How much do you put in your pension?

[Fred Bloggs]

Very good post, WiB. A slight variation on the theme is that you don't take the 25% lump sum. Then you draw down income as you need it. That way, 25% of your drawn income is tax free, meaning you get a marginal income tax rate of 15% on pension income. Looks a good deal to me.

[TheFaQQer]

MyCo pays £2K into mine every month (it might be £3k, they seem to have messed it up a bit at the moment!) and £1k into my wife's pension every month. But that's not been going very long.

My pension from permiedom will pay £1800 a year, according to their latest statement.

I'm actually relying on dying before I get to pension age, and that way my family will be taken care of

[ChimpMaster]

WiB, good post, thanks.

It's not hard to figure out, and avoiding learning about something you don't understand is probably not the smartest thing in the world.

We all have our positions, and mine at this time is that I can 'retire' in my mid-40s (i.e. do what I want, not sit in my slippers with a pipe!) with an income of around £7k/month hopefully. But I am open to the idea of deferred tax pension investments, hence why I am here.

Pension approach:
1. Pay all £10K into your pension. There's no tax.
2. Invest it in pretty much anything you want except BTL.
3. At retirement, take 25% of the original £10K AND 25% of any investment proceeds over the years, tax free.
4. With the rest, buy an annuity or use drawdown. It will be taxed at your tax rate in retirement, which is much less likely to be higher rate band than now. If you put your non-pension investments now into ISAs, much of your annuity / drawdown will also be tax free due to the personal allowance.

So the 10k is not topped up further by the taxman?
If I understand correctly, there is a 40k limit each year and I can go back 2 years, i.e. put £120k in for this year and past 2 years if I want to?
You're talking about a SIPP I guess. What would you invest in?
To the ultra risk-averse, you could just keep your SIPP in a low interest account I guess and then at 57 (or whatever age the government deem acceptable at the time) start drawing down. So you've saved CT and Income Tax at source, i.e. a minimum of 20% saving.

To me, it's a no-brainer but the lifetime limit will stop me soon, unfortunately.

You have £1m in your pension? (well done!)
What is the expected output when you're 57?

[TheFaQQer]

If I understand correctly, there is a 40k limit each year and I can go back 2 years, i.e. put £120k in for this year and past 2 years if I want to?

You can only pay in for previous years if the scheme was operational - so if you only open a pension plan this year, you can't pay in for previous years.

[ChimpMaster]

You can only pay in for previous years if the scheme was operational - so if you only open a pension plan this year, you can't pay in for previous years.

Pffft so even less of a reason for me to start now if I am planning to MVL and get out of contracting within the next 12 to 24 months?

[WordIsBond]

We all have our positions, and mine at this time is that I can 'retire' in my mid-40s (i.e. do what I want, not sit in my slippers with a pipe!) with an income of around £7k/month hopefully. But I am open to the idea of deferred tax pension investments, hence why I am here.

Yes, if you retire mid-40s, the tax benefits have to be balanced with whether you want the money earlier. Perhaps you could still take the tax benefits and be more aggressive in using your other resources before age 57, knowing you have the pension coming. Something to consider.

So the 10k is not topped up further by the taxman?

No. The top-up happens if you personally make the contributions out of after-tax funds. We're talking about your company making the contribution out of pre-tax profit. If they topped up THAT, it really would be too much of a good thing.

If I understand correctly, there is a 40k limit each year and I can go back 2 years, i.e. put £120k in for this year and past 2 years if I want to?

As TF noted, the carryback only applies to years in which you had a pension open. If you don't have a pension open now, your max is £40K this year and each succeeding year.

DO THIS: Even if you decide you aren't going to go into a pension now, since you clearly have a lot of funds in YourCo, open a pension now. If you only want to put a hundred quid in it, that's fine. But get the pension fund open ASAP so you can have the carryback later if you want it. You are putting £100 away for the right, later, to do £40K for this year. If someone doesn't have a lot of money in their company to make those big contributions, it doesn't matter, but if they do, as you do, protect the right and get the pension open.

You're talking about a SIPP I guess. What would you invest in?
To the ultra risk-averse, you could just keep your SIPP in a low interest account I guess and then at 57 (or whatever age the government deem acceptable at the time) start drawing down. So you've saved CT and Income Tax at source, i.e. a minimum of 20% saving.

More than 20% now that the dividend income tax is coming in, but yes, that's the essence of it.

As to what you'd invest in, that depends on risk tolerance, age, how much you want to work at investing, etc. There's books and books on that. I plan on retiring in a different country, and I've got a lot in funds tracking that country's market. My thinking is that if exchange rates move drastically, my investment moves with them, and so half my pension fund is, to an extent, exchange rate protected. But most people aren't like me, and at my age would want to be far away from any significant holdings in foreign funds due to currency risk. You have to think about what you want to do, where, and when, and also what you might need to do if any of your plans go pear-shaped, and how much you want to protect yourself against those things. Nobody on an Internet forum can give meaningful advice to that question, really.

You have £1m in your pension? (well done!)
What is the expected output when you're 57?

Not quite yet. But I'm older than you, obviously, and was in a good permie situation for a long, long time. Could have stayed, but what I'm doing now is more fun. I worked hard and was very lucky. Even luckier now. A little regret that I didn't jump sooner, this has gone so much better than I expected, but perhaps it wouldn't have gone so well if I'd moved earlier, and it did mean I already had a really good pension.

The expected output right now is quite low because rates are pathetic, but I'm enjoying what I'm doing too much to retire yet, and even if I did retire now, I'd just hold off on this a few years until the massive levels of debt (government, corporate, personal) push rates up to a decent level. Then, I'd take the pension. Can't imagine I'll do so before 2020 unless my (or my wife's) health collapses, maybe not until 2025, but I'll be rather ancient by then, so who knows?

[Fred Bloggs]

Low risk investments in a SIPP account? Think along the lines of bonds from Tesco paying about 7% or PIBs, they can yield 6% or more. Low risk, healthy return, much higher than many people manage to get invested in shares. To avoid - bonds issued with a high yield by firms investing in renewable energy and the like. A few of them are in trouble, can't pay their dividends and can't return investors money either. As usual, DYOR.

[mudskipper]

HL have lots of free advice on their site.

Choose your risk, the amount you want to invest, and it suggests where you should stick it.

Also tells you what others in their 30s, 40s, 50s, 60s are buying - so if you assume that they know what they're doing, then you can do the same


http://www.hl.co.uk/pensions/sipp/in...-for-your-sipp

[Fred Bloggs]

HL have lots of free advice on their site.

Choose your risk, the amount you want to invest, and it suggests where you should stick it.

Also tells you what others in their 30s, 40s, 50s, 60s are buying - so if you assume that they know what they're doing, then you can do the same


SIPP Investments | Options and Ideas for your SIPP

Be very wary of the HL 150 list. Some of the worst investments many people made were on that list. Otherwise, I recommend HL

[jamesbrown]

Be very wary of the HL 150 list. Some of the worst investments many people made were on that list. Otherwise, I recommend HL

+1 It's basically an opportunity for them to promote actively managed funds with exorbitantly high fees. In most respects, I quite like HL, as they're very user friendly. In other respects, they're scumbags (e.g. with fees) and they tend to nudge the ill-informed in bad directions. Stick with an index tracker unless you know what you're doing (even then, bear in mind that active fund managers rarely beat an index tracker over an extended period, but their fees will surely diminish any gains).