pension advice

[Gee252]

I know I need to get firm advice from a FA but just after a bit of advice from the more financial savvy on here.

I already pay into a couple of pensions (one I have had a while that comes direct off my income before tax and then the recent workplace pension) but from next year want to pay more to reduce my income so I remain below the 40% tax bracket.
Would this be just a case of paying all income in to ensure I was below the 40% threshold?

Any advice welcome or any recommendations on a FA who could help me get my finances in order would be appreciated.

[Andyg]

Assuming your company will not let you put more contributions into your pension, then the next best option would be to open a SIPP and stuff money into that.

Any money you invest in a SIPP will be topped up by 20% plus if you are a 40% tax payer you can claim back an additional 20%. Other benefits are you can take 25% of it tax free plus access 25% of any pot when you are 55, plus should you die 100% of the money goes to your next of kin plus it's free from CGT and inheritance tax.

But please talk to an IFA.

[noTAGlove]

But please talk to an IFA.

Not sure I understand the need to spend your hard earned cash on an IFA in this instance.

Tax relief for your pension contributions is equivalent to your marginal income tax rate for the first £40k of pension contributions, as long as you earn less than £150k.

Higher rate tax threshold is £50k. So, for example, if you earn £90k and put £40k into a pension, you will get full tax relief for the £40k.

If you earn £70k, you may only consider putting £20k in your pension as that will see the full 40% tax relief. Anymore pension contributions would only see 20% tax relief in this instance.

[Gee252]

So if as you say I put the 20k pa in above the 50k tax threshold I would not get taxed at source and the additional 40% would be added ?

Not sure I understand the need to spend your hard earned cash on an IFA in this instance.

Tax relief for your pension contributions is equivalent to your marginal income tax rate for the first £40k of pension contributions, as long as you earn less than £150k.

Higher rate tax threshold is £50k. So, for example, if you earn £90k and put £40k into a pension, you will get full tax relief for the £40k.

If you earn £70k, you may only consider putting £20k in your pension as that will see the full 40% tax relief. Anymore pension contributions would only see 20% tax relief in this instance.

[Andyg]

Not sure I understand the need to spend your hard earned cash on an IFA in this instance.

Tax relief for your pension contributions is equivalent to your marginal income tax rate for the first £40k of pension contributions, as long as you earn less than £150k.

Higher rate tax threshold is £50k. So, for example, if you earn £90k and put £40k into a pension, you will get full tax relief for the £40k.

If you earn £70k, you may only consider putting £20k in your pension as that will see the full 40% tax relief. Anymore pension contributions would only see 20% tax relief in this instance.

Simply because we dont know the OP full circumstances (like how old he is, when he is planning on retiring, etc, or what he is trying to achieve. Hence the suggestion. An IFA may also help him look at alternative options.

Plus an IFA might have a better understanding/insight of what the various political parties are planning as part of their election campaigns.

[noTAGlove]

So if as you say I put the 20k pa in above the 50k tax threshold I would not get taxed at source and the additional 40% would be added ?

You would pay £16k, and your pension company would make it up to £20k given basic tax relief at 20%.

You then claim the additional 20% as a refund via your tax return.

[Gee252]

Never done tax returns, always paid PAYE.
As an example only.
Earn 73k, would rather keep earnings below the 50k so just pay 20% tax so easiest way to pay the 23k myself into a pension.
As you say though which I know pension company only claims the 20% tax relief so then I have the mess about to reclaim the additional 20%

You would pay £16k, and your pension company would make it up to £20k given basic tax relief at 20%.

You then claim the additional 20% as a refund via your tax return.

[Gee252]

What kind of percentage are you looking at paying for IFA?

Simply because we dont know the OP full circumstances (like how old he is, when he is planning on retiring, etc, or what he is trying to achieve. Hence the suggestion. An IFA may also help him look at alternative options.

Plus an IFA might have a better understanding/insight of what the various political parties are planning as part of their election campaigns.

[noTAGlove]

Never done tax returns, always paid PAYE.
As an example only.
Earn 73k, would rather keep earnings below the 50k so just pay 20% tax so easiest way to pay the 23k myself into a pension.
As you say though which I know pension company only claims the 20% tax relief so then I have the mess about to reclaim the additional 20%

Tax returns are for people who pay PAYE.

Pay £18.4k into your pension. Your pension provider will automatically claim basic 20% tax relief and increase your pension contribution to £23k.

Then, complete a tax return (very easy and straightforward) and HMRC will refund you a further £4.6k.

I’ve done it a few times and it’s easy peasy. This is the only way I know it can be done. Don’t be put off. It really is straightforward.

[Gee252]

Thanks for advice, I need to get my house in order next year when i plan on upping my contributions.
Although the main part of my pension at the moment is deducted before tax the additional workplace pension is not so obviously losing the additional 20% at the moment!!
As I'm planning on upping my pension quite a bit I need to ensure I get the additional tax relief back.

Tax returns are for people who pay PAYE.

Pay £18.4k into your pension. Your pension provider will automatically claim basic 20% tax relief and increase your pension contribution to £23k.

Then, complete a tax return (very easy and straightforward) and HMRC will refund you a further £4.6k.

I’ve done it a few times and it’s easy peasy. This is the only way I know it can be done. Don’t be put off. It really is straightforward.

[David_D]

If the OP is considering making substantial additional pension contributions, someone needs to check the annual (and potentially lifetime) allowances.

[noTAGlove]

If the OP is considering making substantial additional pension contributions, someone needs to check the annual (and potentially lifetime) allowances.

I’m sure the OP can check that himself.

Annual Allowance = £40k (as long as he earns £150k gross or less)

Lifetime allowance = £1,055,000

[David_D]

I’m sure the OP can check that himself.

Annual Allowance = £40k (as long as he earns £150k gross or less)

Lifetime allowance = £1,055,000

Do we know if the OP has DB accrual?

[Andyg]

What kind of percentage are you looking at paying for IFA?

Depends on who you use. An initial meeting is usually free. However moving forward I pay about 1.45% all in. This includes the services of my IFA (quarterly reports, half annual meetings, and email/telephone support, the use of a Platform (I use Ascentric), VAT and other bits a pieces. Sounds a lot, however I have seen a growth in my fund of over 5% over the last 12 years (after deductions) - with a low/medium risk profile. So it's certainly washed its face

If you want to spend the time doing the research then you can just set up an account and buy/sell your own investments, which is a lot cheaper, but I had neither the skill, time nor patience to DIY.

BTW the max you can put into a SIPP during a year is £40k. Plus donot exceed the £1.05m life time allowance limit (indexed linked) simply because it's then subject to 55% tax. Nice problem to have

Hope this helps.

[Gee252]

Thanks for the advice.
Come 2020 I'm going to have a good re think and although it cost i think I will go down the route of an IFA.
Seems a like mine field!
I've no worries of breaching the life time allowance, although would be a nice problem to have!

Depends on who you use. An initial meeting is usually free. However moving forward I pay about 1.45% all in. This includes the services of my IFA (quarterly reports, half annual meetings, and email/telephone support, the use of a Platform (I use Ascentric), VAT and other bits a pieces. Sounds a lot, however I have seen a growth in my fund of over 5% over the last 12 years (after deductions) - with a low/medium risk profile. So it's certainly washed its face

If you want to spend the time doing the research then you can just set up an account and buy/sell your own investments, which is a lot cheaper, but I had neither the skill, time nor patience to DIY.

BTW the max you can put into a SIPP during a year is £40k. Plus donot exceed the £1.05m life time allowance limit (indexed linked) simply because it's then subject to 55% tax. Nice problem to have

Hope this helps.

[Mr Pointy]

Depends on who you use. An initial meeting is usually free. However moving forward I pay about 1.45% all in. This includes the services of my IFA (quarterly reports, half annual meetings, and email/telephone support, the use of a Platform (I use Ascentric), VAT and other bits a pieces. Sounds a lot, however I have seen a growth in my fund of over 5% over the last 12 years (after deductions) - with a low/medium risk profile. So it's certainly washed its face

If you want to spend the time doing the research then you can just set up an account and buy/sell your own investments, which is a lot cheaper, but I had neither the skill, time nor patience to DIY.

I assume for your sake that you mean 5% a year, not 5% over the 12 years.

Are you really happy with such average returns for a 1.45% charge? Even if you had stuck the money into Lifestrategy 40% you would have seen around 6.7% annualised return (over the last five years) and you can add on the 1.45% fee to that return. 3.15% additional return is not to be given up lightly (the compound effect of charges is enormous).

Is your advisor really adding value over a tracker? If you need planning advice pay for that as a one-off fee but don't give away 1.45% every year.

[ryanb741]

I assume for your sake that you mean 5% a year, not 5% over the 12 years.

Are you really happy with such average returns for a 1.45% charge? Even if you had stuck the money into Lifestrategy 40% you would have seen around 6.7% annualised return (over the last five years) and you can add on the 1.45% fee to that return. 3.15% additional return is not to be given up lightly (the compound effect of charges is enormous).

Is your advisor really adding value over a tracker? If you need planning advice pay for that as a one-off fee but don't give away 1.45% every year.

This.

Personally I'd stick the bulk in a Vanguard Life Strategy 80 or 60 depending on your risk and then maybe Baillie Gifford/Lindsell Train funds. All can be done cheaply on something like Hargreaves Lansdowne.

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[Andyg]

I assume for your sake that you mean 5% a year, not 5% over the 12 years.

Are you really happy with such average returns for a 1.45% charge? Even if you had stuck the money into Lifestrategy 40% you would have seen around 6.7% annualised return (over the last five years) and you can add on the 1.45% fee to that return. 3.15% additional return is not to be given up lightly (the compound effect of charges is enormous).

Is your advisor really adding value over a tracker? If you need planning advice pay for that as a one-off fee but don't give away 1.45% every year.

Per year. It's actually more than 5% but market conditions have slowed in the past 2 years, and I didn't want to set unreasonable expectations especially as I have no idea what his risk profile is. Mine is low as I have already retired, so am looking to reduce risk to a minimum whilst still trying to offset inflation. Not really interested in growth because of the LTA issue. Plus my portfolio has over 80 products.

So yes I am happy to pay my IFA because especially as the 5% growth number is after he has taken fee.
Plus I decided long ago it pays to have professional advice and always remember the old maxim - pay peanuts - get monkeys.