BTL bussiness

But looking back i did the right thing Ive learned by my mastakes and yes ive had a few over the years

But Being a Landlord got me freedom from a 9til5 job

I could neverhave achived the life I have now and thecream is son and his family will be set for life

and I started with a 7k flat in 1982

what more could I want out of an investment

itsgiven me a pension and a great future

I never had a great job I have a small pension

all other investments can be concidered but if you havent gotthe cash to start with you cant use them

this is where BTL comes into its own you could start with nothing and build a great bussiness

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Nov 16, 2012 at 11:51

I'm sure that Buy to Let is great if you have enough capital - we have a friend who started almost 20 years ago with very little cash and has done very well. But Tony Peterson is absolutely right about it being less flexible - income is not guaranteed to be regular and capital can only be retrieved by selling or mortgaging.

Also today you have to have the wherewithall to get started, either cash for a deposit and an excellent credit record for the mortgage, or a good relationship with a bank for an overdraft. We have just one BTL flat but found that a mortgage was not possible as we are retired and have to prove regular earnings enough to cover a mortgage. Though we have more than adequate investment income and some small pensions, as retirees we weren't considered suitable by the building society with whom we have saved for some years.

This is really quite amusing as we have more capital (pension cash and inheritances) than when we were younger. And since we have enough cash coming in for our needs we are less dependent on the rental income than many.

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James B. Johnson

Nov 16, 2012 at 15:57

This 'pension' is not a pension at all.

It is an INVESTMENT with all the concomitant risk.

A pension must be predictable and secure.

Surely readers of this blog can see the difference.

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Anonymous 1 needed this 'off the record'

Nov 16, 2012 at 16:20


The problem with 'pension funds' in the UK is that the continual government adjustment to their taxation management and payment means that they are not (in my experience) predictable.

As the 'fund' has to be 'invested' then they are less likely to be secure than an investment wrapper that allows them the value to be moved in a timely manner, with minimal costs and constraints to assets that are, at the particular time, and within the market conditions, more appropriate asn safeguarded.

If you cannot hold 'BTL' as part of a (to be taxed as the government decrees later) pension fund, but can hold your 'savings' in such a medium, then the pension fund becomes the less secure facility as it cannot be 'moved' to a facility that may, at that time be more appropriate.

Now I consider a 'pension' to be a facility for providing me with income when I cease working (specific periods) for immediate income to be paid for that effort.

However the Government considers a pension fund to be an accumulation of payments you were persuaded to make into a 'fund' by special conditions on their view and handling of the 'asset' fund.

Problem is that they then consider it to be their asset rather than your fund.

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Tony Peterson

Nov 16, 2012 at 16:35

Anonymous 1

Beautifully put.

And the government holds all the jokers in the pack for this pension game.

It, along with its heirs and successors, must not be trusted.

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Dislexic Landlord

Nov 17, 2012 at 08:53

I just cant see the mertt of any Personal Pension

Looking atannuity rates you recive £2700 per year for every £100k in the pension pot

So if you want an income of 25k you need you will need nearly a Million in the pot to get it ( and that takes some saveing )

and say in 30 years if you live long enough (MOst Dont After 65

you will have a return of 750k which is not the pension fund

When you die your family get nothing

how can any personal pension be worth it

The only guys who make money are the East End Boys in West end Suits

of I forgot the City too

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Dimitrios Philippelis

Nov 17, 2012 at 18:22

"How can you achieve the perfect pension?

Just one thing: A honest and effective banker not a bankster.

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gggggg hjhjkl;'

Nov 18, 2012 at 13:07

Dislexic Landlord

Having watched your comments on this site for a while, I am intrigued to know where in the country your property empire is located.

Acording to Hargreaves Lansdown and its so called experts the average return on Property is currently 4% net in real terms and that is allowing for the much higher returns in London and the South East.

My impression is that you are achieving much higher returns than this. Bearing in mind that you have been in this game for a long time, with vacancy periods, taxation and maintenance costs, how have you worked your magic?

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Dislexic Landlord

Nov 18, 2012 at 16:30

Hi gggggg

where do i start with that question

imin the North East been in the bussiness since 1984

I will only buy with a 9% yeild or above

At present im buying with 30% deposit and a fixed rate Capital & intrest Mortgage of 10 years fixed

On a normal purchse price of £50000 rental income of around £5700 i can make a profit of around £3000 pa

Im not saying its easy and you do need a lot of cash to start with

But im not grumbleing

Its all about effort picking the right property at the right price

Right area ect ect

Hope this helps answer your question

to be very honest Ive never know a better time for my bussiness and i only tell the truth

Its not a rose garden but its a nice place to be

the old get rich scheam of BTL is gone Im please to say and the market will be all the better for it

I only buy for positive cash flow capital values will be a thing of the past for quitea few years to come in my opinion

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gggggg hjhjkl;'

Nov 18, 2012 at 17:31

Dislexic Landlord

Thanks for that!!

It just shows there is money to be made if you know what you are doing.

More power to your elbow.

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Dislexic Landlord

Nov 18, 2012 at 18:15

Thank you gggggg

I know others on here will have a very diffearnt view from yourself



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Income Investor

Nov 25, 2012 at 10:48

Pensions hav

e their role - but I'd suggest using the approach I described in a recent article - think about your income tax allowances in retirement (and the actual tax benefits of a pension)

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