Money: Readers' Lives - The best odds for a long shot
Lottery v Premium Bonds ... occupational pensions. Your queries answered
Sunday 10 May 1998
Every pounds 1 you invest in Premium Bonds is fully returnable; you are only gambling with lost interest. Assume you have pounds 1,000. You'd get gross interest of 6.5 per cent from a building society account. After basic-rate tax that's pounds 52 a year, or pounds 1 week. Instead, you could buy pounds 1,000 of bonds. So you are gambling pounds 1 a week.
A pounds 1 a week stake in the Lottery gives a one in 3.23 million chance of winning the jackpot (which could be much more than pounds 1m) on a monthly basis. In fact, the pounds 1,000 in bonds gives you a one in 10 million chance of winning pounds 1m every month. But you also need to consider the chance of winning any prize. With the Lottery, it's one in 54. So a pounds 1 weekly stake will, on average, win one prize (minimum pounds 10) in just over a year. With pounds 1,000- worth of bonds it's one in 19. So, on average, you'll win at least pounds 50 every 19 months. In other words you're more likely to recoup your weekly pounds 1 stake from the Premium Bonds. Perhaps mathematicians out there have different ideas? Do write in.
Arguably the real contest is between Premium Bonds and the building society. Why put your modest savings in a society account paying a small amount of interest, when you could invest in Premium Bonds with a chance (if slim) of hitting the jackpot?
I have been a member of my employer's pension scheme for more than 10 years. In the last three years I have taken on some freelance work. I am getting conflicting advice on whether I can pay into both my employer's scheme and a personal plan.
You can belong to a company scheme and pay into a second pension at the same time. But the pension plan premiums must come from earned income other than from the job where you belong to a scheme. You can put 15 per cent of your earnings into a company plan or additional voluntary contribution (AVC) scheme to top up the main pension. If your gross pay is pounds 20,000, that means you could put up to pounds 3,000 (15 per cent) a year into a pension. If you are putting 5 per cent (pounds 1,000) into the main scheme, you could put a further pounds 2,000 into an AVC plan.
Free-standing AVCs are run by insurance firms and other financial institutions quite independently of any AVC scheme your employer runs. You could put your pounds 2,000 into an FSAVC instead, though this will also be subject to the 15 per cent rule.
For your freelance work, you can open a personal pension and put in 17.5 to 40 per cent of your freelance earnings. The limit depends on your age. It's 17.5 per cent up to 35 and rises in stages to 40 per cent at 61. You can also make use of any unused tax relief going back six or so years. But this applies only to personal plans and only to your non-pensionable income (from freelance activities) from earlier years.
q Write to the personal finance editor, `Independent on Sunday', 1 Canada Square, Canary Wharf, London E14 5DL, and include a phone number, or fax 0171-293 2096. Do not enclose SAEs or any documents that you wish to have returned. We cannot give personal replies or guarantee to answer letters. We accept no legal responsibility for advice given.
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