Reply to: Pensions

[Fred Bloggs]

Rather depends if you want to pay tax on it or not.

For example, if you have £100k in a fund, at age 55 take out £25k in cash tax free, the rest you reinvest. However that has to be labelled as "Pension Fund" in some way so it's ring-fenced for later pension investment (hopefully not an annuity!). Anything else and it's earned income so taxable.

So not quite so stupid, is it?

Yep. That's a good plan and one that I am currently working on. I'm 53 so I was able to take 25% of my fund as cash before April 5th this year. The year after next (55 y.o.) I'll be able to take another £25 to £30k tax free from that which is building up in the SIPP right now. This is my plan and I think that the way it is working I'll be increasing my SIPP payments to the extent that eventually virtually all my turn over will be going to into the SIPP while pulling out my 25% lump sums every couple of years. Legislation continuing to allow this of course.

[Mehmeh]

You do know that when the govenrnment raises the retirement age it is just for the pension paid by the government don't you? You can take money out of a personal pension at 55 now-a-days. (It used to be 50 so it can be changed - but doesn't particularly give the government any benefit in doing so.)

ahh, good point.... I remember hearing that ages ago but forgot about that completely... although as you point out yourself, they can change that age too.

TBH I plan on being retired before 55, so issue still stands.

[MrRobin]

You do know that when the govenrnment raises the retirement age it is just for the pension paid by the government don't you? You can take money out of a personal pension at 55 now-a-days. (It used to be 50 so it can be changed - but doesn't particularly give the government any benefit in doing so.)

What about pensions from public sector employers? E.g. a nurse's pension from the NHS... does the minimum age at which this can be claimed change too, or is it just the 'State' pension (the £97 a week morsel)

[lje]

Yes I may lose out a little on the tax benefit of pensions, but you lose all control of your money, if they decide to raise the retirement age to 80 I'm screwed.

You do know that when the govenrnment raises the retirement age it is just for the pension paid by the government don't you? You can take money out of a personal pension at 55 now-a-days. (It used to be 50 so it can be changed - but doesn't particularly give the government any benefit in doing so.)

[malvolio]

Plus you still pay tax on the pension when you receive it when you're old... meh!

You pay tax on the interest or earned income, not the equity. Big difference...

[Mehmeh]

I'm 27 and am basically maxing out my ISAs and plan to buy a few properties.

Yes I may lose out a little on the tax benefit of pensions, but you lose all control of your money, if they decide to raise the retirement age to 80 I'm screwed.

Plus you still pay tax on the pension when you receive it when you're old... meh!

So for now I'm going to save on my own, try to keep as much of it as ISA if I can. And then when I'm close to retirement I may pay into a pension....but to be honest, I'm hoping I can semi-retire at 45. take my ISA cash and retire somewhere cheap and sunny.

[malvolio]

Amazing that in this day and age, supposedly intelligent people still think it's a good idea to put their money in pension funds.

I guess the last 13 years passed people by then.

Rather depends if you want to pay tax on it or not.

For example, if you have £100k in a fund, at age 55 take out £25k in cash tax free, the rest you reinvest. However that has to be labelled as "Pension Fund" in some way so it's ring-fenced for later pension investment (hopefully not an annuity!). Anything else and it's earned income so taxable.

So not quite so stupid, is it?

[Random]

you can put it in a SIPP for self select stocks or funds... up to a certain level it makes sense as you save corporation tax as well as income tax.. also its tax free growth when its in. Although usual caveats apply of, pay off credit cards/ loans, then mortgage, then max ISA allowances and draw the max you can before you go onto the upper rate band of tax.

[PM-Junkie]

Amazing that in this day and age, supposedly intelligent people still think it's a good idea to put their money in pension funds.

I guess the last 13 years passed people by then.

[northernladuk]

Great however......I'm still no closer to working out if its actually better to...

a) stick my cash in shares ISA's (given pension funds basically play the stock exchange) and bonds which by the time of retirement will be quite a decent pot (and of course gives me the flexibility to retire when I want......
b) start a full pension through my company, reducing coropration tax (11%?)
c) Bung cash into a buy to let giving a regular income whilst preserving capital (hopefully - well, most of the capital at least)
d) Combination of the above!
e) Just go with the flow and dont worry about it, maybe start playing the lottery.

...any more?

Decisions decisions!

Brocky

This is why a quick visit to your accountant and then a financial advisor is in urgent need. You accountant so you can get a basic understanding of how company accounts is run and then to your FA for proper advice. Each of the above you mention is different so not really comparable. For example, you can only put a set amount in to an ISA which isn't much, you only put down a set deposit on a buy to let, the tenants pay your mortgage so leaves money free still and so on and so on (also with a buy to let you do not want an income. You get taxed on that. payments = mortgage is nicer). Have to judge each on it's own merit.

Returns wise don't sit scratching your head and asking us numpties. Go see Accountant and FA and get it sorted. It's your future so bit of work isn't going to kill you.

[dynamicsaxcontractor]

Well, I'm probably not best placed to offer advice as I'm one of the old guys here, 53. I'm putting £1k a month into my SIPP and topping it up as much as I can. I should have put about £50k into it by April 2011 over the previous 12 months. I do this out of the Ltd Co account. Your approach will be different if you are younger. I wouldn't recommend BTL myself, that boat has long since sailed IMO. Interest rates are going up sooner or later and property remains grossly over valued. There will be no capital growth beyond inflation until salaries rise to bring the prices closer to the long term average versus wages. With all the uncertainties in the economy the best thing to do IMO is 1- Pay off loans credit card debts. 2- Pay of mortgages. 3- Build a war chest (cash ISA's). 4- Long term savings and pension. HTH.

Thats my plan, you don't want to sit with hundreds of thousands on a mortgage if interest rates goes far above 6-7% (which I think is very realistic in 2-3 years time). No good to have a big pension built up if you need to leave your home before you can touch that money.....

[Fred Bloggs]

Well, I'm probably not best placed to offer advice as I'm one of the old guys here, 53. I'm putting £1k a month into my SIPP and topping it up as much as I can. I should have put about £50k into it by April 2011 over the previous 12 months. I do this out of the Ltd Co account. Your approach will be different if you are younger. I wouldn't recommend BTL myself, that boat has long since sailed IMO. Interest rates are going up sooner or later and property remains grossly over valued. There will be no capital growth beyond inflation until salaries rise to bring the prices closer to the long term average versus wages. With all the uncertainties in the economy the best thing to do IMO is 1- Pay off loans credit card debts. 2- Pay of mortgages. 3- Build a war chest (cash ISA's). 4- Long term savings and pension. HTH.

[pmeswani]

Great however......I'm still no closer to working out if its actually better to...

a) stick my cash in shares ISA's (given pension funds basically play the stock exchange) and bonds which by the time of retirement will be quite a decent pot (and of course gives me the flexibility to retire when I want......
b) start a full pension through my company, reducing coropration tax (11%?)
c) Bung cash into a buy to let giving a regular income whilst preserving capital (hopefully - well, most of the capital at least)
d) Combination of the above!
e) Just go with the flow and dont worry about it, maybe start playing the lottery.

...any more?

Decisions decisions!

Brocky

You could do a number of things with your pension such as making some company based contributions and save 20% on the corp tax and also put some personal contributions in and get 25% added to the pot.

If you put money into ISA's, you don't claim back the Tax you paid already, but only ringfence the money from further tax.

If you invest money into property, you could become liable for CGT.

The best option I see is a pension based contributions (both company and personal contributions) and any spare cash should be put into an ISA.

[brocky]

Correct.

Great however......I'm still no closer to working out if its actually better to...

a) stick my cash in shares ISA's (given pension funds basically play the stock exchange) and bonds which by the time of retirement will be quite a decent pot (and of course gives me the flexibility to retire when I want......
b) start a full pension through my company, reducing coropration tax (11%?)
c) Bung cash into a buy to let giving a regular income whilst preserving capital (hopefully - well, most of the capital at least)
d) Combination of the above!
e) Just go with the flow and dont worry about it, maybe start playing the lottery.

...any more?

Decisions decisions!

Brocky

[Fred Bloggs]

No...you're spot on and I'm LTD. (took a while for the post to get passed moderation)

You make a point I didnt consider.......I was assuming the money paid into the pension would come purely be dervived form a portion of my income plus a portion of the income tax I pay but of course.....it could be treated as a business expense and reduce the corporation tax instead? ....if I've understood.

Correct.