Reply to: Fill up the pension?

[Contreras]

I need £100K to pay off an interest only mortgage in 8 years and am thinking of paying money into my SIPP then taking the money out for it over the last 3-4 years. I'm correct in saying I get a tax saving paying in and avoid CGT coming out aren't I? Are there any better ways to do it?

CGT doesn't come into it*. You can have 25% lump sum tax free* (subject to conditions*) and the rest you will pay income tax on at the applicable prevailing rate*. A SIPP is not necessarily tax efficient, rather it's tax deferred*.

If you still have disposable income from salary/dividends in the basic rate band then consider maxing out on your ISA allowance first, you can exit at any time and there's no tax on the way out.

* Unless the rules change before you get there.

[BigRed]

As has been mentioned, annuity rates are a disgrace and people were getting increasingly disillusioned with the whole thing.

First they removed the time limit on purchasing an annuity so you could remain in drawdown indefinitely and leave the remainder as part of your estate, next they set the state pension at a reasonable amount, removing the gap between pension and guaranteed minimum income. This means a pensioner won't have to rely on other benefits so the Government won't really care if you blow your pension pot.

I need £100K to pay off an interest only mortgage in 8 years and am thinking of paying money into my SIPP then taking the money out for it over the last 3-4 years. I'm correct in saying I get a tax saving paying in and avoid CGT coming out aren't I? Are there any better ways to do it?

[mudskipper]

Is it only me that smells a disaster here. They are enforcing pensions on all because as a nation we are not planning properly and saving for retirement but later say they trust pensioners to throw all their money away (virtually) unchecked? Some people are going to get in to some serious trouble I would have thought.

The fact that some people are irresponsible doesn't mean that everyone should be treated like children. It's the nanny state that stops people from learning to take responsibility for themselves. Anyway the truly irresponsible are unlikely to live to a ripe old age anyway

[northernladuk]

You wouldn't think they would give it all to a builder just to look at their roof either

But that's me told..

Nice post.

[Smartie]

Is it only me that smells a disaster here. They are enforcing pensions on all because as a nation we are not planning properly and saving for retirement but later say they trust pensioners to throw all their money away (virtually) unchecked? Some people are going to get in to some serious trouble I would have thought.

They're not enforcing pensions on all - auto-enrolment means people get put into a scheme, but they're welcome to leave straight away if they want. There's no enforcement to save. There is however a requirement that companies provide some sort of scheme for employees. This has to be a good thing, given the state of the national pension system and gradual erosion of decent benefits for employees, particularly pension benefits.

Currently the government liability for pensions, both public sector and national pension is 5 trillion pounds. This is completely unfunded.
ONS reveals full UK pension liabilities | The Intergenerational Foundation
Compare that to the current national debt of 1.2 trillion pounds and the less than 100 billion pound deficit that everyone is so fixated on at the moment.
BBC News - UK debt and deficit: All you need to know

Some people are going to get into serious trouble, but so what? That will be a fraction of the people screwed by the parlous state of affairs regarding annuities.
http://www.fca.org.uk/news/fca-finds...study-launched

The rates are crap and have been for years - you're unlikely to even break even unless you reach 87. The pension companies have been bleeding people throughout their investing lives then again when they retire.

Removing the need to buy an annuity not only makes a pension a much more flexible investment but is likely to make annuities rates more competitive as they won't be the only option any more. This will be useful because many people will still decide to take an annuity.

I doubt that most people who've had the discipline to save a decent pension fund will suddenly decide to go and spend it all on a Ferrari.

[northernladuk]

Is it only me that smells a disaster here. They are enforcing pensions on all because as a nation we are not planning properly and saving for retirement but later say they trust pensioners to throw all their money away (virtually) unchecked? Some people are going to get in to some serious trouble I would have thought.

[Craig at Nixon Williams]

Bear in mind that at the moment, the government have only said they will have a consultation on this – under the interim measures you will still need to have secure pension income of £12,000 in order to use flexible drawdown.

He did say that in the future there will be no requirement to buy an annuity, so if the consultation works out this way then pensions become a far more flexible way to invest.

I’m no pension advisor so wouldn’t like to give out advice on an internet forum…but if you would want to maximise your future investment in a pension but don’t have one currently then in order to carry forward unused allowances you only need to have a scheme open in the tax year that you want to carry forward allowances from (you don’t actually need to pay into it). Therefore setting up a scheme before the end of the tax year could let you get an extra £50k into your fund once we know more about what the government is going to do.

Of course, even if the rules do change now, they could change again before you retire…

[Dallas]

Easily done within a SIPP. You can 'tweak' all you like, but taking £15k out of the company to put in an ISA for retirement savings rather than making a company pension contribution is currently not an attractive option

I currently do well doing both and have decades to go so it makes no difference to me - best of luck with your approach

[Smartie]

Its not about faster than you expect it is about tweaking your risk profile as you near retirement

Easily done within a SIPP. You can 'tweak' all you like, but taking £15k out of the company to put in an ISA for retirement savings rather than making a company pension contribution is currently not an attractive option

[Maslins]

So the governmane has run out of cash and decided tomake Pensions and Isas look prettier .... cant you see what will follow ....

remain diversified IMHO

Yes, I think a few people are of the mindset "if it seems too good to be true...".

I'm 32 now. Pension rules get changed radically quite frequently. Making big decisions on what I put in now based on current rules for taking out is potentially a bit premature.

...but yes, if we put cynicism to one side, I think the new rules do look good for the majority.

[Dallas]

Good for you. I'm not there yet either but it comes up faster than you expect ;-)

Its not about faster than you expect it is about tweaking your risk profile as you near retirement

[Scrag Meister]

I am topping up my pension, about to max for this year to £50k, with a big topup.

[Smartie]

If I was <10 years to retirement it would be more attractive, as I am not, it is not

Good for you. I'm not there yet either but it comes up faster than you expect ;-)

[Dallas]

Wasn't arguing against diversification, but this change makes pensions a much more flexible vehicle in my mind.

With an ISA (NISA now), you invest from taxed income. With a pension you have tax relief on the money going in.
Taking the money out of a pension is now vastly easier and I'll probably increase my contributions because of this.

No-one knows what changes will be made in the future - you can only act on what you know now.

If I was <10 years to retirement it would be more attractive, as I am not, it is not

[Smartie]

Wasn't arguing against diversification, but this change makes pensions a much more flexible vehicle in my mind.

With an ISA (NISA now), you invest from taxed income. With a pension you have tax relief on the money going in.
Taking the money out of a pension is now vastly easier and I'll probably increase my contributions because of this.

No-one knows what changes will be made in the future - you can only act on what you know now.