I know there are a few financial 'wise owls' on here so thought I would pose a question. Yes I will get an appointment with Pension Wise as well before anyone suggests.
I've got most other plans sorted apart from a smallish pot of (currently) £40k. As I've got a couple of income streams I'm not bothered about turning it into an income. I also didn't contribute to it.
I think I could take it as cash and pay the 25%, or what, of tax.
But I'm wondering if there is anything else I could do eg invest it somewhere I don't have to pay too much tax on it?
I pay tax at 20% currently and I deferred it from it's original end date.
Transfer it to a SIPP and either choose your investments depending on your risk appetite and desire to get your hand dirty or pay someone to manage it for you.
I have my SIP with Hargreaves Lansdown, at the moment I have it spread across three or four funds picked by me but HL will, for an extra fee, manage it for you.
You can take 25% of your pension pot tax free.
Pension income is then taxed at your marginal rate.
If you can take it tax free as part of your 25% allowance, great. If not, drip it out in chunks large enough to keep the marginal rate at 20%.
Just be aware that if you do take more than the 25% tax free (ie go into drawdown) you will then be unable to pay any more than £4000 per year into any other money-purchase pension plan (this is a permanent restriction). You might also need to take advice on the impact on your tax code if you do take a taxable withdrawal (you may get moved to an emergency tax code).
As has been said you could move it into a SIPP if you wanted more control over it.
I'm going to take all my pension pot, pay the tax and get a buy-to-let. Even paying the tax, the return on a rental property exceeds the pension it would pay and I've still got an appreciating asset.
Eddie
Whole chunks of my life come under the heading "it seemed like a good idea at the time".
I plan to emigrate to a country that doesn’t tax foreign pension income and then use income drawdown.
Means I can hand something over to the kids as well.
No guarantee of that.Originally Posted by swanbourne
Every successful business person I have met has at some point used the phrase "make your money work for you" so sounds like a good plan. Would only add make sure you think further ahead and wrap the package up so any children can maximize their inheritance.
Thanks guys, much to think about.
I’d recommend some independent advice before doing that. Buy to let’s aren’t as great as they used to be. You’ll also have to pay an extra 3% in stamp duty so depending on the price the first years rent could be lost on tax. Taking all the pension out will result in tax at least 20% bit more likely 40%.
Pensions have now become far more flexible than ever before. Not sure if you have children, but if you do, they could inherit anything left.
More often than not, people are now leaving their tax free lump sums in their pension to get it to work for them more efficiently. Pensions are very IHT efficient, especially up to 75.
Big caution here. Speak to a proper independent financial advisor before going into this so you know all the details.
I'd be hugely against this myself but we don't know all the facts so will just say get more advice rather than giving my own. Anyone commenting positively from a position of ignorance should do the same.
Many people are doing the opposite and selling their BTLs and investing the money into REITs.
If your cash is already in a tax efficient pension wrapper, then I would imagine it’d be far less hassle, less costly and produce a similar return, to buy into a couple of good REITs. You’re get all the benefits of BTL, with a much broader range of property type, and none of the hassle. Plus it’s almost instantly liquidatable.
I’ve no affiliation to any funds, just that a good fund manager friend has recently sold his BTL portfolio and put the cash into 3 REITs.
I seem to remember one was LXI. https://www.lxireit.com
Hopefully the OP won't mind me asking a further question here. I have a few pension pots and did some consolidation last year. Frankly I have no idea whether I'm on track to maintain a sensible level of living from these in retirement, and my wife is in a similar position (her pensions are university related). What "type" of person will give me unbiased advice across the range of options (including self managed SIPs) rather than erring towards their own products?
https://www.unbiased.co.uk/
What type of person will I be speaking to through this approach? Ideally I'm looking for someone that gives advice based on a fee rather than looking to sell a scheme.
You need to call them and speak to them. Most IFA’S will work on a fee basis. Speak to people you know (and whose opinions you respect)and ask them who they use. Personal recommendation is by far the best approach.
All IFAs work on a fee basis they can’t work any other way (commission isn’t allowed).
Generally a first meeting will be free to discuss options and look at what you want to achieve. They will then discuss fees which can be an amount per hour or a percentage of any funds you may want them to look after.
You may only want one off advice or may want ongoing support but that’s a discussion the IFA will have with you.
I was referring more to an hourly rate, because a percentage could really be seen as commission under a different guise. That said most people still prefer that option than an hourly rate.
No problem.
There is, in my opinion, a very good book called "Smarter Investing" by Tim Hale. It's very straightforward to read. I have recommended it to several people and those who gave any feedback, said it was easy to follow.
I think it would be worth your while to set yourself a target to read this before you make any decisions. It's only 290 pages.
If, after reading that, you want another take on things, you could do worse than read "The Permanent Portfolio" by Craig Rowland and J. M. Lawson.
Good luck!
Slightly related ... Martin Lewis was on TV the other day, and made a very good point - if you're in a scheme where your employer matches your contributions, if you put more in, then your employer must put more in - effectively giving you a pay rise.
May I check - is this suggestion in response to my request regarding pension advice? If so, thanks and I'll get a copy ordered.
I am not sure this is completely correct. My previous employer did match my contribution, but only up to 6% of my salary.
Whoever does not know how to hit the nail on the head should be asked not to hit it at all.
Friedrich Nietzsche
Varies with scheme- My employer would pay up to 14% if the employee paid up to 8%- so I had 22% going into my pension. Pretty sure all employers will have a cap but certainly a lot will pay more in if you pay more in.
A personal pension suits probably over 90% of people (rather than a SIPP), is probably cheaper and will give access to the funds most ordinary investors need.
HL are actually one of the more expensive SIPP providers but do give decent service.
Very similar to my Uni one, come June 35 years in system.
Need to get a statement to see how it’s doing.
there are AVCs as well where you get 25% back so if you put £1000 pm into an AV it's the equivalent of £1250. I'm sure someone will have more info on this. A colleague of mine now retired did this in the last 2 years of employment - living modestly off his savings and putting £2000 pm into AVCs
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These were great pensions (Benefits defined I think) compared to the newer ones.
It is not specific to pensions, but relates to any investment. You started the thread suggesting that you might be investing your pension pot - I would suggest this book is gold-dust with that objective, but goes far beyond just this one decision you are considering.
It is not specific to pensions, but relates to any investment. You started the thread suggesting that you might be investing your pension pot - I would suggest this book is gold-dust with that objective, but goes far beyond just this one decision you are considering.
Once you trigger an MPAA (Money Purchase Annual Allowance) event, ie a drawdown, which has been explained in an earlier thread, any pension contributions over £4,000 PA will be taxable.
I dis this towards the end of last year, accepting the consequences of this, but be aware, the more you pay into your pension, the more tax you'll pay if it's over the £4,000 MPAA threshold. This is a lifetime event, so you need to calculate how much tax you'll pay over the rest of your working life.
Can you give example please ? Say as an alternative to Vanguard Global All Cap in a SIPP via AJBell ?
Thanks - have ordered and should be arriving today.
Not sure what AJ Bell charge but that fund charge under my Old Mutual PP would be 0.24%.
Pinched from another forum....
PPP is likely to be cheaper (although some platform SIPPs can be close and in some cases cheaper).
PPPs have FSCS protection of 100% of value with no upper limit when using insured funds. SIPP gets 50k (rising to 85k shortly).
PPPs have due diligence carried out on the investment funds. SIPPs do not
SIPPs have a wider investment choice (30,000 odd options vs a couple of hundred to a thousand or two)
Some SIPPs offer personal pension/stakeholder pension funds which makes them like a personal pension but called SIPP.
The FSCS protection and due diligence are also important.
I think IFAs probably have access to the cheapest PPs but you then have to factor their charges in too. I pay less than 1% overall.
In addition Old Mutual (and other PP providers) don’t charge for drawdown etc. which many SIPP providers do.
Sorry to resurrect this thread but I have a Pensions question and there seem to be people here that know a darn lot more than I do!!
So if you take a dollop of your normal wage and put it into your pension as an extra contribution then you get tax relief - yes? Up to standard rate then the pot is topped up by the pension provider automatically to the tune of 25% - yes? If you're a higher rate tax payer (40%) then you can claim the extra via your tax return which is refunded to you (not to the pension fund) by the tax man - yes?
However what if the monies paid to you which you then put into the pension were done via divy which is a different tax thing?
If you pay into a personal pension or SIPP, for every £100 of contribution, you put in £80 and the provider recovers the basic rate relief. You then claim any higher rate relief due via your SA return.
You can only pay (tax deductible) pension contributions from earnings not investment income (such as dividends or interest).
If you have a non-workplace pension and also investments that pay interest or dividends, does that mean that no payments you make into your pensionany are tax deductible ?
No, think just a misunderstanding with that sentence.
You can claim tax relief on any income taxed earnings up to 40k.
If you earned 20k in salary and 20k in investments you couldn't claim tax relief on 40k, only the 20k salary. I think was the point.
If you have no earnings, I believe that you can make a gross tax-deductible contribution of up to £3,600 (£2,880 net) pa. Maybe double check that.
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If you have no earnings, I believe that you can make a gross tax-deductible contribution of up to £3,600 (£2,880 net) pa. Maybe double check that.
That is correct.
Cheers.
Steve
As much as I despise Martin Lewis... I’d suggest getting onto the MoneySavingExpert forum. There’s a section for pensions and lots of excellent advice from forum members and IFAs.
I'd also suggest takings a good look at the Finance forum on Pistonheads which has some very interesting posters, although fewer IFAs once people started asking why someone should get 1% of your investments for the rest of your life.
Thanks forum, lots of useful tips to consider until I have to decide, or defer again.
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