Reply to: Pensions.....Why bother?

[Fred Bloggs]

Some useful info on here from Freelancer Financials.
I have a related query to this discussion which maybe FF can give their view;

I have been running a Skandia funds MultiISA for the past couple of years. However the charges/commisison fees every time I make a contribution is 3% to my IFA and 1.5% to Skandia.

Now, my IFA does monitor the funds every 6 months and investment changes where necessary, but paying 4.5% charges/commisisons each time I make a payment sees excessively high ? Is it ?

Thanks

If you don't mind, I can answer that. Yes it is high compared to my SIPP, but you are paying for advice, it seems. I have a SIPP with HL and apart from the underlying annual charge in the unit trusts (some of which is rebated anyway) there is no charge for running a SIPP invested in unit trusts. When buying unit trusts all (or the vast majority of) the buying/selling spread is discounted to you also. Holding individual stocks or investment trusts does incur extra charges. However, I am quite happy with the vast range of unit trusts open to me. Ofcourse, this only applies if you make your own investment decisions. If you want HL to decide where to put the money, they charge you just like any other IFA will. HTH.

[kaiser78]

Some useful info on here from Freelancer Financials.
I have a related query to this discussion which maybe FF can give their view;

I have been running a Skandia funds MultiISA for the past couple of years. However the charges/commisison fees every time I make a contribution is 3% to my IFA and 1.5% to Skandia.

Now, my IFA does monitor the funds every 6 months and investment changes where necessary, but paying 4.5% charges/commisisons each time I make a payment sees excessively high ? Is it ?

Thanks

[Freelancer Financials]

I think you're off your target audience a little, many on here know all that already.

What about the influx of new blood? New freelance contractors that might want financial guidance? It's great that you know all this already, but that doesn't mean others won't benefit.

[Freelancer Financials]

Hear hear.

And IMO there is no need to go into funds at all, I now choose to buy shares directly via both SIPP and ISA wrappers. I also believe the t'internet is the best and cheapest IFA one can find.

If you have the time and the skills you may net a significant return, although there is also a significant risk of losing your cash, particularly if you are inexperienced in share dealing.

[Olly]

Some facts about pensions:
When you retire, if you wish, you can take 25% of the money as a lump sum completely tax free. With the rest of the money there are various options:

* Skimming: you can take income from your fund based on specific limits
each year relative to the size of the fund.
John

Thanks for reply,
ok so 25% at 55....what are the rules on skimming? Does it attract personal income tax at normal rates?

Don't really see a need to go down the winding up company and paying 10% - captial gains allowance unless u really have to. May as well just continue to drain about 36K per yr in salary and dividends.
Ta Oliver

[Freelancer Financials]

Some Quick Facts About Pensions

just a quicky....you know you can take 25% tax free from pension fund when you reach a certain age....
can you remind me what the age is and if it's due to change?
...also I seem to remember you don't have to buy an annuity and can continue to take out tax free amounts from the fund - does that sound right?

thanks

Some facts about pensions:

1. Pensions aren't all about saving money to buy an annuity. 25% of your funds can be drawn tax-free from age 50 (55 for younger investors). And rather than buying a rigid annuity, you can leave funds invested and simply skim an income from the pension pot each year.

2. You no longer pay large portions of your payments in commissions to an IFA - commissions are negligible - comparable to buying a tracker fund.

3. Your savings can be passed on to your family if you die before age 75 - provided you've not bought an annuity. The money will not be subject to inheritance tax.

4. Your funds are perfectly safe as pensions funds cannot become
insolvent. A private pension fund is carefully protected by law.

When you retire, if you wish, you can take 25% of the money as a lump sum completely tax free. With the rest of the money there are various options:

* Skimming: you can take income from your fund based on specific limits
each year relative to the size of the fund.

* Annuities: You must purchase these at age 75, but you need not before
that age.

* Inheritance: You can leave your pension to your heirs--it is not subject to
inheritance tax if you die before you retire.

(If you die after retirement age, but before you take an annuity, you can still leave the funds to your heirs but there are taxes to pay.)

Your Options At Age 50 (or 55 after 2010)

You may, if you choose, start enjoying pension benefits from the age of 50, but from 2010, this will rise to 55. Nonetheless, you will have access to your money at a relatively young age and lots of time to enjoy it. You can take 25% of your money in a tax-free lump at this age (or later if you wish). It doesn't matter whether or not you have actually retired or are still working.

At Age 75

At age 75, you must use your pension funds to buy an annuity, or enter something called an alternatively secured pension.

An annuity is a policy that provides a regular income in exchange for a lump sum. It's not a high rate-paying investment and usually returns around 5%.

But it does ensure you a regular income as you mature. You should explore other tax and inheritance options at that point with an accountant or tax lawyer, but you will have many more lower-tax possibilities thanks to your pension investment.

I hope that helps.

John

[centurian]

just a quicky....you know you can take 25% tax free from pension fund when you reach a certain age....
can you remind me what the age is and if it's due to change?
...also I seem to remember you don't have to buy an annuity and can continue to take out tax free amounts from the fund - does that sound right?

thanks

Age 55. It's tax free at the moment... But recently, they changed the term to "Pension Commencement Lump Sum"

And yes, you can take the lump sum, but don't have to take an annuity. You can let it grow, put more in, or take a drawdown (which is taxable and limited in each year)

[Olly]

just a quicky....you know you can take 25% tax free from pension fund when you reach a certain age....
can you remind me what the age is and if it's due to change?
...also I seem to remember you don't have to buy an annuity and can continue to take out tax free amounts from the fund - does that sound right?

thanks

[Fred Bloggs]

Hear hear.

And IMO there is no need to go into funds at all, I now choose to buy shares directly via both SIPP and ISA wrappers. I also believe the t'internet is the best and cheapest IFA one can find.

You can possibly make more money that way. However, I have lost certainly more that way. So now, I just buy into proven premier league fund managers. I have had just one real dog of a fund that I had to cut my losses on, so I feel not too badly about it.

[Freelancer Financials]

Also why is now a good time to invest in BTL even with IR being low but a saturation of BTL properties remaining empty from what is read ?

Thanks.

I read the following report recently on UK investment properties -

"Good news for property investors as rental figures rise again.

There has been a rise in rental figures for the second consecutive month this year according to figures released by Belvoir, the independent specialist letting agency."

“Belvoir has over 140 franchises nationwide and the Belvoir rental index figures for September 2009 shows that the small but significant upturn in rental figures we noted in August has continued for a second month,” confirmed Mike Goddard, CEO of Belvoir. “Our latest figures show a 0.6 percent rise on a month by month basis, which equates to a 7 percent annual increase.

After months of slow decline in rents, totalling about 6 percent, the September figures confirm that the trend does now appear to have reversed and we are cautiously optimistic that this signifies the end of the ‘reluctant landlord’ and a return to normality in the rental market.”

It all depends on what you read. The above report is positive but tomorrow you could read another report saying something different.

The only way to really know what is going on in the BTL market is speak to friends and family who are landlords.

My personal opinion is that this is a good time to invest in a BTL property as long as you have a minimum deposit of 25 to 30 percent.

John

[moorfield]

Hopefully the above information will give you enough information to help you make the right choice.

John Yerou

I think you're off your target audience a little, many on here know all that already.

[moorfield]

I'm in the "Ltd Co funded SIPP" camp myself. There is no need to go into funds run by poor managers.

Hear hear.

And IMO there is no need to go into funds at all, I now choose to buy shares directly via both SIPP and ISA wrappers. I also believe the t'internet is the best and cheapest IFA one can find.

[Freelancer Financials]

My FA has suggested to invest in equity ISAs instead of pensions, as the tax breaks cancel each other out - one taxed on entry the other on exit, but I can still access the funds if I need them in the future in the ISA route. Is this a recommendable way to proceed ?

Thanks.

Once again it all depends on your personal circumstances.

ISAs unlike pensions, don't attract the same upfront tax boost but as you pointed out are far more flexible in the way you can take out your money.

You can invest up to £7,200 every year in ISAs and the total amount saved can build quickly. ISAs are offered by most major financial institutions and you can choose which option suits you best, although it is generally best to seek the advice of an independent financial adviser.

However, ISAs are funded by your post-tax income, whereas pensions can be funded using limited company income. But again as you rightly pointed out there is no tax payable on the income received from ISA investments.

ISA's are great if you start them young and take a long term view. The one drawback is that you are limited to a maximum investment of £7200 in any given year.

With a pension you can contribute 'pre-taxed' company income from your limited company. If you are a higher rate tax payer, instead of declaring the income as company profit and taking the income as a dividend, you can put the same sum straight into a pension.

For example: You have £100 worth of company income, and you are a higher rate tax payer, not caught by IR35. You can either put the £100 into a pension, or you can declare it as profit and take it as a dividend.

But if you choose the latter option and take a dividend payment, you pay:

1. £21 in corporate tax on your £100, leaving £79
2. 22.5% personal income tax on the dividend, which takes another £17.78
3. Your total take home is £61.

Choosing the pensions option means that the whole £100 goes into a pension fund and then has an opportunity to grow in a tax efficient environment. In reality £25 of your contribution represents the part of the pension fund which you can draw tax free when you are retired. £36 of your money also goes into the pension fund, together with the £39 that would have gone to the taxman (quite a decent initial 'return' on your £36). This £75 can also grow and be used to skim off an income at a later date, or buy an annuity.

I can not tell you which way to proceed as I do not know enough about your personal circumstances. Hopefully the above information will give you enough information to help you make the right choice.

John Yerou

[Fred Bloggs]

hear hear...a tax break contractors can make use of is their company making chunky pension contributions ....but you all knew that already and you definitely knew about the cutting edge advice above!

p.s. I'm in the sod pensions group - relying on drawing down dividends from ltd until nowt left....whilst 21% is corporation tax saving is nothing to scoff at the downsides of tying up your cash in possibly poorly performing fund and then having restricted options what to do with it at retirement plus essentially not being able to touch it until then all add it to a pension not being as attractive is the headline tax saving. IMHO

I'm in the "Ltd Co funded SIPP" camp myself. There is no need to go into funds run by poor managers. It has never been easier to invest in funds run by managers who are in the premier league over short, medium and long terms. Look up some of these guys- Philip Gibbs, Neil Woodford, Robin Geffin, Richard Buxton etc.......... Putting your money in the hands of a bunch of these people is certainly NOT putting your money in a poor performing SIPP. And it's dead easy.

[Olly]

Let's get things straight here- They are NOT "tax breaks that contractors can make use of". They are tax breaks ANYONE can make use of.

hear hear...a tax break contractors can make use of is their company making chunky pension contributions ....but you all knew that already and you definitely knew about the cutting edge advice above!

p.s. I'm in the sod pensions group - relying on drawing down dividends from ltd until nowt left....whilst 21% is corporation tax saving is nothing to scoff at the downsides of tying up your cash in possibly poorly performing fund and then having restricted options what to do with it at retirement plus essentially not being able to touch it until then all add it to a pension not being as attractive is the headline tax saving. IMHO