Using a Loan to Buy Cheap Pension Shares

[ringledman]

Hi,

I have read on a few occassions that people starting out on their pension can use a loan to their advantage to fund their pension early enough and then pay the loan back over a fairly short period.

The aim being to boost your pension contribution early and gain the benefit of a number of years extra in the pension for the lump sum.

What are people's thoughts?

I'm 30 and think that the markets will soon reach a new low as we have yet to really see them capitulate where everyone sells off marking the bottom. At this point invest a lump sum, say a 15k loan and pay it off over say 5 years.

Thoughts???!! Would the 30-35 years invested for the lump sum significantly outperform the interest payment on the loan, even with management charges and inflation accounted for? I reckon.

Cheers.

 

[Dave Vanian]

Its a risky strategy. Shop around and you'll find that the overall effect of charges on a pension fund will probably be between 1 and 2% per year of a drag on the fund. Unsecured personal loan from Askaboutmoney Best Buys - Tesco at 6.9%.

There are also some geared pension funds out there, where the fund itself does the borrowing. [broken link removed].

 

[DerKaiser]

Hi,

I have read on a few occassions that people starting out on their pension can use a loan to their advantage to fund their pension early enough and then pay the loan back over a fairly short period.

The aim being to boost your pension contribution early and gain the benefit of a number of years extra in the pension for the lump sum.

What are people's thoughts?

I'm 30 and think that the markets will soon reach a new low as we have yet to really see them capitulate where everyone sells off marking the bottom. At this point invest a lump sum, say a 15k loan and pay it off over say 5 years.

Thoughts???!! Would the 30-35 years invested for the lump sum significantly outperform the interest payment on the loan, even with management charges and inflation accounted for? I reckon.

Cheers.

Thoughts are:
1: Don't try to time the Markets
2: Instead of putting in €15k now and paying off €3k per year why not just start a pension with the €3k per year and increase it as disposable income frees up
3: Don't expect to get money for nothing on a pension (apart from the tax benefit). Looking at 10 year returns now people are starting to realise that you can't magically make money by borrowing to invest.