@@stuwhite2337yep my overall pension investment has dropped in the last 2 years by around 8%. I’m 56 and was hoping to finish by 58. If this trend continues then this will be unlikely.
James you've no idea how much I appreciate your videos. I've learned more from your channel in 2 years than 15 years of school studying. God bless you and your family.
Very good video, I’m 53 and started watching your vids last year. I have always put a good proportion of my salary into the pension but have received some shocking returns over the past 20 years
100 % this sort of worked me the at one point putting 70% of my earnings into my pension. Just a side point my boss was not trust worthy in any shape of form and did not make my pension contributions for 3 plus mouths before folding the company yes it is being claimed back but in my experience you can not trust smaller companies to make payments to your pension on time even though they are quick with the deductions. Best to check your pension contributions very carefully. Keep up the good work James.
Encouraging video James. I’m early 50s and feeling behind just as you’ve described. Thanks for showing there is a way to succeed over the next years. Encouraging!
@@JamesShack Many thanks for this video James. I found it amazing that we actually came up with a similar tactic. You in your video, and me guy in his 40s who likes investing and eagerly takes control of his own finances. James a quick question for you. As I mentioned my strategy is slightly different so I wanted to ask you what do you think of the following tactic. Instead of waiting until someone is in his 50s, I suggest person should be putting as much as possible into ISA. Preferably into dividend paying stocks and ETFs. The idea being: build a second stream on income so by the time you are in your 50s you can salary sacrifice max of your employment income, which in practice means leaving you with a salary at the level of National Min Wage/National Living Wage and everything above that threshold gets directed into pension. This means you can effectively pay very little tax and NI conts whilst the rest gets accumulated in your DC pot (assuming that you are a member of DC pension scheme). It should be possible to do if you have a second income from your ISA (dividend payments) that are tax free too... Obviously by the time you can start doing it, you need to have your mortgage fully paid off and your monthly expenses kept on a short leash. What do you think James ?
This is a very relevant video with essential information for those near to retirement to turbo charge their pension and give themselves the best possible retirement pot and it is free advice ! It does however depend on individual financial circumstances, but if you can afford to do so and have a DC pension with salary sacrifice then try and ramp up your pension contributions especially if you are a higher rate taxpayer. In addition, move any monies from taxable savings or investments into a SIPP if you are very close to or over the age in which you can take your SIPP. Fortunately, i was given the above ideas when in my late 40's by a very knowledgeable work colleague who was at retirement age. Thanks to him, I retired at age 55.
3:26 The example assumes that you have £10k to invest. BUT we are encouraged to smooth out the market by investing smaller amounts regularly, say £1000 per month. The effect of this is to maximise fees and yield much poorer returns.
I’m disillusioned ( and affected by) by the whole financial system… pension transfer values halved, share of funds drying up , the property rental ( retirement plan ) model obliterated and sooooooo heavily taxed at every turn…. At this point I admire the individuals that spend as they go .. as soon as everyone puts their cash into banks for the safe attractive 5% returns then the government will tax that as well .. Sorry for grumping… thanks for doing your uploads.. they are helpful and informative
We can still have a rental property ,especially with no mortgage they do OK , Tax free ISA allowance is £20k per annum ,so smash the limit of this for 10 years and you've got £200k tax free to draw off (PLUS INTEREST ),Put a few quid into a private pension to get the 20% allowance..Add a 2 bed Rental paying £700 a month AND a state pension @67 ,small private pension and £200k Tax free Stocks and shares ISA to draw off .. Boom ,Not so bad ? thats a nice Tax free passive income of over £2000 a month . Thats how I see it anyway .
Great advice, already at 22% AVC and hoping to up it to 31% next year, there is one thing you missed, you can use any future wage rises to increase your AVC each year you get a pay rise.
There’s a lot of basic ideas that people don’t seem to be aware of. I’m 51 now taking it easier than ever based on this sort of investment plan. The ISA > pension I hadn’t thought of though - thanks
Glad to be here watvching smart blokes like you at 37, while I wish I would of done this at 20 it's better now than some of the others in the comments that are saying they're 50+ (no disrespect). I used to worry about it but now I have done a hell of a lot of financial study I feel as prepared as I can be, lets just hope the markets aren't too rocky over the next 20 years.
The question I would ask is where is the money coming from? Wealth has to be created through time and skill in creating things or providing services. Some risk is also involved. If you aren't putting in time or skill or taking a risk the only explanation is you are acquiring wealth from other people losing wealth. I am close to retirement and some years ago I set an amount of money I would require to live comfortably on once I stopped working. It's not a vast amount, but I will live as comfortably in retirement as I did when I was working.
Great video James. I can relate to this. I’m 54 and only a few years ago didn’t have a lot invested. Now I’m up to around 500K and hope to have 1 million at around 63 which is when I plan to retire. At the moment I have a well paid stress free 9-5 job home every night and weekend so will stick this out until it’s time for me to call it a day maximising my isa and pension as much as possible. Even a few hundred in a pension goes a long way.
@@kaxar6954 yeah I pretty much max'd out my ISA and Pension. This yeah I've paid 60k into pension and ISA from my salary. I have cut back on spending for the next 5 years. It's doable.
Great video, lots of very interesting information. We are heading to retirement and cannot wait, I am in the process of saving to retire early. Thankfully my English father knew the benefit of super and my husband and I have paid into super since we were 18, ie 35 years. Small amounts over the long term have meant we have never had to push lots of money into super/pension. Sadly in Australia we cannot access money tax free until 60.
You fancy doing a wee video on the MPAA and when it gets activated?! I want to crystalize my entire pot at 55 into drawdown, taking the 25% tax-free lump sum, and using it to pay off my mortgage, however I wont touch the rest, which will remain invested, and I will keep working and keep contributing. Prob need to speak to an adviser, but the info I seek should also be in the public domain, not seeking advise, just facts!! - Have I activated the MPAA? eg can I now only contribute £10K/year to my pension? - Are future earnings on my existing (now crystalized) investment crystalized or uncrystallised? - Are future contributions to my pension uncrystalised (I assume so!), ditto the earnings on same?
I think the weird economic circumstances of the last 15 years are changing the life journey for a lot of people. Instead of the 50s being a time when they are free of mortgages and kids, many "millennials" have found that they were saving for a house until middle age and, consequently, didn't have kids until their late 30s or early 40s. So the late-career time of high saving potential is truncated. But, on the other hand, if they made the right sacrifices, they had a chance to build up some savings in the their 20s/30s (while their parents were busy with kids and houses). Thanks to the miracle of compounding, modest savings from those early years can pay-off big time while they are busy spending middle age on child-rearing. At least, that's how I'm hoping things work out! This could also be a reason why it's more important than ever to start saving early and consistently, even if only modestly.
My pension provider changed the investment type as I'm approaching state pension age in a few years time. Unfortunately due to Liz Truss financial issue in the UK, my pension pot lost a heck of a lot of money. This is scary as I now have a lot less than I had 3 year ago, even though I had put extra in over the past 4 years via my work pension
same here! Financial advisers always talk about pensions going up every year usually 5 or 7%. They have a vested interest in people paying into these investments but like you my private pension has lost around 20% in the last few years. I now channel all my spare cash into my isa and buy high dividend shares and funds. That way you always have a rising stream of tax free income regardless of how the market performs
hi james, please can you make a video discussing the pros and cons of defined benefit pensions? as a public sector worker the majority of my pension is in DB schemes id love to know what i should be doing along side my workplace pension to make the most of my income in retirement keep up the good work!
Im in a DB but top up each month with AVC's - check if your employer offers this through salary sacrifice but just make sure your total AVC pot plus any lump sum you want to take isn't more than 25% of your pension or you will have to pay tax when taking it out when you retire. Also note the annual allowance currently £60k a year, above this and again you will have to pay tax back
I think you should be able to transfer AVCs into a SIPP and then you would be allowed to take 25% of the SIPP value, as well as 25% of the DB value, tax free. If your AVC value is less than, or equal to, 25% of the combined pension pot (AVC + main DB pension), then you may be permitted to take the AVCs as the tax-free lump sum, leaving most, if not all, of your DB pension to be taken as an annuity. Even if your AVCs are greater than 25%, if you are allowed to use them to fund the tax-free lump sum, then you may be allowed to make a partial transfer-out of part of the AVCs, as mentioned previously, to have this work to your advantage. It sounds as though you need to do some investigation, or pay an IFA to investigate and to provide advice. Edit: if you transfer-out part of your AVC or before taking the 25%, then the combined value of your DB+AVC is reduced, which reduces the 25% value. The maths could become more complex, so advice would definitely be required for this scenario.
I’ll tell you what I consolidated a lot of my pensions and some have had for thirty years - they have no where near grown at 7% a year - the pension industry has only looked after itself for all theses years and have charged their customers all the profits
I’m lucky enough to get a reasonable bonus each year (nearly £20k) and for the last 5 years I’ve had this paid into my pension as salary sacrifice. This has made a big difference to my pension pot (almost x2) and saved losing a big chunk of my bonus in tax. I wish I’d done this many years ago.
@@owensmith7530 Nice. Shame I only started doing this when I turned 50! When I was younger the idea never crossed my mind, but then retirement seemed far away 😉…time flies!
Does your employer allow you to pay your bonus directly into your pension? Wish I had that option. I could take the bonus and increase my monthly pension contributions, I suppose. Just takes a little bit more discipline...
got my first mortgage at 21y old. 21years later lost the house in a divorce.. now i have a new mortgage that i will be paying until 67y hold. i am almost 59y old and i wanna retire early. challenging
Great video. I worship my Salary Sacrifice pension :). I noticed @9:34 you mention John turning £50K of ISAs into £62,500 by paying the ISAs funds into his pension which would add the basic tax relief, but if John were to instead sacrifice £1000 of his take home pay each month and supplement his living costs using £1000 from his ISAs, he could empty out his £50K ISA in just over 4 years, but contribute a total of £78,600 (an extra £16,100) to his pension via his salary due to the additional NI and 50% employer NI that would be added each month (providing he earns enough over the basic rate to cover this).
Great advice BUT don't forget the annual pension allowance and also the maximum 25% you can take at retirement without paying back the tax you saved...
Time will tell but I worry more about negative growth over the next 5 years. Despite what history tells us, all my savings outside of pension is going into cash now while I can get >5%. We’ve seen good growth in the 3 months to May 24 but I’m betting that will be the peak for a long time to come. Delighted for someone to tell me I was wrong in the months and years to come. FTSE peaks on 15/5/24 at 8473,as a point of reference.
Yes - I am looking at options now. I had assumed pension provided could pay one the interest on the fund yearly and give lump sum back to my estate when I am gone. Some say assume makes an ass out of u and me. I prefer the Under Siege 2 - the mother of all F**K ups.. Time to do some real financial planning g
I've only recently realised that 30% of my audience watches RUclips on TV. That's why I'm trialling the use of QR codes for links. Let me know if you find it useful! Does it need to be bigger so you don't need to get up off the sofa ?! (I realise that most people watching on TV won't see this comment!)
@@JamesShack I have a RUclips app on Fire Stick and Nvidia Shield connected to my two TVs. You can see the comments on the app but I have to use my phone app to add comments.
Could you perhaps please do a video on the most tax-efficient way to retire using an *annuity* vs the tax-free lump sum combo? It's just that in recent years, annuities have suddenly become much better value than they were, and so are becoming much more attractive to the risk-averse amongst us......?
great vid, thank you, maybe a second vid on how to boost the pension on the last years before retirement (though to a lesser degree I presume, ha) when paying off of the mortgage is not in the near future (lets say beyond retirement age, 65+)?
Great sentiment and message with this video. Just need to be aware of dratted inflation and pension/advice charges which spoil the maths a bit. 7% pa after charges and inflation feels a bit of a racy assumption for a balanced portfolio.
Well I was on plan for this with a company allowing salary sacrifice and diverting bonus into my pension. Sadly redundancy and a newer job at a lower salary scuppered this. Also a mortgage going 8 years beyond pension age but overpayments also being made on that. Ultimately have re worked mortgage saving money which also has been saved so aiming to retire early next April
U can change funds if urs is underperforming. Part of my pension was in UK equity and wasn't making money then I switched it to a global equity fund which was galloping.
I embarked upon this very policy back in 2011 thinking pensions were a good idea, but unfortunately it was with Scottish Windows, a hopelessly inept company. I didn't check it frequently enough thinking their balanced fund would be satisfactory. It is actually worth £80,398 less today than what I've paid in. I'm supposed to be retiring next year.
Watching and thinking, how many people fit this model? In the U.K. most people have no or limited savings. Many rent! I’m 57 and have another 10 years of mortgage payments to make! Life didn’t go to financial advisors ideal life plans! Colleges are doing exactly this. Not rocket science, but you need to be in the ideal financial position to do so. Meanwhile life goes on, bills have to be paid……
Difficult to see how any current UK pension fund with a medium risk level will achieve this increase. Mine has the same value today as it did nearly 2 years ago even after paying In around 15k.
Think about it as a good thing. Increases are never linear, there are always swings both ways. I always think I’m buying at ‘a good rate’ when my ISA or Pension takes a dip. Then I don’t feel so bad! 😂 Ideally of course you want you pension value low until the moment you want to draw from it, then you want it to go crazy. Stay the course, it’ll work itself out!
Compare to other similar funds to see if it's underperforming. U may also need to think about increasing ur risk depending on how far from retirement u are.
If only we could experience 7% pac or even 5% pac growth. Leading pension fund performance has been abysmal over the past 3 years with no sign of improvement. Ploughing 25% in annually to avoid 40% tax and obtain employer contribution is the best I can do but precious little growth is extremely demotivating.
@@pataleno I use salary sacrifice, thereby obtaining 40% tax relief plus 2% NI savings. The only way to invest elsewhere is to take a partial transfer out but the scheme doesn’t allow it. So I either accept it or invest from net income and then need to do a tax return to claim an extra 20% but its a hassle I could do without. It’s a disgrace that the largest pension providers don’t employ far better fund managers. They compete with low annual management charges but offer paltry investment performance.
@@bitcoincryptofreedom3652 They receive around 0.5% of the fund rather than a commission and as you say, they give the impression that they don’t care but the regulations should force the leading providers to offer a wide range of investment funds and to install the best fund managers. They’ve been getting away with it for far too long. The Pensions Regulator is as much to blame and something needs to be done about it.
You shouldn't be getting zero growth. Even though say the FTSE 100 has stayed more or less flat over the past year, it's been paying dividend of almost 4% (which you should be auto reinvesting right?) If you are in active funds, then you may be under performing the market, and paying hefty fees on top. That would be worth reviewing to see where your poor performance is coming from
James one thing I would like you to address is the phasing out of national insurance & thereby increasing of the income tax that would result. The end result is that Pensioners will be paying more income tax. At the moment Pensioners are taxed on income tax & not national insurance, my question would be would ISA now be a better investment than a pension?
This is especially important for anyone who earns 100-125k per year. That 25k over 100k has a notional tax rate of 60%. I have been doing this rather being robbed by HMRC.
I am 65 this year and I will max out my pension as much as i can for the next 10 years i am a higher rate tax payer becuse of BTL income and i have 12k a year self employed earings and i own a SPV when i do get my state pension i am putting every penny into my pension rather then pay 40% tax I am lucky pensions for me are not for my pension they are just a great place to park tax with the tax mans help and are fantastic for IHT planning you should do a topic on this i am sure i am not alone with frozen tax allowances
Interesting...didn't know there was an option to salary sacrifice into a personal pension. Always thought it would have to only be the workplace pension!
Decent video but a tad misleading as 7% returns are at the extreme end of a likely return - doable but not if you definitely need that return in 5 years ....5 % is a better guideline for a moderate risk return ......the UK pension market and sadly most if not all company pension schemes are typically overly cautious in their "default funds" so this is where James input is very valid take control of what works for you - most company schemes are flexible enough but you need to go and get them working for you
I'm a bit confused on the step where paying your ISA into your pension works out better? Since then when you take from your pension it will be taxed as income whereas it isn't from your ISA?
You benefit from tax relief when you pay into a pension. This is even more useful if you’re a higher rate taxpayer. The money you pay into an ISA has already been taxed, so by moving it into a pension you effectively get the tax back. You can take your pension in chunks (personal allowance + 25% tax free) to avoid paying tax. PS pension is not liable to IHT under the current rules - if you wanted to leave money behind for loved ones.
The average retiree, I believe, should have been able to have enough to last the rest of his days. I t just depends on choices during your working days, just as I came to realize later. Surprising how I still netted more $2m. by retirement. And this is while living in New York!
Not at all. I have just had a good savings habit from early in life. So when a friend introduced me to investing, I was intrigued. And this was just about four years before retirement, and I had only 480k to my name.
My financial advisor is "Pamela Helynn Kirchoff" she’s highly qualified and experienced in the financial market. She has extensive knowledge of portfolio diversification and is considered an expert in the field, I recommend researching his credentials further. She has many years of experience and is a valuable resource for anyone looking to navigate the financial market.
Interesting but there is an argument for keeping money in ISAs, cash or property because once you start taking your pension you then start paying tax on it, which is guaranteed when you also get you state pension
Regards the salary sacrifice, I think you still need to be paying tax on at least the minimum wage for the hours you work after the salary sacrifice is deducted. That could come into play for a lower earner. If you are hourly paid it can mean that the same percentage contribution could qualify for salary sacrifice one month and not the next. With my employer it is an all or nothing scenario where if you select too high a percentage, the whole contribution gets hit with NI. There is a more extended explanation and if anyone is interested, I will post. I opt to contribute the maximum possible under salary sacrifice to my employer pension (changing the percentage in appropriate months) and put anything else I want to put away in a SIPP.
Why move money out of an isa that could be in stocks and shares to then have to potentially give 20% back to the taxman when you pull it down? I use pensions to lower the gross income and taxband and nothing else. Rest is in isa where i can access with no tax. Thoughts?
Hi James, brilliant video and like many comments already made, it's just in time for me. One question I have is you seem to jump from in the explanation about John between his personal pension and a reference to workplace-based pensions, you say: "7.31 instead ask his employer to sacrifice 7:34 his salary directly into his pension 7:36 before he receives it". Could you tell me if you're referring to his personal pension? You go on to say. "only possible if your employer uses a 7:59 salary sacrifice pension, but this is the 8:01 most common type of pension"............ Now, we appear to be referring to a workplace-based pension, not his personal pension...... I hope you are okay with me asking about this. I am hoping any additional clarity helps me and others! I really appreciate any help you can provide.
Salary sacrifice simply refers to the method used by your employer to make deductions from your pay to the pension scheme and can apply to either a personal pension or a workplace pension. In my experience larger employers more often support salary sacrifice than not. Unfortunately though I don't think it is very common for employers to allow the use of salary sacrifice with a pension scheme of your choice such as a SIPP.
Hi James, can you please do a video which demonstrates the benefits of pensions. I know there’s tax relief going in, but you pay tax when you draw the money. So I get that there is tax relief on the growth, but I’d love to see what this means in terms of cash at the end. Are pensions really worth it?
Well you don't pay NI on the sacrifice. Company foenst control that. The 13.8% they save ... SMART companies can. Most are not. I had great fun getting my company to admit they were not SMART employers. Would have been nice to have got some of that 13.8% but oh well.
I am self employed and 62. Have private pension but not sure if it's better to shop around as had taken my 20 percent last year.. and now in a retirement pension.
Are you able to make a video on mortgages and amortization? With the equity not being paid off much in the early years, how does this work when looking to remortgage or sell for a new house? Is the fact you've been paying off mostly interest taken into consideration on the new mortgage as it seems that there's not much chance to ever actually build up equity?
50 and early retirement. I'm very worried about the future and where we're all heading, especially in terms of money and how to get by. I'm considering making my first investment in the stock market, but how can I do so given that the market has been in a mess for the majority of the year?
I'm amazed that you can retire at 50 without having made a stock market investment! I stopped working at age 51, but started investing at age 28. Unfortunately, equity investing is all about temperament really. It's got nothing to do with picking stocks. You have to buy and hold and never sell. That takes practice, and now is probably not the time to be finding out you don't have the temperament for it
My employer has recently introduced a salary sacrifice arrangement but limited the sacrrifice to 15%, apparently on the advice of the consultants they used. When I queried this I was just told its because the company becomes liable for more pension contributions, which sounded odd to me as previous companies I have worked for did not do this. For what reason would they limit the sacrifice rate?
If you invested 10k in 1975…. Yeah, when the average monthly salary was about £200 a month or £2.4k a year. That’s 4 years worth average annual salary. As of 2023 average uk salary is £35k so would need to invest about £140k starting out by the same assumption no?
Hmm, there are quite a few assumptions/presumptions here and even contradictions with previous advice. At first, my reaction to this video was quite negative but having taken some time to think, these are the issues: First, the key message is about redirecting surplus funds into your pension. I'm afraid the discussion about compound interest and average growth rates is simply a distraction. Second, a five year period is insufficient and average growth rates cannot be assumed over this short-term. That said, if you consider that really you are simply building a bigger and stronger foundation on which to grow your pension, then the growth during those five years becomes irrelevant. You will be consuming your pension over the next 20, 30, or even 40 years and that is when the growth really delivers... unless you buy an annuity at retirement. Even if you buy an annuity, then you still gained a considerable tax-free benefit through saving that surplus income in your pension. If an annuity is your intention, then you can save in low-risk investments (but you forego the possibility of significant growth; that is the trade-off between risk and reward). Third, redirecting funds from ISAs into pensions if you are beyond 55 sounds sensible but there are risks - as I understand it, if there is an urgent need for cash before retirement, having transferred ISA investments into a pension, then taking drawdown from a defined contribution pension scheme, or SIPP, automatically places a cap on future contributions. Another strategy for using ISA savings whilst increasing pension contributions is to consume the ISA in lieu of employment income and invest the income through deduction at source, as you already suggested for the surplus mortgage income, thereby also benefiting from the reduced NI contributions. Perhaps you could mention the minimum income levels that it is not beneficial to drop below, i.e. the tax free personal allowance and the minimum NI contribution required to qualify for the state pension. Although most people viewing your videos are likely to be above these income thresholds, people of lower incomes should not be ignored and potentially have relatively more to gain. In conclusion, it's another great video but as it stands, the distractions of compound interest and average growth rates do detract from the main message (theme) of the video.
@@alecdurbaville6355 I mostly agree. Certainly it works best for those fortunate enough to be higher rate taxpayers, however it also works for basic rate taxpayers. Even if you turn it around in 2-3 months (ISA-SIPP-Drawdown), you'll still gain about 5%, even if you are paying basic rate tax on 75% of the drawdown. The real benefit comes with longer-term investments because then, you also benefit from the investment growth on the additional 25% credited by HMRC.
I thought it was good to have a reasonably large ISA in retirement to supplement pension drawdown, without needing to pay as much income tax? Maybe I’m thinking about that wrong? Perhaps it is better to pay the isa into a pension, get the tax credit too, invest that tax credit, then when you withdraw and pay income tax you at least have had the investment returns from the tax credit while it was sitting in the pension. Is that the thinking that makes more sense!
Great video James but 2 things: if you can manage this exponential growth...its harder to walk away from this, from putting 20k into pension then just stopping is psychologically a challange, secondly review your attitude to risk, and investments, if you managed to reach the LTA, the short term bouncy road can also be psychologically challenging. I Think you have covered these issues in other vids .
@@imonlyonesamNot quite. Only the charge has gone. The LTA itself isn’t abolished until 6 Apr 24. It’s an important difference, in my opinion, and it’s why I’m not crystallising my funds in excess of LTA until Apr 24. If I do it now, the charge will be worked out but not levied by HMRC…… under this government. But what if another government not only re-instates LTA but also tells HMRC to review all previous, uncollected, charges against individuals and says that they now want to collect?
Easy! All u have to do is... 1) pay off your mortgage by 55. 2) pray, in the 5 years, the stock market(pension) grows at 7%pa. These 2 things are very very unlikely.
It's a UK Individual Savings Account "ISA". The growth in ISA savings is not taxed but the savings themselves are normally from income, after tax had been paid. In the UK, pension contributions are not taxed and if you put savings into a pension scheme, then there is an additional government contribution of 25% of the investment value (which is as though basic rate tax (20%) was not paid at the outset). Therefore, transferring ISA savings into a pension inflates their value by 25%. There are additional complexities but that's the basis of James's point.
Isn't you advice on moving ISAs into pension overlooking the fact that 75% (based on current situation) will be taxed at 20% when John comes to withdraw?
If you have a job and are a higher rate taxpayer and putting in less than £60k or total income per year then you are getting £100 in your pension for every £60 put in (through the gov contribution and tax saved). That will then grow and be taxed at 20% on the way out.
im 30 in the next 2 years i plan to maximise my pension contributions starting from march. I also want to maximize my isa contribution this year, next year, the year after and the year after. I want to leave that all in those accounts and not ever need to contribute again, will i have enough to reitire at 55 (35 years from now)?
I’m 53 and can access my pension at 55. If I want to invest for 3 years and draw down the cash in 3 years time would an ISA or pension be more efficient.
I'm a 38 yo who left academia for an industry job in the UK 2.5 years ago with no retirement savings up to that point. I've been panicking about whether I can catch up or not. My first employer of 2 years contributed the minimum to my pension and so did I as my salary was not enough to contribute more while saving for other goals (a house). My second employer of the last few months is contributing 10% and I'm contributing another 10% through salary sacrifice and my current salary is much higher. Although I'm mathematically savvy, it had not clicked until this video that if I keep on this trajectory of aggressively putting money into my pension until I'm 50, I'll probably have more than about £200K in pensions in today's money which puts me on track for retirement by 60 (or 65 if I encounter obstacles including bad markets). Thank you for this video, it eased my mind a bit!
What about if you have a Defined Benefits pension? I would love to put it all in a DC scheme now, but the company pension is making it harder to do. I am about 9 years from when I retire.
I can attest to this in practice. I stopped work in 2019 and it really was those last 5-6 years that pushed me over the line. I maxed out my pension contributions at 40k for me and 20k for my wife. Using a combination of earnings and previous cash savings. COVID then slashed my fund by 35% and now we have rampant inflation. However, the secret is, you don't need to withdraw all your money at once. I keep a cash buffer of three years to smooth out the volatility
Great video, thanks James! If someone has used up their annual pension and ISA allowances (and carry over), and comes into a sum of money, is it still worth paying more into a pension, or are there better ways to save it for retirement?
Tried salary sacrifice to lower my gross pay to keep under the 40% tax bracket ,but my firm will not allow me to do this before tax only after hence my gross pay will not be reduced slightly cheesed off
You still qualify for the tax break, you just need to do a self assessment and will get a refund. By saving that post tax money in to a sipp, it will instantly be increased 20% but if you are in 40% bracket you need to do self assessment and get a tedund
Thanks for the info ,I'm in the 20% tax rate but I'm due to receive a small annual pension which will take me close to the 40% rate and wasn't sure how to avoid this
Can you mention the tax implications of moving ISA £££ into a pension. I understand the implications on the way in but you fail to mention the £££ are now subject to tax on the way out. Is it always a slam dunk ? Also, at this age whilst pension £££ are accessible at 55 are there not some implications on the pension as a whole once you've taken anything out ? in terms of adding money again later or something ? Thanks
@@alecdurbaville6355 Thanks. Inheritance is a good shout. What about the benefits of putting it in i.e further tax relief. If you're a higher right tax payer on entry you might have access to it 25% tax free or at least reduced rate in retirement. I suppose I could just do the maths :)
At 56 years old and still working full-time this was just the video I needed.
Same 👍
check your investments. They won't have grown much, if at all in the past 2 years if you exclude additional contributions
@@stuwhite2337yep my overall pension investment has dropped in the last 2 years by around 8%. I’m 56 and was hoping to finish by 58. If this trend continues then this will be unlikely.
@@stuwhite2337no shit Sherlock
@@alrightdave6135 the point is your cash would have
James you've no idea how much I appreciate your videos. I've learned more from your channel in 2 years than 15 years of school studying. God bless you and your family.
Very good video, I’m 53 and started watching your vids last year. I have always put a good proportion of my salary into the pension but have received some shocking returns over the past 20 years
100 % this sort of worked me the at one point putting 70% of my earnings into my pension. Just a side point my boss was not trust worthy in any shape of form and did not make my pension contributions for 3 plus mouths before folding the company yes it is being claimed back but in my experience you can not trust smaller companies to make payments to your pension on time even though they are quick with the deductions. Best to check your pension contributions very carefully. Keep up the good work James.
Einstein once said: “half the quotes that are attributed to me online are false”
Love it
😂😂😂
Reminds me of Lincolns famous quote "Don't believe everything you read on the internet"
Encouraging video James. I’m early 50s and feeling behind just as you’ve described. Thanks for showing there is a way to succeed over the next years. Encouraging!
That’s good to hear! To be honest, I was watching this back getting motivated myself!
It’s nice to have a short term target like that to aim for.
Behind?! I haven't even started yet....
@@JamesShack Many thanks for this video James. I found it amazing that we actually came up with a similar tactic. You in your video, and me guy in his 40s who likes investing and eagerly takes control of his own finances.
James a quick question for you. As I mentioned my strategy is slightly different so I wanted to ask you what do you think of the following tactic.
Instead of waiting until someone is in his 50s, I suggest person should be putting as much as possible into ISA. Preferably into dividend paying stocks and ETFs. The idea being: build a second stream on income so by the time you are in your 50s you can salary sacrifice max of your employment income, which in practice means leaving you with a salary at the level of National Min Wage/National Living Wage and everything above that threshold gets directed into pension. This means you can effectively pay very little tax and NI conts whilst the rest gets accumulated in your DC pot (assuming that you are a member of DC pension scheme).
It should be possible to do if you have a second income from your ISA (dividend payments) that are tax free too...
Obviously by the time you can start doing it, you need to have your mortgage fully paid off and your monthly expenses kept on a short leash.
What do you think James ?
Thanks James. The scenario you gave is very similar to my own. This has been food for thought indeed.
This is a very relevant video with essential information for those near to retirement to turbo charge their pension and give themselves the best possible retirement pot and it is free advice !
It does however depend on individual financial circumstances, but if you can afford to do so and have a DC pension with salary sacrifice then try and ramp up your pension contributions especially if you are a higher rate taxpayer. In addition, move any monies from taxable savings or investments into a SIPP if you are very close to or over the age in which you can take your SIPP.
Fortunately, i was given the above ideas when in my late 40's by a very knowledgeable work colleague who was at retirement age.
Thanks to him, I retired at age 55.
3:26 The example assumes that you have £10k to invest. BUT we are encouraged to smooth out the market by investing smaller amounts regularly, say £1000 per month. The effect of this is to maximise fees and yield much poorer returns.
I’m disillusioned ( and affected by) by the whole financial system… pension transfer values halved, share of funds drying up , the property rental ( retirement plan ) model obliterated and sooooooo heavily taxed at every turn…. At this point I admire the individuals that spend as they go .. as soon as everyone puts their cash into banks for the safe attractive 5% returns then the government will tax that as well ..
Sorry for grumping… thanks for doing your uploads.. they are helpful and informative
We can still have a rental property ,especially with no mortgage they do OK , Tax free ISA allowance is £20k per annum ,so smash the limit of this for 10 years and you've got £200k tax free to draw off (PLUS INTEREST ),Put a few quid into a private pension to get the 20% allowance..Add a 2 bed Rental paying £700 a month AND a state pension @67 ,small private pension and £200k Tax free Stocks and shares ISA to draw off .. Boom ,Not so bad ? thats a nice Tax free passive income of over £2000 a month . Thats how I see it anyway .
I really enjoy your videos James, you’re very entertaining, knowledgable and easy to watch.
Great advice, already at 22% AVC and hoping to up it to 31% next year, there is one thing you missed, you can use any future wage rises to increase your AVC each year you get a pay rise.
You know your stuff mate! Advice that will help the everyday working man. Well done!👍
The compounding interest example at the start of this video is very powerful. Good stuff.
There’s a lot of basic ideas that people don’t seem to be aware of. I’m 51 now taking it easier than ever based on this sort of investment plan. The ISA > pension I hadn’t thought of though - thanks
Worth also mention the carry forward rule which if they are downsizing or have savings on retirement can net a quick boost.
Glad to be here watvching smart blokes like you at 37, while I wish I would of done this at 20 it's better now than some of the others in the comments that are saying they're 50+ (no disrespect). I used to worry about it but now I have done a hell of a lot of financial study I feel as prepared as I can be, lets just hope the markets aren't too rocky over the next 20 years.
The question I would ask is where is the money coming from? Wealth has to be created through time and skill in creating things or providing services. Some risk is also involved.
If you aren't putting in time or skill or taking a risk the only explanation is you are acquiring wealth from other people losing wealth.
I am close to retirement and some years ago I set an amount of money I would require to live comfortably on once I stopped working. It's not a vast amount, but I will live as comfortably in retirement as I did when I was working.
Well that was extremely helpful and thought provoking. I hadn't appreciated the extra saving of NI contributions that salary sacrifice provides.
Great video James. I can relate to this. I’m 54 and only a few years ago didn’t have a lot invested. Now I’m up to around 500K and hope to have 1 million at around 63 which is when I plan to retire.
At the moment I have a well paid stress free 9-5 job home every night and weekend so will stick this out until it’s time for me to call it a day maximising my isa and pension as much as possible. Even a few hundred in a pension goes a long way.
Don't know you managed that. Care to share assuming if you had nothing invested at 50, how are you now up to £500?
@@kaxar6954 yeah I pretty much max'd out my ISA and Pension. This yeah I've paid 60k into pension and ISA from my salary. I have cut back on spending for the next 5 years.
It's doable.
@@kaxar6954”didn’t have a lot invested” isn’t nothing. Maybe he had 200k and felt it wasn’t that much at his age
@@kaxar6954 Maybe had another source of income say from rental property and had paid all the salary into their pension.
@@kaxar6954By doing that they can reduce their self assessment tax bill by using their personal tax allowance.
Great video, lots of very interesting information. We are heading to retirement and cannot wait, I am in the process of saving to retire early. Thankfully my English father knew the benefit of super and my husband and I have paid into super since we were 18, ie 35 years. Small amounts over the long term have meant we have never had to push lots of money into super/pension. Sadly in Australia we cannot access money tax free until 60.
You fancy doing a wee video on the MPAA and when it gets activated?! I want to crystalize my entire pot at 55 into drawdown, taking the 25% tax-free lump sum, and using it to pay off my mortgage, however I wont touch the rest, which will remain invested, and I will keep working and keep contributing. Prob need to speak to an adviser, but the info I seek should also be in the public domain, not seeking advise, just facts!!
- Have I activated the MPAA? eg can I now only contribute £10K/year to my pension?
- Are future earnings on my existing (now crystalized) investment crystalized or uncrystallised?
- Are future contributions to my pension uncrystalised (I assume so!), ditto the earnings on same?
I think the weird economic circumstances of the last 15 years are changing the life journey for a lot of people. Instead of the 50s being a time when they are free of mortgages and kids, many "millennials" have found that they were saving for a house until middle age and, consequently, didn't have kids until their late 30s or early 40s. So the late-career time of high saving potential is truncated. But, on the other hand, if they made the right sacrifices, they had a chance to build up some savings in the their 20s/30s (while their parents were busy with kids and houses). Thanks to the miracle of compounding, modest savings from those early years can pay-off big time while they are busy spending middle age on child-rearing. At least, that's how I'm hoping things work out! This could also be a reason why it's more important than ever to start saving early and consistently, even if only modestly.
My pension provider changed the investment type as I'm approaching state pension age in a few years time. Unfortunately due to Liz Truss financial issue in the UK, my pension pot lost a heck of a lot of money. This is scary as I now have a lot less than I had 3 year ago, even though I had put extra in over the past 4 years via my work pension
same here! Financial advisers always talk about pensions going up every year usually 5 or 7%. They have a vested interest in people paying into these investments but like you my private pension has lost around 20% in the last few years. I now channel all my spare cash into my isa and buy high dividend shares and funds. That way you always have a rising stream of tax free income regardless of how the market performs
hi james, please can you make a video discussing the pros and cons of defined benefit pensions?
as a public sector worker the majority of my pension is in DB schemes
id love to know what i should be doing along side my workplace pension to make the most of my income in retirement
keep up the good work!
Im in a DB but top up each month with AVC's - check if your employer offers this through salary sacrifice but just make sure your total AVC pot plus any lump sum you want to take isn't more than 25% of your pension or you will have to pay tax when taking it out when you retire. Also note the annual allowance currently £60k a year, above this and again you will have to pay tax back
I think you should be able to transfer AVCs into a SIPP and then you would be allowed to take 25% of the SIPP value, as well as 25% of the DB value, tax free. If your AVC value is less than, or equal to, 25% of the combined pension pot (AVC + main DB pension), then you may be permitted to take the AVCs as the tax-free lump sum, leaving most, if not all, of your DB pension to be taken as an annuity. Even if your AVCs are greater than 25%, if you are allowed to use them to fund the tax-free lump sum, then you may be allowed to make a partial transfer-out of part of the AVCs, as mentioned previously, to have this work to your advantage. It sounds as though you need to do some investigation, or pay an IFA to investigate and to provide advice.
Edit: if you transfer-out part of your AVC or before taking the 25%, then the combined value of your DB+AVC is reduced, which reduces the 25% value. The maths could become more complex, so advice would definitely be required for this scenario.
I’ll tell you what I consolidated a lot of my pensions and some have had for thirty years - they have no where near grown at 7% a year - the pension industry has only looked after itself for all theses years and have charged their customers all the profits
Very helpful thanks. I'm early 50s and this has given me a bit more optimism following what's happened in 2022.
I’m lucky enough to get a reasonable bonus each year (nearly £20k) and for the last 5 years I’ve had this paid into my pension as salary sacrifice. This has made a big difference to my pension pot (almost x2) and saved losing a big chunk of my bonus in tax. I wish I’d done this many years ago.
It really adds up!
You will be laughing during retirement mate. Good luck 👊🏽
I've done the same with my bonuses and share options, my pension funds have really taken off.
@@owensmith7530 Nice. Shame I only started doing this when I turned 50! When I was younger the idea never crossed my mind, but then retirement seemed far away 😉…time flies!
Does your employer allow you to pay your bonus directly into your pension? Wish I had that option. I could take the bonus and increase my monthly pension contributions, I suppose. Just takes a little bit more discipline...
got my first mortgage at 21y old. 21years later lost the house in a divorce.. now i have a new mortgage that i will be paying until 67y hold. i am almost 59y old and i wanna retire early. challenging
Omg its so complicated & over optimistic but great videos thanks i wish i could get my head around it as well as you have
Ken I feel the same. I think I'll just stick to saving whatever I can and shop at Aldi. I'm 55 and wish I could retire early too 😢. Good luck to you..
Great video. I worship my Salary Sacrifice pension :).
I noticed @9:34 you mention John turning £50K of ISAs into £62,500 by paying the ISAs funds into his pension which would add the basic tax relief, but if John were to instead sacrifice £1000 of his take home pay each month and supplement his living costs using £1000 from his ISAs, he could empty out his £50K ISA in just over 4 years, but contribute a total of £78,600 (an extra £16,100) to his pension via his salary due to the additional NI and 50% employer NI that would be added each month (providing he earns enough over the basic rate to cover this).
Great advice BUT don't forget the annual pension allowance and also the maximum 25% you can take at retirement without paying back the tax you saved...
I presume you mean ‘paying off your mortgage’ (not pension) - otherwise I thought this very good - you’re right financial literacy is so important
Time will tell but I worry more about negative growth over the next 5 years. Despite what history tells us, all my savings outside of pension is going into cash now while I can get >5%. We’ve seen good growth in the 3 months to May 24 but I’m betting that will be the peak for a long time to come. Delighted for someone to tell me I was wrong in the months and years to come. FTSE peaks on 15/5/24 at 8473,as a point of reference.
Yes - I am looking at options now. I had assumed pension provided could pay one the interest on the fund yearly and give lump sum back to my estate when I am gone.
Some say assume makes an ass out of u and me.
I prefer the Under Siege 2 - the mother of all F**K ups..
Time to do some real financial planning g
I've only recently realised that 30% of my audience watches RUclips on TV. That's why I'm trialling the use of QR codes for links. Let me know if you find it useful!
Does it need to be bigger so you don't need to get up off the sofa ?!
(I realise that most people watching on TV won't see this comment!)
Works great for me James - watching on my sofa!
Yeah l don't like getting off my sofa unless I'm migrating to my chair.
So do you use the RUclips app on TV or do AirPlay from your phone?
Wondering why you’d also see the comments.
@@JamesShack I have a RUclips app on Fire Stick and Nvidia Shield connected to my two TVs. You can see the comments on the app but I have to use my phone app to add comments.
Just streamed to TV for the first time today. Android tablet to Fire TV stick. Commenting back on my tablet.
I’ve been aware of compounding for a good period of time (early 30s), but never came across the 1p example. It makes it a lot more tangible!
Could you perhaps please do a video on the most tax-efficient way to retire using an *annuity* vs the tax-free lump sum combo? It's just that in recent years, annuities have suddenly become much better value than they were, and so are becoming much more attractive to the risk-averse amongst us......?
great vid, thank you, maybe a second vid on how to boost the pension on the last years before retirement (though to a lesser degree I presume, ha) when paying off of the mortgage is not in the near future (lets say beyond retirement age, 65+)?
Great sentiment and message with this video. Just need to be aware of dratted inflation and pension/advice charges which spoil the maths a bit. 7% pa after charges and inflation feels a bit of a racy assumption for a balanced portfolio.
Well I was on plan for this with a company allowing salary sacrifice and diverting bonus into my pension. Sadly redundancy and a newer job at a lower salary scuppered this. Also a mortgage going 8 years beyond pension age but overpayments also being made on that.
Ultimately have re worked mortgage saving money which also has been saved so aiming to retire early next April
Good guidance but (a) predicated on clearing mortgage while working and (b) seeing fund growth: uk fund growth has been ~0 for 3 years.😢
U can change funds if urs is underperforming. Part of my pension was in UK equity and wasn't making money then I switched it to a global equity fund which was galloping.
I embarked upon this very policy back in 2011 thinking pensions were a good idea, but unfortunately it was with Scottish Windows, a hopelessly inept company. I didn't check it frequently enough thinking their balanced fund would be satisfactory. It is actually worth £80,398 less today than what I've paid in. I'm supposed to be retiring next year.
Scottish widows is shit.
Watching and thinking, how many people fit this model? In the U.K. most people have no or limited savings. Many rent! I’m 57 and have another 10 years of mortgage payments to make! Life didn’t go to financial advisors ideal life plans!
Colleges are doing exactly this. Not rocket science, but you need to be in the ideal financial position to do so. Meanwhile life goes on, bills have to be paid……
Difficult to see how any current UK pension fund with a medium risk level will achieve this increase. Mine has the same value today as it did nearly 2 years ago even after paying In around 15k.
Think about it as a good thing. Increases are never linear, there are always swings both ways. I always think I’m buying at ‘a good rate’ when my ISA or Pension takes a dip. Then I don’t feel so bad! 😂 Ideally of course you want you pension value low until the moment you want to draw from it, then you want it to go crazy. Stay the course, it’ll work itself out!
Compare to other similar funds to see if it's underperforming. U may also need to think about increasing ur risk depending on how far from retirement u are.
Really useful! Would be great to see how the process of using the money works and any possible pitfalls 😊
If only we could experience 7% pac or even 5% pac growth. Leading pension fund performance has been abysmal over the past 3 years with no sign of improvement. Ploughing 25% in annually to avoid 40% tax and obtain employer contribution is the best I can do but precious little growth is extremely demotivating.
Stick it in a low cost global index fund. That’s what I did and my fund is growing much better.
@@pataleno I use salary sacrifice, thereby obtaining 40% tax relief plus 2% NI savings. The only way to invest elsewhere is to take a partial transfer out but the scheme doesn’t allow it. So I either accept it or invest from net income and then need to do a tax return to claim an extra 20% but its a hassle I could do without. It’s a disgrace that the largest pension providers don’t employ far better fund managers. They compete with low annual management charges but offer paltry investment performance.
@@DVDKEVthey don't care they're getting commission.
@@bitcoincryptofreedom3652 They receive around 0.5% of the fund rather than a commission and as you say, they give the impression that they don’t care but the regulations should force the leading providers to offer a wide range of investment funds and to install the best fund managers. They’ve been getting away with it for far too long. The Pensions Regulator is as much to blame and something needs to be done about it.
You shouldn't be getting zero growth. Even though say the FTSE 100 has stayed more or less flat over the past year, it's been paying dividend of almost 4% (which you should be auto reinvesting right?)
If you are in active funds, then you may be under performing the market, and paying hefty fees on top.
That would be worth reviewing to see where your poor performance is coming from
James one thing I would like you to address is the phasing out of national insurance & thereby increasing of the income tax that would result. The end result is that Pensioners will be paying more income tax.
At the moment Pensioners are taxed on income tax & not national insurance, my question would be would ISA now be a better investment than a pension?
Great video James. Even better when the graph starts at my age... compounding FTW
This is especially important for anyone who earns 100-125k per year. That 25k over 100k has a notional tax rate of 60%. I have been doing this rather being robbed by HMRC.
I am 65 this year and I will max out my pension as much as i can for the next 10 years i am a higher rate tax payer becuse of BTL income and i have 12k a year self employed earings and i own a SPV when i do get my state pension i am putting every penny into my pension rather then pay 40% tax I am lucky pensions for me are not for my pension they are just a great place to park tax with the tax mans help and are fantastic for IHT planning you should do a topic on this i am sure i am not alone with frozen tax allowances
Hi James , your are an excellent dynamic presenter who has a real impact.. Keep up the great work...😊
Thank you! Will do!
Interesting...didn't know there was an option to salary sacrifice into a personal pension. Always thought it would have to only be the workplace pension!
Once again essential and useful advise, thank you for sharing this information.
Decent video but a tad misleading as 7% returns are at the extreme end of a likely return - doable but not if you definitely need that return in 5 years ....5 % is a better guideline for a moderate risk return ......the UK pension market and sadly most if not all company pension schemes are typically overly cautious in their "default funds" so this is where James input is very valid take control of what works for you - most company schemes are flexible enough but you need to go and get them working for you
I'm a bit confused on the step where paying your ISA into your pension works out better? Since then when you take from your pension it will be taxed as income whereas it isn't from your ISA?
He lost me there too.
You benefit from tax relief when you pay into a pension. This is even more useful if you’re a higher rate taxpayer. The money you pay into an ISA has already been taxed, so by moving it into a pension you effectively get the tax back. You can take your pension in chunks (personal allowance + 25% tax free) to avoid paying tax.
PS pension is not liable to IHT under the current rules - if you wanted to leave money behind for loved ones.
I think that might be the only benefit with IHT otherwise I can't see the point of taking money out of my ISA to pay into my pension@@nasirmahmood5684
Congratulations on 100k subscribers. Well deserved 👍🏻
The average retiree, I believe, should have been able to have enough to last the rest of his days. I t just depends on choices during your working days, just as I came to realize later. Surprising how I still netted more $2m. by retirement. And this is while living in New York!
New York is sure as hell an expensive place to live in. Were you affiliated to Wall Street? Because how could you net such a huge amount?
Not at all. I have just had a good savings habit from early in life. So when a friend introduced me to investing, I was intrigued. And this was just about four years before retirement, and I had only 480k to my name.
Do you mind sharing info on the adviser who assisted you? I'm 40 now and would love to grow my stocks investment portfolio and plan my retirement..
My financial advisor is "Pamela Helynn Kirchoff" she’s highly qualified and experienced in the financial market. She has extensive knowledge of portfolio diversification and is considered an expert in the field, I recommend researching his credentials further. She has many years of experience and is a valuable resource for anyone looking to navigate the financial market.
Thanks for this amazing tips, I found her webpage and booked a call session with her, she seems proficient.
Interesting but there is an argument for keeping money in ISAs, cash or property because once you start taking your pension you then start paying tax on it, which is guaranteed when you also get you state pension
But you were taxed before you put in an ISA, it's a non issue.
What if you are self employed ? Yes you can put any isa money in a pension and ger 20 percent extra but you pay tax when you take it back out again
Informative as usual but have you overlooked the impact of salary sacrifice on life insurance cover amount?
Generally it’s not affected, nor are other salary based benefits but always worth checking.
Regards the salary sacrifice, I think you still need to be paying tax on at least the minimum wage for the hours you work after the salary sacrifice is deducted. That could come into play for a lower earner.
If you are hourly paid it can mean that the same percentage contribution could qualify for salary sacrifice one month and not the next. With my employer it is an all or nothing scenario where if you select too high a percentage, the whole contribution gets hit with NI.
There is a more extended explanation and if anyone is interested, I will post.
I opt to contribute the maximum possible under salary sacrifice to my employer pension (changing the percentage in appropriate months) and put anything else I want to put away in a SIPP.
So moral of the story you need at least 30years to start seeing serious gains im a retirement account.
Why move money out of an isa that could be in stocks and shares to then have to potentially give 20% back to the taxman when you pull it down? I use pensions to lower the gross income and taxband and nothing else. Rest is in isa where i can access with no tax. Thoughts?
Hi James, brilliant video and like many comments already made, it's just in time for me. One question I have is you seem to jump from in the explanation about John between his personal pension and a reference to workplace-based pensions, you say:
"7.31 instead ask his employer to sacrifice 7:34 his salary directly into his pension 7:36 before he receives it". Could you tell me if you're referring to his personal pension?
You go on to say.
"only possible if your employer uses a 7:59 salary sacrifice pension, but this is the 8:01 most common type of pension"............
Now, we appear to be referring to a workplace-based pension, not his personal pension......
I hope you are okay with me asking about this. I am hoping any additional clarity helps me and others! I really appreciate any help you can provide.
Salary sacrifice simply refers to the method used by your employer to make deductions from your pay to the pension scheme and can apply to either a personal pension or a workplace pension. In my experience larger employers more often support salary sacrifice than not. Unfortunately though I don't think it is very common for employers to allow the use of salary sacrifice with a pension scheme of your choice such as a SIPP.
Man, I wish there was a financial advisor like you here in Australia
I agree
I havnt found one i click with
They all want to just sell insurance
Hi James, can you please do a video which demonstrates the benefits of pensions. I know there’s tax relief going in, but you pay tax when you draw the money. So I get that there is tax relief on the growth, but I’d love to see what this means in terms of cash at the end. Are pensions really worth it?
A company I used to work at until recently refused to pass on any NI savings at all. Very annoying
Well you don't pay NI on the sacrifice. Company foenst control that. The 13.8% they save ... SMART companies can. Most are not. I had great fun getting my company to admit they were not SMART employers. Would have been nice to have got some of that 13.8% but oh well.
I am self employed and 62. Have private pension but not sure if it's better to shop around as had taken my 20 percent last year.. and now in a retirement pension.
Are you able to make a video on mortgages and amortization? With the equity not being paid off much in the early years, how does this work when looking to remortgage or sell for a new house? Is the fact you've been paying off mostly interest taken into consideration on the new mortgage as it seems that there's not much chance to ever actually build up equity?
I love watching your videos, as they are greatly comforting to me and good for my mental health when I stay to stress about these issues. Thank you
I’m glad they help!
James I love your explanations in these videos. Hoping you can do a video explaining types of high to low risk funds and markets.
50 and early retirement. I'm very worried about the future and where we're all heading, especially in terms of money and how to get by. I'm considering making my first investment in the stock market, but how can I do so given that the market has been in a mess for the majority of the year?
I'm amazed that you can retire at 50 without having made a stock market investment!
I stopped working at age 51, but started investing at age 28.
Unfortunately, equity investing is all about temperament really. It's got nothing to do with picking stocks. You have to buy and hold and never sell.
That takes practice, and now is probably not the time to be finding out you don't have the temperament for it
Stocks have been up this year 👍🏻
Excellent once again James
Excellent advice. Thank you 😊
My employer has recently introduced a salary sacrifice arrangement but limited the sacrrifice to 15%, apparently on the advice of the consultants they used. When I queried this I was just told its because the company becomes liable for more pension contributions, which sounded odd to me as previous companies I have worked for did not do this. For what reason would they limit the sacrifice rate?
Assuming they aren't matching your then nothing. Stupid as well as they save NI
If you invested 10k in 1975…. Yeah, when the average monthly salary was about £200 a month or £2.4k a year. That’s 4 years worth average annual salary. As of 2023 average uk salary is £35k so would need to invest about £140k starting out by the same assumption no?
First vlog that make sense, thank you 🎉
First?! 😂
Hmm, there are quite a few assumptions/presumptions here and even contradictions with previous advice. At first, my reaction to this video was quite negative but having taken some time to think, these are the issues:
First, the key message is about redirecting surplus funds into your pension. I'm afraid the discussion about compound interest and average growth rates is simply a distraction.
Second, a five year period is insufficient and average growth rates cannot be assumed over this short-term. That said, if you consider that really you are simply building a bigger and stronger foundation on which to grow your pension, then the growth during those five years becomes irrelevant. You will be consuming your pension over the next 20, 30, or even 40 years and that is when the growth really delivers... unless you buy an annuity at retirement. Even if you buy an annuity, then you still gained a considerable tax-free benefit through saving that surplus income in your pension. If an annuity is your intention, then you can save in low-risk investments (but you forego the possibility of significant growth; that is the trade-off between risk and reward).
Third, redirecting funds from ISAs into pensions if you are beyond 55 sounds sensible but there are risks - as I understand it, if there is an urgent need for cash before retirement, having transferred ISA investments into a pension, then taking drawdown from a defined contribution pension scheme, or SIPP, automatically places a cap on future contributions.
Another strategy for using ISA savings whilst increasing pension contributions is to consume the ISA in lieu of employment income and invest the income through deduction at source, as you already suggested for the surplus mortgage income, thereby also benefiting from the reduced NI contributions.
Perhaps you could mention the minimum income levels that it is not beneficial to drop below, i.e. the tax free personal allowance and the minimum NI contribution required to qualify for the state pension. Although most people viewing your videos are likely to be above these income thresholds, people of lower incomes should not be ignored and potentially have relatively more to gain.
In conclusion, it's another great video but as it stands, the distractions of compound interest and average growth rates do detract from the main message (theme) of the video.
@@alecdurbaville6355 I mostly agree. Certainly it works best for those fortunate enough to be higher rate taxpayers, however it also works for basic rate taxpayers. Even if you turn it around in 2-3 months (ISA-SIPP-Drawdown), you'll still gain about 5%, even if you are paying basic rate tax on 75% of the drawdown. The real benefit comes with longer-term investments because then, you also benefit from the investment growth on the additional 25% credited by HMRC.
I agree
Congratulations on 100K! Very well deserved
I thought it was good to have a reasonably large ISA in retirement to supplement pension drawdown, without needing to pay as much income tax? Maybe I’m thinking about that wrong?
Perhaps it is better to pay the isa into a pension, get the tax credit too, invest that tax credit, then when you withdraw and pay income tax you at least have had the investment returns from the tax credit while it was sitting in the pension. Is that the thinking that makes more sense!
Yes, generally pensions are more tax efficient than ISAs unless your over the pension LTA.
But the LTA is disappearing…
@@Ed_start But the tax-free 25% is now capped.
The capped tax free cash element of it remains.
Great video James but 2 things: if you can manage this exponential growth...its harder to walk away from this, from putting 20k into pension then just stopping is psychologically a challange, secondly review your attitude to risk, and investments, if you managed to reach the LTA, the short term bouncy road can also be psychologically challenging. I Think you have covered these issues in other vids .
The LTA is gone now
@@imonlyonesamNot quite. Only the charge has gone. The LTA itself isn’t abolished until 6 Apr 24. It’s an important difference, in my opinion, and it’s why I’m not crystallising my funds in excess of LTA until Apr 24. If I do it now, the charge will be worked out but not levied by HMRC…… under this government. But what if another government not only re-instates LTA but also tells HMRC to review all previous, uncollected, charges against individuals and says that they now want to collect?
Easy! All u have to do is...
1) pay off your mortgage by 55.
2) pray, in the 5 years, the stock market(pension) grows at 7%pa.
These 2 things are very very unlikely.
If you get a mortgage between 25-35 htf are you still paying a mortgage after 55?! People aren't planning ahead in this country.
9mins 40 in I don't understand the ISA into your pension point?
It's a UK Individual Savings Account "ISA". The growth in ISA savings is not taxed but the savings themselves are normally from income, after tax had been paid. In the UK, pension contributions are not taxed and if you put savings into a pension scheme, then there is an additional government contribution of 25% of the investment value (which is as though basic rate tax (20%) was not paid at the outset). Therefore, transferring ISA savings into a pension inflates their value by 25%. There are additional complexities but that's the basis of James's point.
Isn't you advice on moving ISAs into pension overlooking the fact that 75% (based on current situation) will be taxed at 20% when John comes to withdraw?
If you have a job and are a higher rate taxpayer and putting in less than £60k or total income per year then you are getting £100 in your pension for every £60 put in (through the gov contribution and tax saved). That will then grow and be taxed at 20% on the way out.
Doesn’t the compounding only work if you have one pension pot? Eg. When you change jobs.
No. You can move the pension around and it still works. So long as you keep the money invested.
@@JamesShack 👍
I’d like to sign up for that 1p plan.
Very interesting video but only if you are not tapered which is likely to happen at the end of a career… is ISA saving the only option then?
im 30 in the next 2 years i plan to maximise my pension contributions starting from march. I also want to maximize my isa contribution this year, next year, the year after and the year after. I want to leave that all in those accounts and not ever need to contribute again, will i have enough to reitire at 55 (35 years from now)?
I’m 53 and can access my pension at 55. If I want to invest for 3 years and draw down the cash in 3 years time would an ISA or pension be more efficient.
Hi James another great piece of content. How could I directly speak with you or your team to discuss my retirement plans?
I'm a 38 yo who left academia for an industry job in the UK 2.5 years ago with no retirement savings up to that point. I've been panicking about whether I can catch up or not. My first employer of 2 years contributed the minimum to my pension and so did I as my salary was not enough to contribute more while saving for other goals (a house). My second employer of the last few months is contributing 10% and I'm contributing another 10% through salary sacrifice and my current salary is much higher. Although I'm mathematically savvy, it had not clicked until this video that if I keep on this trajectory of aggressively putting money into my pension until I'm 50, I'll probably have more than about £200K in pensions in today's money which puts me on track for retirement by 60 (or 65 if I encounter obstacles including bad markets). Thank you for this video, it eased my mind a bit!
That's good to here!
Fascinating stuff. Would it be worth extending term of mortgage to fund that extra £1100 a month. Can't get interest only mortgage
What about if you have a Defined Benefits pension? I would love to put it all in a DC scheme now, but the company pension is making it harder to do. I am about 9 years from when I retire.
I can attest to this in practice. I stopped work in 2019 and it really was those last 5-6 years that pushed me over the line.
I maxed out my pension contributions at 40k for me and 20k for my wife. Using a combination of earnings and previous cash savings.
COVID then slashed my fund by 35% and now we have rampant inflation.
However, the secret is, you don't need to withdraw all your money at once. I keep a cash buffer of three years to smooth out the volatility
Thanks for another great video James!
My pleasure!
Great video, thanks James!
If someone has used up their annual pension and ISA allowances (and carry over), and comes into a sum of money, is it still worth paying more into a pension, or are there better ways to save it for retirement?
If u've already used up ur annual pension allowance then u cannot pay more into it.
You can, but you don’t get any tax relief on it
Tried salary sacrifice to lower my gross pay to keep under the 40% tax bracket ,but my firm will not allow me to do this before tax only after hence my gross pay will not be reduced slightly cheesed off
You still qualify for the tax break, you just need to do a self assessment and will get a refund. By saving that post tax money in to a sipp, it will instantly be increased 20% but if you are in 40% bracket you need to do self assessment and get a tedund
Indeed. Your firm are correct. Higher rate tax payers have to claim back. Lower rate taxpayers get it done through PAYE.
Thanks for the info ,I'm in the 20% tax rate but I'm due to receive a small annual pension which will take me close to the 40% rate and wasn't sure how to avoid this
@@nasirmahmood5684 I''ve got a work place pension and I'm pretty sure the salary sacrifice applies the 40% tax break
James this is a great video thank you. QQ - Can you safely assume that pensions are performing at a 7% YoY return?
That depends on how your pension is invested. If you're invested in a global index fund then 7% is a conservative long term estimate.
5 years isn't long term though is it@@JamesShack
That’s all very well, but you forgot to mention the paltry sum the annuity providers will give John for his 400k
Can you mention the tax implications of moving ISA £££ into a pension. I understand the implications on the way in but you fail to mention the £££ are now subject to tax on the way out. Is it always a slam dunk ?
Also, at this age whilst pension £££ are accessible at 55 are there not some implications on the pension as a whole once you've taken anything out ? in terms of adding money again later or something ?
Thanks
@@alecdurbaville6355 Thanks. Inheritance is a good shout. What about the benefits of putting it in i.e further tax relief. If you're a higher right tax payer on entry you might have access to it 25% tax free or at least reduced rate in retirement.
I suppose I could just do the maths :)