Some other retirement focused videos for you: How to sort out your pensions - ruclips.net/video/psH0JTS6PsI/видео.html Maximising retirement income - ruclips.net/video/yXl-zVTZxr8/видео.html How I create passive income for my clients - ruclips.net/video/sRjkmxFvlZQ/видео.html
My strongest advice for retirement is not financial. It is to make sure you have interests, stuff you want to learn but haven’t had time to so far, and lots to do that is stimulating. Make a bucket list. Challenge yourself. The worst thing is to retire and be bored - I know a couple of people who’ve done that, and they haven’t survived long.
I agree, great advice , I'm retiring in a few years, will be moving somewhere, I can have a more outdoor lifestyle, will be binning my TV, just gonna keep a decent phone , just occasionally watch some stuff on that, been getting ready for years buying extra clothes, bikes, gym stuff, while I'm earning so I won't need to buy , when I'm retired.
James, i stumbled across your channel a few days ago.... and have binge watched the lot! (and gone back over a few more than a handful of times!) Absolutely brilliant! i can honestly say i have completely changed my retirement direction of travel! I'm 52, have a tiny pension but earn a 6 figure salary of which until now, i have enjoyed spending with retirement not even considered. Handbrake applied! I'm now reorganising my life to invest the maximum allowable and using my allowance for the past couple of years to hit the max! This should be compulsory viewing!
If you have a tiny pension but have a six figure (!) salary then you're a fool. Sorry, but that's what you are. Instead of splashing out on a new Tesla, those six star holidays in the Maldives or that brick extension to your house, get saving!!! And get saving now before it's too late.
The one thing that keeps coming to my mind about retirement and thatis I should be spending a good proportion of the 'fun money' while I am relatively young, say under 75. My poor old dad is pushing on 80 and he is a shell of his former self. Its so sad to see. I bloody hope I have had a really good time, I have given most of what is left to my daughter and any kids I may have in the future and when it is my time, I go quickly and not as I started my life (wearing a nappy and dribbling on my self).
Yep. I'm currently visiting scuba diving spots because i reckon i might be packing that in in a few years so get those destinations in while i am fit. Told the kids i've gone SKIing.
@@Joe-lb8qn good man. Teach them how to make and invest money, rather than expecting money from you. We save our babies child allowance in her mothers lifetime Isa, and will put it in syocks and shares until she is sensible enough to have it for something worth while. When she is old enough I am going to give her £100 a month pocket money, but then include tax, bills etc on that, so she hopefully has some understanding of how money works.
Wow!... Im 60 this year and I'm thinking of taking my pension. I don't understand a word of this ! - although you articulate the points very well.....I don't have a blind clue what to do ! - Maybe I should make an appointment with a financial advisor !
At 66 I put 330000 into Royal London 3 years later after several worrying years it is worth 332000 so no generation of wealth during the 3 years I took nothing from the fund unlike the advisor or Royal London
Another good video, thank you. Two points: You mentioned that most pension schemes migrate deposits into lower risk investments as the member approaches retirement age but you didn't explain why, since on average, those investors will have at least 20-30 years future life expectancy. I believe that this is because the majority will take that pension pot and purchase an annuity, so if that is their intention, the investment strategy should be sound. Of course, these people are not your target audience, so an explanation of how pensioners have different options, or could, of course, use a mixture (annuity + drawdown) if that suits their personal circumstances would be very helpful. Leading on from that, guidance on how to choose an annuity, rather than relying on that provided by their current scheme could also be helpful for many people. When I retired earlier this year, I had a plan to move some of my DB pensions into a SIPP and then use Flexi-access drawdown but the major changes in annuity rates and consequently reduced transfer values has thrown that strategy into disarray. A video about annuities and what influences annuity rates would have been very valuable to me. Sadly, I only recognised the link between annuity rates and interest rates too late. Yes, I can revert to the DB pension benefits but I'll need to consume more DC investments in the meantime until my DB benefits are available and my descendents will then have reduced benefits if I die early.
I am 68 next month! I have two small (miniscule, in reality) pensions that I have not yet accessed. Both funds have shrunk over the last couple of years! Pensions are not the secure place for money that they used to be
No stress or problems when there's such high demand and mortgage is getting paid off with the rent with money being left over. Plenty of incentive to be a landlord
@@mazharulBetter to do that than put it into a pension that will be worthless because of inflation. Also you can't leave you pension to your family, I've your wife/husband only get half of it. That's terrible
Hi Keith, as per this example, you can invest your pension in property or stocks which are both long term inflation hedges. Not only that but of you die before 75 your spouse or kids can inherit a DC pension as a tax free lump sum. After 75 and they inherit the pension but have to pay income tax on it. It's much more effective on death than property that might attract IHT.
@@mazharul Until you get a nightmare tenant who doesn't pay their rent and destroys your property....plus you can't kick them out because they have more rights that you do...no thanks !
@@welshhibby I'm guessing they would need to be vetted as I had to show bank statements show them I'm working etc when I was renting. If your desperate to rent it to any riff raff then rent it out to the local council as they need more properties and they then will be responsible in paying the rent and maintaining the property. Nightmare tenants can be avoided if you vet them correctly
What are you thoughts on Medical retirement? If say, you're 37 and have a 50% chance in the next 7 years you can't work, would you be paying as much as you can into your pension? And do you still get entitled to the 25% tax relief when you do medically retire? Odd question I know. It might be an interesting video to talk about it. Thanks for all your advice on your channel, you're very genuine and passionate and I think that resonates with alot of us!
Thanks for the comment, I've not actually dealt with any early medical retirement cases. It seems like the rules are dependent on each pension scheme. www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/early-retirement-because-of-illness-sickness-or-disability
You may have already covered this, in which case, please just point me to that video, but if I have a pension fund but *do* *not* plan on taking ANY out as a "tax free" lump sum. I want the max "regular" income I can when I retire, so I don't want to reduce my total pension fund by 25% by taking that 25% lump sum out of it. What are the tax implications (good or bad) vs a (say 4%) annual drawdown, or even an annuity? Thank you.
I made some mistakes…being born at the end of the boomers, so the UK government reforms on pensions hit, and rules were hideous, but before protections were brought in and before the AVC scandals were found out. Born just two years earlier, my older brother caught the final offerings of decent pensions, and employment contracts. Every contract I got, was either minus a pension, or the company simply wrote in a clause that said a) the pension payment is mandatory and b) if I leave before 2 years for any reason I forfeit the payments to the employer. Yes, that’s right, you MUST pay, and if they sack you after 23 months, they are keeping those payments, and any profit that the investment of them made. Then? Well, I went to another company, one that contracted-out. I had no clue, we voted for something in 1987 or 1988 I had no idea the implications of, but was sold as a jolly good idea in a talk given at the workplace. I ended up with what? Dunno. Then? Well, a private pension, paid it through thick and thin. Only to go to a public sector employer, and once I transferred my private pension in, found it was a whole £200 - because the commission to the pension sales person is the first thing that gets paid. And that’s the only pension I have. I asked while at the public sector employer, if I could double the amount of money I put in, and they said no. But, there was an AVC thing, that I could get into…I didn’t but others did and lost most of their AVC money as some scam hit years later. In short, even somebody actively seeking to add more money, and willing to forego some or even ALL the employer’s contribution on that extra part, has been able to end up with a pretty poor pension arrangement. The inflexibility of the input side, of the only decent pension fund I ever got access to, blocked me making-good on my shortfall of pension. It’s been a financial minefield, and it’s only after failures have happened, and with no choice to avert losses made, that you even know there are mines laid, let alone where they were. Because, at every turn, a financial expert has implicitly been setting up the system, to presumably give you a reliable, open and honest way of building your pension pot, is the picture projected. The reality, is an inflexible inputting of funds, no recognition of people with shortfalls needing to do more getting the chance to do so, and scams galore as we go through the minefield. No, on a modest income, you need to maximise your pension pot ingoings, and the system blocks that. I bought properties, to let them out, and financial pressures built so I had to let them go. Pensions, even good ones, have very little control or protection and that was mainly a function of my time of birth. It was vital I was allowed to put more money into a pension when I had it - and that was blocked by my employer, who gave no reason. I offered to pay without them making a further contribution, but this made it complicated for them, their system (Information Technology for payroll I assume, not financial rules) could not handle this. True, or not true, I was blocked. Take care all.
Great video James. Might be obvious, but its helped me realise that I'm better off transferring some of my stock and shares ISA into my pension via salary sacrifice to reduce my tax liability. Now just need someone to help me with my poor performing pension.. the Aviva default fund hasn't impressed me..
Hi James, great video and so easy to follow / understand. I'm 59 and now planning my retirement. However, I have trust issues and am concerned that people generally are only concerned in 'hooking'into my pot for their own income than giving me the right advice that will see growth that will more than cover the cost of the advice. So I'm somewhat in limbo. I have a private pension which lost 18K last year alone (thanks Liz)! I'd like to retire at 61 in 2 years time. Do I leave the private pension and see what happens - with the risk of me losing more money from the pot, or do I withdraw it and have it in the bank and draw down as I need it? I also have circa 15 years in a Local Government company pension scheme and about 7 years with a another index-linked company pension scheme. Where do I go for advice. Any assistance / advice will be greatly appreciated.
My personal view is to draw out the 25% tax free lump sum, live on that for as long as you can, and then buy an annuity with the remainder of the pot. Current annuity rates are much improved and nothing beats the peace of mind of getting a guaranteed income.
With BTL it's also worth factoring in house price growth, and the fact that you benefit from the growth of the entire house value not just the 25% you had to put down as a deposit. For every 10k of growth, you're able to take 7.5k (75%) out as cash when you come to remortgage (assuming rental figures meet lender requirements). So, if you get 50k of growth over 2 years, when it comes to remortgaging, you may be able to take 37.5k as cash and you could use that on further investments... Or any way you please.
This is true, however I decided not to consider this as REITs will also increase in value whilst also benefiting from leverage. You also have the added benefit that REITs within a SIPP are CGT exempt.
Last thing i wanted to do when i retired was get another job, which is what being a LL entails. There's nothing passive about being a landlord far from it . I dabbled in it whilst working because relatives needed accom and also let the place out short term to people i knew in between moves and the like. Still a lot of hassle it was a relief to sell it.
I don’t blame anyone having second thoughts about being a landlord these days, yes tenants need protection but so do landlords from bad tenants who wreck the property prior to eviction.
It's funny how many people only look at their investment journey up to the point of retiring. Most people forget that they make the biggest returns on their investment once they retire due to the compounding effect - our investments don't stop working just because we do.
This is another great video James. I'm starting to be pretty clued up on this topic and I've learnt two brand new things that just never occurred to me.. (1) Recycling money from the ISA to the SIPP to get that extra tax relief (2) Never thought of just saving cash into the SIPP and leaving it as cash for short term usage. I'm thankful content like this is available and free 🙂
Great video James. On thing though - you talk about the 40% or 45% tax relief as if it goes directly into your pension, which is true if you use salary sacrifice, however if you make separate contributions you would only get 20% relief added in your pension from the DC pension provider automatically, while the rest is paid to you in cash from HMRC after claiming on your self assessment. How do you actually get the extra 20-25% into your pension without and endless cycle of paying and claiming?
It’s a bit clunky unfortunately. But let’s say you wanted to put £40k into your pension this year, the maximum. You put in £32k and get the 20% relief up to £40k. A few months later (whenever you do your tax return) you get cash back for the extra relief. So essentially you’re just short of cash for a few months, but the full £40 gets in there. If you don’t have extra cash lying around to do the £32k then it’s a bit annoying. Salary sacrifice is preferable.
I am building a pension and a S&S Isa . I like the idea of using my ISA to subsidise my income as I reduce my Woking hours into my later 50’s and early 60’s.. I wont take any of my pension until I retire fully at 65.
I was under the impression that landlords were able to write off their mortgages as an expense several years ago, but now can only write off interest. Please could you clarify this might? Maybe I have misunderstood what was siad in the video. Cheers
How does the 40% tax relief work? Say someone earns £52k, does only £2k pension contribution get 40% tax relief and any additional is 20% tax relief? Or will an unlimited amount be 40% tax relief?
An eye opener definitely James. You only mentioned drawing from defined contribution schemes. Do defined benefit schemes incur the same £4000 limit on future payments?
I'm 53 have a pension and property (with almost no mortgage) This is a real eye opener. The Key is for me is leave my pension untouched as long as possible. I contribute around 20K a year to it. Great Video James.
Hi, James - This is very interesting. How would this change if the man in your example does not use a mortgage, but instead uses cash that he can not place in his pension fund (this is my situation - I sold a house, moved to a less expensive country, and want to purchase 2 buy to let properties in the UK that will earn a guaranteed 6% after paying the property managers who also cover any repairs. My income from those buy to let's will not be under 10k per year, and will be my only UK sourced income - so I won't owe UK taxes on that money earned. I feel like this is a wise use of my funds to bring in some passive income during my retirement with an investment that will keep or go up in value over time. Does my plan seem more sound since I won't have a mortgage?
There is so much info here. I can't thank you enough James. To an immigrant like me this is immensely helpful. Rewatching almost all your videos to make sure I don't miss anything. Thank you again.
I have a workplace pension with Scottish Widows and informed them that I wish to take early retirement when I am 55, next year. SW immediately moved ~20% of my pension into bonds and ~20% into some “low risk” fund. They also informed me that as I got closer to 55 they would continue to reallocate funds to bonds and lower risk funds. I wasn’t happy with this and informed them to stop. I have since reallocated a chunk back into shares. How do SW expect my pension to grow and sustain me in retirement if the majority is in bonds / cash / low risk funds?
That may be because you were invested in a fund like the Aviva one we looked at in the video. If you bring forward your retirement day it will jump your asset allocation forward to be a lower risk level. They're not assessing whether it's suitable for you.
Gulp. That sounds horrific! I bet there's some transactions fees floating around too which come out of you pot also. I suppose one option would be to tell them you changed your mind and get them to re-allocate back to what it was. Then in a year, when you stop working, transfer the whole lot into a sipp and manage it yourself.
@@ChrisShawUK Yes, I’m seriously thinking of transferring into a SIPP, maybe with Hargreaves Lansdown (who I already have an account with). The customer services at SW is terrible if you try to talk to someone! 😞
@@stevegeek one think I've never been sure about ... Can you transfer part of your workplace pension to a SIPP whilst still working? So you can receive your contributions into the work place fund, but then transfer as soon as practical into a fund that you control directly? I always waited until I left employment before transferring, but it occurs to me that maybe I didn't need to?
@@ChrisShawUK Good question! Apparently it is possible. “If you are thinking of transferring out of your existing workplace scheme first check with your employer if they would contribute to your Sipp. If this is not an option and consolidating your pension funds remains an appropriate course of action, it may be possible to transfer all or most of the funds out of a workplace pension while leaving the plan open - a partial transfer”. It seems like a lot of hassle though, so I’ll probably wait til I retire…not too long hopefully.
I have a civil service db pension, which although I don't really want to stay there my whole career, if I did assume I do stay and keep the same salary (adjusting for inflation), I'd have a VERY comfortable retirement. Not considering career progression. I'm currently 25 I should mention. I'm also investing in my ISAs as, well my expen🎉are low living at home, and it can't hurt. Maybe FIRE one day? So basically I've been considering staying fully in equities, (ignoring a cash buffer), in retirement, especially once the db pension kicks in. Of course life will change a lot by then so who knows.
Hi James - great content - like many others I've recently started taking some interest in my pension due to redundancy. I've got my pension in a Vanguard SIPP now. I also have a UK Armed Forces pension but haven't come across any financial channels mentioning Armed Forces pensions. I'm presuming I should leave it well alone but it would be good to know why that is. Would you be able to comment?
That is true although you'll also be taxed on the gain, potentially at 28%. A REIT would also be expected to rise in value but again that would be tax free within a pension.
If someone took their eye off the ball on one of their pensions and didn't spot it had moved 40% from stocks to bonds, and bonds had gone down, quite a lot, should they actively switch the money invested into bonds back into stocks? Or not? I know you can predict the future. But I think many might be in this position. And it would be a great future topic to talk about what might economic event(s) would reverse the recent fall in bond prices. So not saying how likely it is, but the mechanism (if there is one) that would restore bond prices. (I guess it is essentially confidence in the UK government/economy?) Or once the bond have fallen to their current levels, can they not increase?
Hi Mark, at that start of this comment you state "I know you can't predict the future" and at the end you're asking for content that might give you insight into what might happen in the future. The honest answer is that no one knows, and you'll tie yourself in knots trying to guess. You need to focus on what you can control, like making sure you have an asset allocation that is going to set you up for success over the next 20 years, rather than the next 6 months.
james im looking to find information about state pension....if you have all these savings/investments do they penalise the amount of state pension you recieve...great video by the way
You’re very switched on. I do think though that you missed something with the first example of the guy who took cash from his pension. His yield may have been lower with the property right now, however, as this guy was 55, based on property value growth by the time he is 65 I would suggest his property could almost double in value. Then his rents will increase significantly and his yield will smash what he got from the pension.
Thanks for the comments Ross. This was a mortgage on his own home so there's not rents involved. In both scenarios he ends up owning the property outright.
I wonder how you retire early then say at age 55... i'm 40 now but if the government keeps putting the date up to when you can access your own pension then surely no one is going to retire earlier than 60 within the next 10-15 years. Or have a got this wrong?
You'd need to build up other assets like ISAs. And, as per this example, you can then use them to fund pensions later in life if you realise you do want to work longer.
@@JamesShack this appears to be accessible only by financial advisors "Timeline is limited to financial advisors only." Is there any alternative that could be used by ordinary investors?
Hi James, if you carry forward you Annual Allowance, can you claim back tax paid from those previous tax years? Or do pension contributions only get deducted off the current tax year?
So, I find myself having had to retire early At 55 - due to ill health. Therefore I am currently drawing my pension, which was a small final salary one - so that’s okay, but are you telling me in theory I could or even I should put away £4000 a year that I am getting from other sources into a pension and get the extra tax relief And draw it down in my 60s and 70
If you're not earning anything, the maximum you can put into a pension is £3,600 per year including tax relief. You could put money into a DC pension, but i can't say whether that is the right thing for you to do.
Sound advice....provided you are in the higher bands of income! Not a lot going on for those that have to continue working after they qualify for State Pension. If you are a basic rate tax payer, then pensions are limited in their power and benefits
Hi James good video. I’m currently drawing 5% per annum on my pension aged 61 but at 67 I can reduce this to 3% as I will be eligible for the state pension. I’m assuming that pensions grow in line with inflation which it’s has done previously, although there’s a gap at the moment - hopefully a blip! Any reason you haven’t taken the SP into account?
I have two pensions. Can I take one pension at 55 (finaly salary ) and then continue putting contributions into my second pension (Nest-defined contribution) without being capped at £4000 contributions a year for my Nest Pension? the plan would be to load up my NEST pension claiming 40% rax rebate and crystalise the Nest pension at 60? Does the MPAA apply to each pension fund separately or does it apply to all pensions once one pension is crystalised? Hope that makes sense
I had that same scenario - hope James gets to see the question. I have done quite a bit of searching over the last year and still remains unanswered for me too.
@@markukblackmore Hi Papi. The MPAA applies across all DC pension, but it does not affect DB pensions so you could still contribute to a DB pension. It is possible to use the TFC and income from a DB pension to contribute to a DC pension. However there are some fairly particular pension recycling rules you need to avoid to make sure it's not an unauthorised contribution. Have a read of this: www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/pensions-recycling
@@JamesShack Thank you my friend - thats very hepful . Great videos , keep up the good work . A possible future video on recyclying DB pensions into DC pensions would be awesome ....
@@JamesShack I'd love to see more on this subject. I'm a regular viewer, and I asked on PensionCraft, but I don't think I asked you. I wondered if I could collect my DB at 55, and turbocharged my DC contributions by 10k, for 5 years. Obviously, my DB level drops by taking it before 60, but it would be worth knowing if I could, and whether it would make sense to do.
you mention you can funnel back in - and I think thats ok as long as its only the tax free part - doesn’t trigger MPAA. As you can access from 55/58 when many will still be working (and maybe in HR/ART band) is it even worth considering doing a second round to get additional tax relief? if you took 60k and topped up to 100k, then the 25k tax free and paid that in, you’d get about an extra 10k in tax relief second time around. but of the 35k you then pay in you’d have 110k in total (from 60k contribution so not bad) but only have 8.5k ‘tax free’. which may be more risky from a tax implications pov on withdrawal? Is it a usable tactic or do you recommend not doing so?
Should I cash in my pension or sell my buy to let to finance 100k house extension . My financial adviser said cash in pension but I'm concerned as he is v vague
Way it is in england. My pension is tied to the state pension age which is currently 68 but will soon be 70 yrs old im sure. I will basically have to work till im nearly dead and have a few shit years of poor health before i am actually dead. I don't want to be living past 75 anyway, old age is nasty.
Does the MPAA apply to a Director’s Pension? I employ myself via limited company and my wife and I have our pension contributions made from the business.
Hi James. Thanks for your videos, they are useful and clear. A lot of your audience will have a mortgage free property. Have you done any videos on the reverse mortgage type products or plan to do one? It's a growing market so I think it will be of interest. Of the people I've spoken to, most don't understand them or trust them, but the market is improving as the providers increase.
@@JamesShack i guess both are types of equity release but any product that allows access to a lump sum or income from your property. Seems lifetime mortgages are the most popular. Most people seem skeptical which is surprising given its a huge asset to make use of
Your Client should have got himself a holiday home and run serviced accommodation… way more tax efficient than BTL…you didn’t factor in long term capital growth either. Agree that taking out more than 25% to finance was a big mistake.
Indeed, a holiday let would be more efficient. I didn't assess capital appreciation because a REIT can increase in value too whilst also being CGT free whilst inside the pension.
I’ve just had a thought can you take your tax free allowance @ 55 then reinvest that back into your pension if you regret it & still receive tax allowance on that reinvestment. I’m going to guess if the tax free sum was £20k then you’ll pay tax on everything added for the next £20k.
Unfortunately, like most ‘Aha!” moment’s with tax HMRC has already blocked this. adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/recycling-of-tax-free-cash/
I pay maximum contributions and draw maximum tax free cash and spend it on holidays I don’t want to be the richest guy in the graveyard just the poorest
You need to be careful with that. If you're pension contributions are artificially high because you're taking tax free cash to live on then you may fall foul of pension recycling rules. Which could result in very large tax charges. www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/pensions-recycling
I think it's a good idea to leave your money in your pension as much as possible . My strategy has been to build a large stocks and share Isa portfolio around 400k to produce a tax-free dividend income of around 8%. Whilst leaving my sipp alone, I retired recently and 53. Also, retire without debt that helps 👍
@James Shack I have been adding over the years, particularly at year lows and aggressively in covid. I tend to buy only a few times a year when I see a bargain like we saw after the mini budget. I look for doom and gloom, ha!
Another great video, James, with some real life examples I'm sure many will be able to relate to. One observation about the gradual 'de=risking' you talk about - illustrated by the Aviva model: Could it be they're assuming you will take your money at retirement and buy an annuity? Hence a desire to reduce that volatility as retirement approaches so the recipient doesn't get an unpleasant surprise when he retires. I'm old enough to remember when buying an annuity was the norm! I don't know what percentage of SIPP holders actually do this now.
Yes the lifestlying of pensions (Aviva model you mentioned) is exactly to do with protecting sudden changes months, even days before retiring and dumping it all in an annuity. The thing is though that since the pensions reforms for 2015 (I think) where you can do draw down instead, I can't see that many would go down the annuity route, however it's kept as the default end goal for all pensions and hence lifestlying switched on by default.
Hi Ed, that is correct. However there are different Lifestyle funds you can select if your goal is to buy an annuity. This specific fund is designed for drawdown.
Well i kind of cover it in this video. You can always use an ISA to fund your pension. So you may as well build up an ISA too. It's more of an art than a science!
My understanding is you can take your 25% tax free lump sum, and provided you haven't accessed further amounts, your annual limit remains at £40k. Is this correct?
So could you go through a process of taking £40k a year or the maximum threshold when I come to retire and then put it back in to get a further 40% tax relief year on year until you reach the 25% tax free allowance? And would you just need to be £1 into the 40% higher rate tax bracket to achieve this?
No. If you're retired you would have no taxable income and therefore your pension allowance would be £3,600 (which is the max amount someone can put in even if they have no income).
There are also tax free lump sum recycling rules that prevent people from using tax free cash to make larger pension contributions. www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/pensions-recycling
Hi James, another awesome video, The examples in this one describe my situation almost exactly (now 55, 500k (ish) pension pot, looking to retire in a few years time). Thankfully, due to your previous videos I became aware of the bad mistakes before I made any of them. I'm on the verge of paying money from my ISA into my pension. I'm planning to access the unused "carry forward" from previous years before I lose it. Obviously this needs some thought as money in an ISA is income tax free, whereas money in a pension isn't, but your comment on people dropping a tax bracket upon retirement is spot on. Many (most) people will not have an income over £50k in retirement. Something you didn't mention, is Inheritance Tax. Money in a Pension is exempt from Inheritance Tax and so if that is a consideration, then keeping money in a pension pot, rather than in say a buy to let property or an ISA, might be an important consideration. One final thing that recently dawned on me. It's a "mistake" my father made that I now wont, and is a different spin on your client who suddenly found that they could only pay £4k/year into their pension. Once I (or anyone reading this), does retire and starts drawing on their pension, they CAN still pay 4k into a pension and get tax relief on it. So if I/they are surviving on state pension, Rental income, DB pension and ISA savings, they can put still £4k into their pension and get 25% immediate growth from tax rebate (up to the age of 75).
Some very good point. Although pension growth is free of income tax just like an ISA. You you pay income tax on the way out but that should be more then offset by tax relief on the way in and TFC.
@@JamesShack Ah I see how you arrived at this. I earn £180k per year and invest the full £40k into my pension each year to reduce the amount of tax I pay. But I only get 45% relief as this (60%) then will not apply to me sadly. I have to be careful because I will be clobbered by the lifetime allowance soon so will stop investing in my pension when the time comes. Would be great to see a video from you on this if you haven't done one already because this is not easy when to time this correctly.
@@sl0w_racer ruclips.net/video/hqfsfpK8WZU/видео.html One strategy is to make no pension contributions one year and then the following year make £80k meaning you get more than 45% relief. More like 50%. It makes cash flow a little trickier but that would be the most tax efficient strategy.
My wife had a DB pension and the transfer value was equivalent to 29 years of payments (excluding RPI). We cashed it out in 2016 and it's now some 30% higher. I can't believe there are many circumstances where taking a DB pension is better than converting to a SIPP and doing Flexi drawdown.
@@ryanyoungson6762 yep, if your DB pension is greater than £50k then you are likely to hit LTA issues either way. If your DB pension is less than 30k pa, I can't think of any scenario where it is more beneficial to draw the pension instead of converting to a SIPP. Of course, if you are not comfortable with investing, then you should absolutely draw the DB
I'm trying to plan out the 40% tax relief on my own contributions and can't quite get my head around how to factor this in. In the example in this video 50k of ISA contributions become 83k in the pension, so should I just be multiply my own contribution by a factor of 1.66? I.e. if my contributions are £2400 in a private SIPP (not through employer) for the year, does this then become £3840 after the 40% relief is applied?
Its not that straightforward AFAICR because only 20% gets added automatically and the govt gives you the extra 20% back via your tax code not into your pension. What happens is that you will get 20% added by the pension co so your 2400 becomes 3000 in your pension in your example. (because 20% of 3k is £600 so you need to mukltiply amount you put in pension by 1.25 not 1.2 to see what gets added) You then, again AFAICR as its a few years since i did this, claim you paid 3000 in and govt gives you £600 back. So its better to pay in £3k which becomes 3750 after 20% tax added on then you claim you paid 3750 (not 3000, you claim the gross not net) and govt gives you 750 back, so total cost to you £2750. I think thats roughly how it goes my numbers may be slightly off and your pension co can hopefully advise. BUt the main thing to understand is the pension co only adds 20% and so to get the full 40% in your have to pay more in and then you'll get that 'more' back via tax. You may find worked example online in your pension co or via google i suppose.
As Joe says. If you pay into a SIPP your get 20% tax relief from which goes into the pension and the additional relief you claim back via a self assessment tax return. If you’re a 40% tax paying wanting to put £40k into your pension. You actually put £32k in, that gets grossed up to £40k (20% relief) and then you get an additional £8k as cash when you do your tax return. It’s much easier to just salary sacrifice into the pension, if your employer uses a scheme like that.
@@JamesShack Thanks. So working the other way, if I'm know I'm putting £2,400 does that just mean I get £600 from the initial 20% relief and then a further 20% for the higher payer relief. In simple terms, does my initial payment grow 50% from £2,400 to £3,600 after all relief is applied?
Love your videos and know your audience will be mainly DC Pensions but think you could do one with a mix of DB. E.g One of the common DB Pension decisions is when to take it, retire early and take the DB reduced or leave it deferred. Your DB index linked could be say 15k at 55, 20k at 60 or 25k at 65. I would like to see a video of how much DC pension you should build up outside of the DB Pension to either bridge the gap to taking your deferred DB or simply take it early and have it payment longer. So if you wanted an income of say 30k, 35k or 40k how much would you need in the SIPP or AVC to bridge the gap. Thanks again for your videos.
Thank you for the ideas. DB pension are much more nuanced than DC pension and often have unique features. But i'll try and use some examples that tie some of these questions into it.
@@JamesShack Completely understand and know it's difficult to please everyone. I guess the question really is when you can retire if you have an element of fixed income in your portfolio. Your videos have got me thinking differently about planning for the future so thank you.
James - I understand that you can only put £4k into your Defined Contribution pension once you start to draw on it. An alternative if to cycle the money into 'your' wife's pension? My big question though is supposing you have 50% of Pension in Defined Benefit and 50% in Defined Contribution and you first started taking money from Defined Benefit - could you then cycle that money into you Defined Contribution >£4k. I read further down the questions and see Pape asked the same question.....
Great content thank you. Although I always have to watch you on 0.75% (drunk setting) playback because you're too fast :P Creative brains are terrible with numbers.
Hi James, great video! With your example, if capital growth was taken into account, wouldn't property be a much better investment as he/she could then release the initial deposit (tax free) through equity release say 5-10 years down the line (property tends to double every 10 or so years)? Thus have none of their own money eventually left in the property, whilst also generating cash flow. Plus if it was set up through a limited company it would be more tax efficient to maximise returns.
Yes, but a REIT would also be expected to increase in value and it would be tax free within the pension. Unlike the BTL that may attract 28% CGT. Holding property in a company can be more tax efficient but you need 4-5 properties minimum to make it more effective because you have higher interest rates and more accountancy setup costs and ongoing admin. If you were that desperate to invest in direct property you could just do it within in SIPP. Although only with commercial property.
Hi James, great video! I have a question regarding higher rate tax payers and if I should increase my pension contributions past my employer match or if it's best to put spare income in a stocks and shares ISA. I'm in my mid thirties if that matters.
Hey Liam, if it were me it really would depend on what income tax band I was in, if you are a 40% tax payer then salary sacrifice would be my choice and you save both income tax and NI. If you are not a higher rate tax payer then I'd opt for S&S ISA. Hope that helps!
LISA is not just for first time buyers. S&S LISA is the way to go for your first £4k as it’s free money, unless you plan on needing the money before you are allowed to use it.
Problem in America if you pay taxes all your life and if u make over a thousand a year government wont help you. If you are illegal they will give u all the help you need that is sad
Whete this falls down is where pensions are losing money as a direct result of what the regime in power is doing. We saw this with the Westninster regimes action in 2022 abd it will ve amazing of this wealth transfer doesn't occur again in 2023 and beyond. That's not even taking into account inflation which is running st 25% abd not the single digit fantasy the Westninster regime is spinning This advice would be gold if we lived under a legal, democratically accountable politucal system. That's all gone.
Hi James great video. I have made the mistake and triggered the MPAA reducing my annual pension payments to 4k . What would you recommend for someone who has made this mistake who is 57 and still working ?
Will work pay the cash directly to you rather than putting it into a pension? I'm not saying that's necessarily the right thing but it's often an option for people who have a restricted pension allowance.
Contributing to a Defined Benefit scheme is not affected by MPAA, if you're aware of any employers in your industry offering final/average salary pensions? Other than that, maximise ISA contributions.
I made mistake No:1 at 55 I took £30k out and paid 25% tax. I used the money as a deposit for a BTL. I'm still working and 61 now and a higher rate taxpayer (now inside IR35 ) In December 2021 I started contributing again and I asked my IFA to instruct the umbrella company to pay £1,000/month into my pension, to get the £4K However in April 2022 they didn't adjust the monthly payments and carried on at £1,000/month, meaning I've now paid in £4,800 over the £4,000 MPAA allowance Gulp! I guess I'll be hit for 40% tax on that But I think I'd have paid 40% as Income Tax instead so I'm probably even The BTL has increased in value by £50k and the tenant has paid me £36k, so swings and roundabouts
Hi James. Good video. I’m 55 and now drawing down from sipp what I think is sustainable. Coupled with isa dividends and rental income I may even have some spare cash. Would you put that back into an isa or a sipp (up to 4k). I was thinking sipp May be better to reduce income tax bill?
@@JamesShack I understand your point. I guess it's nice to have a bit of excess so that you don't budget to the wire and feel you can't do xyz that month. Especially with this inflation. But yes maybe I'll give it a year and see exactly where I am. Enjoy your channel. I worked in financial services for many years and you give good sound information and reflections.
Thanks James for another factual video. I understand defined contributions are mostly common and as you say, your mainstay pension. How does this sit if you already have final salary pensions and CARE pensions? would you still have that type of pension or just increase the contributions to a workplace one?
Yes you can have a DC pension too. You just need to be careful not to contribute more than £40k to pensions in a year, and not go over the Lifetime Allowance.
Great video! I have a question slightly more related to your previous video. Does using salary sacrifice into a pension affect the personal savings allowance? If you are a higher tax payer and sacrifice enough to lower your tax band, would that mean that you would also get the £1000 savings allowance instead of £500? Thanks
I had the same question. The answer is yes. This was also confirmed by James when I asked under different video. When you contribute to your pension you are efectively reducing your income by the amount of contributions you have made in a given year. That then can put you back into basic rate tax payer brackets. Say you've earned £54000 a year. But you've also contributed £5000 the same year into your pension. Efectivelly your taxable income is then £55000-£5000=£49000. So assuming you are based in England, you will not be higher rate tax payer in that year. Your income will be $49000 and higher rate tax band starts slightly above £50000. This then leads to having alowance of £1000 tax free interest savings alowance in that given year. After all you become basic rate tax payer in this example. Someone please correct me if I got anything wrong here.
hot diggidi i love watching your videos,very easy to understand and digest and i enjoy the very well put together and well thought out presentation.keep it up James.
Thanks for the video. Apologies if this has been asked already. Point #2, this sounds good but I am concerned about the pre-planning recycling rules. Can you explain when this would/would not apply please?
This would not fall four of that. They typically come into consideration when trying to use csh from other pension to fund a pension and when taking out a loan to make contributions.
Hi James.....if you're a higher rate tax payer and need to claim the extra tax relief on pension contributions, does it have to be done by HMRC adjusting the following years tax code, or can they just pay it out so you can pump the cash back into your pension? Really frustrating that it can't be done monthly like the 20% relief.
The best solution is to make pension contributions through salary sacrifice so you don't have to bother with a self assessment tax return. You'd need to check with an accountant, but I believe that you can request a cash refund rather than have it adjusted through your tax code.
I'm in exactly this situation and have been for the past 6 or 7 years. I fire a letter off to the PAYE tax office every year, around June, laying out my personal gross Sipp contributions for the previous FY and requesting the higher rate relief. Every year, around October, the refund appears on my personal tax account for me to claim. I've never done a tax return yet:).
It takes around 20 minutes to fill in a self assessment form online and any tax refund due can be paid directly into your bank account. You normally receive any refund after 2 or 3 weeks. I've always found it to be a straightforward process.
Hey James, I have watched some of your retirement videos and feel like it often focusses on people close to their retirement . I’m 28 and want to know what I can do at a younger age to maximize my pension growth. I currently have £120k in my SIPP of which 90% are in foreign equities high risk as I have a long time till retirement. I’m a high rate tax payer and currently pay 21% towards my pension 7% + 14% company contribution. I also have a LISA that I plan on using for retirement in which I put £4000 a year, and put the remaining £16.000 in an ISA. However I still have spare cash to invest, should I contribute more towards my pension through salary sacrifice? Also how worried should I be about the Pension Cap as my projection is well above this at an age of 65 does this change everything? Thanks
If you think you're going to hit the LTA at somepoint, then your goal is to make sure you get the highest possible levels of tax relief going into the pension. As an example, if you earn £180k per year, you could be making £40k pension conts per year and getting 45% tax relief on that. Alternatively, you could not make any contributions one year and then next year make £80k bringing your taxable income down to £100k whilst also reclaiming your personal income tax allowance, which would equate to ~50% tax relief. This is serious min max planning. The thing you need to be mindful of however is that if, in the future, you earn over £200k then your pension allowance gets tapered eventually down to just £4k, so you may want to get as much into your pension whilst you are still earning less than this.
Hi there. Love watching your videos. I'm currently in full time employment and planning to retire in 3 years time. I am currently drawing a final salary pension from a previous job of £425pm net. Am I allowed to increase my contributions to my current works pension by £500 for the next 3 years? If so would that be a good idea?
Hi James, love your content as always... I am 56 and still working, running own business. I will be for at least another 5 years. I have 2 pensions, one a standard IFA type product, and a SIPP. The SIPP is only about 5 years old and is underperforming at a 5% loss. We want to do some home improvements in the next 6 months. It doesn't make sense to take anything from the SIPP. If I take a tax free sum am I limited to take 25% max from each, or could I take the equivalent of 25% total of the combined pension values from one pension only? I e. Is it 25% per policy, or 25 % of the totals combined. If I took 25% tax free from one now-ish, could I come back later and take 25% of the other tax free also? Am I right that the limit on contributions only comes into play when you go over the tax free sum?... As long as you're below or equal, you can still pay in as much as you like up to the lifetime allowance? If I take money from my ISA and put into my pension how do I physically claim the tax rebate, or is it automatic? (all my contributions so far are in company only) Many thanks in advance.
Are any of the pensions worth less than £30k? If you run a business, it may be more tax efficient to make pension contributions from your business which avoids dividend taxes and you can offset it against corporation tax. This may result in you taking less cash out of the business for personal use so you just spend your ISAs. The end result is the same. Alternatively, you make the contribution to the pension from personal cash. You get 20% tax relief added in, then you claim the additional tax back on your self assessment tax return. If you're looking for someone to help you with this stuff and plan for retirement ,feel free to book a call with me, there's a link in the description.
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Some other retirement focused videos for you:
How to sort out your pensions - ruclips.net/video/psH0JTS6PsI/видео.html
Maximising retirement income - ruclips.net/video/yXl-zVTZxr8/видео.html
How I create passive income for my clients - ruclips.net/video/sRjkmxFvlZQ/видео.html
My strongest advice for retirement is not financial. It is to make sure you have interests, stuff you want to learn but haven’t had time to so far, and lots to do that is stimulating. Make a bucket list. Challenge yourself. The worst thing is to retire and be bored - I know a couple of people who’ve done that, and they haven’t survived long.
I agree, often those interests turn into things that can make you money too.
I agree, great advice , I'm retiring in a few years, will be moving somewhere, I can have a more outdoor lifestyle, will be binning my TV, just gonna keep a decent phone , just occasionally watch some stuff on that, been getting ready for years buying extra clothes, bikes, gym stuff, while I'm earning so I won't need to buy , when I'm retired.
James, i stumbled across your channel a few days ago.... and have binge watched the lot! (and gone back over a few more than a handful of times!) Absolutely brilliant! i can honestly say i have completely changed my retirement direction of travel! I'm 52, have a tiny pension but earn a 6 figure salary of which until now, i have enjoyed spending with retirement not even considered. Handbrake applied! I'm now reorganising my life to invest the maximum allowable and using my allowance for the past couple of years to hit the max! This should be compulsory viewing!
Thanks Steve! I’m glad you feel you’re now taking control, plenty of time left!
If you have a tiny pension but have a six figure (!) salary then you're a fool. Sorry, but that's what you are. Instead of splashing out on a new Tesla, those six star holidays in the Maldives or that brick extension to your house, get saving!!! And get saving now before it's too late.
@@tancreddehauteville764 Let’s have some more positivity please Tancred! We all drop the ball at times,
@@JamesShack LOL!!
The one thing that keeps coming to my mind about retirement and thatis I should be spending a good proportion of the 'fun money' while I am relatively young, say under 75. My poor old dad is pushing on 80 and he is a shell of his former self. Its so sad to see. I bloody hope I have had a really good time, I have given most of what is left to my daughter and any kids I may have in the future and when it is my time, I go quickly and not as I started my life (wearing a nappy and dribbling on my self).
Unfortunately no one can truly predict what the future holds.
Yep. I'm currently visiting scuba diving spots because i reckon i might be packing that in in a few years so get those destinations in while i am fit. Told the kids i've gone SKIing.
@@Joe-lb8qn SKIing as in Spending Kids Inheritance? 😂😂
@@jonathanhowson6420 indeed 👍
@@Joe-lb8qn good man. Teach them how to make and invest money, rather than expecting money from you. We save our babies child allowance in her mothers lifetime Isa, and will put it in syocks and shares until she is sensible enough to have it for something worth while. When she is old enough I am going to give her £100 a month pocket money, but then include tax, bills etc on that, so she hopefully has some understanding of how money works.
Wow!... Im 60 this year and I'm thinking of taking my pension. I don't understand a word of this ! - although you articulate the points very well.....I don't have a blind clue what to do ! - Maybe I should make an appointment with a financial advisor !
Same here
Another great video James! Energy crisis starting to bite from 7:58 - 8:06? 🤣 🔦💡
How the hell did I miss that!
At 66 I put 330000 into Royal London 3 years later after several worrying years it is worth 332000 so no generation of wealth during the 3 years I took nothing from the fund unlike the advisor or Royal London
You’re not alone. Over the last three years the markets have been down.
Another good video, thank you. Two points:
You mentioned that most pension schemes migrate deposits into lower risk investments as the member approaches retirement age but you didn't explain why, since on average, those investors will have at least 20-30 years future life expectancy. I believe that this is because the majority will take that pension pot and purchase an annuity, so if that is their intention, the investment strategy should be sound. Of course, these people are not your target audience, so an explanation of how pensioners have different options, or could, of course, use a mixture (annuity + drawdown) if that suits their personal circumstances would be very helpful. Leading on from that, guidance on how to choose an annuity, rather than relying on that provided by their current scheme could also be helpful for many people.
When I retired earlier this year, I had a plan to move some of my DB pensions into a SIPP and then use Flexi-access drawdown but the major changes in annuity rates and consequently reduced transfer values has thrown that strategy into disarray.
A video about annuities and what influences annuity rates would have been very valuable to me. Sadly, I only recognised the link between annuity rates and interest rates too late. Yes, I can revert to the DB pension benefits but I'll need to consume more DC investments in the meantime until my DB benefits are available and my descendents will then have reduced benefits if I die early.
I am 68 next month! I have two small (miniscule, in reality) pensions that I have not yet accessed. Both funds have shrunk over the last couple of years! Pensions are not the secure place for money that they used to be
That depends how they're invested. Although almost everyone has lost money over the last year.
Great advice nicely explained James 👏
Why would anyone want to be a landlord...far too much stress and constant problems.
No stress or problems when there's such high demand and mortgage is getting paid off with the rent with money being left over. Plenty of incentive to be a landlord
@@mazharulBetter to do that than put it into a pension that will be worthless because of inflation. Also you can't leave you pension to your family, I've your wife/husband only get half of it. That's terrible
Hi Keith, as per this example, you can invest your pension in property or stocks which are both long term inflation hedges.
Not only that but of you die before 75 your spouse or kids can inherit a DC pension as a tax free lump sum. After 75 and they inherit the pension but have to pay income tax on it. It's much more effective on death than property that might attract IHT.
@@mazharul Until you get a nightmare tenant who doesn't pay their rent and destroys your property....plus you can't kick them out because they have more rights that you do...no thanks !
@@welshhibby I'm guessing they would need to be vetted as I had to show bank statements show them I'm working etc when I was renting. If your desperate to rent it to any riff raff then rent it out to the local council as they need more properties and they then will be responsible in paying the rent and maintaining the property. Nightmare tenants can be avoided if you vet them correctly
I love these real life scenarios! So much food for thought.
I'm glad you find them useful!
What are you thoughts on Medical retirement? If say, you're 37 and have a 50% chance in the next 7 years you can't work, would you be paying as much as you can into your pension? And do you still get entitled to the 25% tax relief when you do medically retire? Odd question I know. It might be an interesting video to talk about it. Thanks for all your advice on your channel, you're very genuine and passionate and I think that resonates with alot of us!
Thanks for the comment, I've not actually dealt with any early medical retirement cases.
It seems like the rules are dependent on each pension scheme.
www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/early-retirement-because-of-illness-sickness-or-disability
@@JamesShack Thanks James
You may have already covered this, in which case, please just point me to that video, but if I have a pension fund but *do* *not* plan on taking ANY out as a "tax free" lump sum. I want the max "regular" income I can when I retire, so I don't want to reduce my total pension fund by 25% by taking that 25% lump sum out of it. What are the tax implications (good or bad) vs a (say 4%) annual drawdown, or even an annuity? Thank you.
Great video really helpful and relevant, thanks for posting!
I made some mistakes…being born at the end of the boomers, so the UK government reforms on pensions hit, and rules were hideous, but before protections were brought in and before the AVC scandals were found out. Born just two years earlier, my older brother caught the final offerings of decent pensions, and employment contracts. Every contract I got, was either minus a pension, or the company simply wrote in a clause that said a) the pension payment is mandatory and b) if I leave before 2 years for any reason I forfeit the payments to the employer. Yes, that’s right, you MUST pay, and if they sack you after 23 months, they are keeping those payments, and any profit that the investment of them made. Then?
Well, I went to another company, one that contracted-out. I had no clue, we voted for something in 1987 or 1988 I had no idea the implications of, but was sold as a jolly good idea in a talk given at the workplace. I ended up with what? Dunno. Then?
Well, a private pension, paid it through thick and thin. Only to go to a public sector employer, and once I transferred my private pension in, found it was a whole £200 - because the commission to the pension sales person is the first thing that gets paid.
And that’s the only pension I have. I asked while at the public sector employer, if I could double the amount of money I put in, and they said no. But, there was an AVC thing, that I could get into…I didn’t but others did and lost most of their AVC money as some scam hit years later.
In short, even somebody actively seeking to add more money, and willing to forego some or even ALL the employer’s contribution on that extra part, has been able to end up with a pretty poor pension arrangement. The inflexibility of the input side, of the only decent pension fund I ever got access to, blocked me making-good on my shortfall of pension.
It’s been a financial minefield, and it’s only after failures have happened, and with no choice to avert losses made, that you even know there are mines laid, let alone where they were. Because, at every turn, a financial expert has implicitly been setting up the system, to presumably give you a reliable, open and honest way of building your pension pot, is the picture projected. The reality, is an inflexible inputting of funds, no recognition of people with shortfalls needing to do more getting the chance to do so, and scams galore as we go through the minefield. No, on a modest income, you need to maximise your pension pot ingoings, and the system blocks that.
I bought properties, to let them out, and financial pressures built so I had to let them go. Pensions, even good ones, have very little control or protection and that was mainly a function of my time of birth. It was vital I was allowed to put more money into a pension when I had it - and that was blocked by my employer, who gave no reason. I offered to pay without them making a further contribution, but this made it complicated for them, their system (Information Technology for payroll I assume, not financial rules) could not handle this. True, or not true, I was blocked. Take care all.
Great video James. Might be obvious, but its helped me realise that I'm better off transferring some of my stock and shares ISA into my pension via salary sacrifice to reduce my tax liability.
Now just need someone to help me with my poor performing pension.. the Aviva default fund hasn't impressed me..
Default funds in workplace pensions are generally terrible. That was one of the first things I changed. I now invest in my own chosen funds.
Hi James, great video and so easy to follow / understand. I'm 59 and now planning my retirement. However, I have trust issues and am concerned that people generally are only concerned in 'hooking'into my pot for their own income than giving me the right advice that will see growth that will more than cover the cost of the advice. So I'm somewhat in limbo. I have a private pension which lost 18K last year alone (thanks Liz)! I'd like to retire at 61 in 2 years time. Do I leave the private pension and see what happens - with the risk of me losing more money from the pot, or do I withdraw it and have it in the bank and draw down as I need it? I also have circa 15 years in a Local Government company pension scheme and about 7 years with a another index-linked company pension scheme. Where do I go for advice. Any assistance / advice will be greatly appreciated.
Nice video James, thank you 👍
My personal view is to draw out the 25% tax free lump sum, live on that for as long as you can, and then buy an annuity with the remainder of the pot. Current annuity rates are much improved and nothing beats the peace of mind of getting a guaranteed income.
With BTL it's also worth factoring in house price growth, and the fact that you benefit from the growth of the entire house value not just the 25% you had to put down as a deposit. For every 10k of growth, you're able to take 7.5k (75%) out as cash when you come to remortgage (assuming rental figures meet lender requirements). So, if you get 50k of growth over 2 years, when it comes to remortgaging, you may be able to take 37.5k as cash and you could use that on further investments... Or any way you please.
This is true, however I decided not to consider this as REITs will also increase in value whilst also benefiting from leverage. You also have the added benefit that REITs within a SIPP are CGT exempt.
Great work James, about to have my first child, would love a video or any advise on junior ISA's or savings accounts?
A video on lifetime allowance would be appreciated. Especially effect of growth post retirement.
Here you go. ruclips.net/video/hqfsfpK8WZU/видео.html
Last thing i wanted to do when i retired was get another job, which is what being a LL entails. There's nothing passive about being a landlord far from it . I dabbled in it whilst working because relatives needed accom and also let the place out short term to people i knew in between moves and the like. Still a lot of hassle it was a relief to sell it.
Some people love it, some people hate it!
I don’t blame anyone having second thoughts about being a landlord these days, yes tenants need protection but so do landlords from bad tenants who wreck the property prior to eviction.
It's funny how many people only look at their investment journey up to the point of retiring. Most people forget that they make the biggest returns on their investment once they retire due to the compounding effect - our investments don't stop working just because we do.
Humans have evolved to prioritise thinking about the next few days and weeks. Our brains are not built to plan for an 80+ year lifespan.
This is another great video James. I'm starting to be pretty clued up on this topic and I've learnt two brand new things that just never occurred to me.. (1) Recycling money from the ISA to the SIPP to get that extra tax relief (2) Never thought of just saving cash into the SIPP and leaving it as cash for short term usage.
I'm thankful content like this is available and free 🙂
I'm glad you're learning from it!
Great video James. On thing though - you talk about the 40% or 45% tax relief as if it goes directly into your pension, which is true if you use salary sacrifice, however if you make separate contributions you would only get 20% relief added in your pension from the DC pension provider automatically, while the rest is paid to you in cash from HMRC after claiming on your self assessment. How do you actually get the extra 20-25% into your pension without and endless cycle of paying and claiming?
It’s a bit clunky unfortunately. But let’s say you wanted to put £40k into your pension this year, the maximum. You put in £32k and get the 20% relief up to £40k. A few months later (whenever you do your tax return) you get cash back for the extra relief. So essentially you’re just short of cash for a few months, but the full £40 gets in there. If you don’t have extra cash lying around to do the £32k then it’s a bit annoying. Salary sacrifice is preferable.
I am building a pension and a S&S Isa . I like the idea of using my ISA to subsidise my income as I reduce my Woking hours into my later 50’s and early 60’s.. I wont take any of my pension until I retire fully at 65.
I was under the impression that landlords were able to write off their mortgages as an expense several years ago, but now can only write off interest. Please could you clarify this might? Maybe I have misunderstood what was siad in the video. Cheers
How does the 40% tax relief work? Say someone earns £52k, does only £2k pension contribution get 40% tax relief and any additional is 20% tax relief? Or will an unlimited amount be 40% tax relief?
An eye opener definitely James. You only mentioned drawing from defined contribution schemes. Do defined benefit schemes incur the same £4000 limit on future payments?
No they don’t.
@@JamesShack many thanks James. I was really hoping you would say that!
I'm 53 have a pension and property (with almost no mortgage) This is a real eye opener. The Key is for me is leave my pension untouched as long as possible. I contribute around 20K a year to it.
Great Video James.
You’re welcome!
Hi, James - This is very interesting. How would this change if the man in your example does not use a mortgage, but instead uses cash that he can not place in his pension fund (this is my situation - I sold a house, moved to a less expensive country, and want to purchase 2 buy to let properties in the UK that will earn a guaranteed 6% after paying the property managers who also cover any repairs. My income from those buy to let's will not be under 10k per year, and will be my only UK sourced income - so I won't owe UK taxes on that money earned. I feel like this is a wise use of my funds to bring in some passive income during my retirement with an investment that will keep or go up in value over time. Does my plan seem more sound since I won't have a mortgage?
BTL in the UK is not passive, even with a property manager.
There is so much info here. I can't thank you enough James. To an immigrant like me this is immensely helpful. Rewatching almost all your videos to make sure I don't miss anything. Thank you again.
I''m glad you've found them useful!
I have a workplace pension with Scottish Widows and informed them that I wish to take early retirement when I am 55, next year. SW immediately moved ~20% of my pension into bonds and ~20% into some “low risk” fund. They also informed me that as I got closer to 55 they would continue to reallocate funds to bonds and lower risk funds. I wasn’t happy with this and informed them to stop. I have since reallocated a chunk back into shares. How do SW expect my pension to grow and sustain me in retirement if the majority is in bonds / cash / low risk funds?
That may be because you were invested in a fund like the Aviva one we looked at in the video. If you bring forward your retirement day it will jump your asset allocation forward to be a lower risk level. They're not assessing whether it's suitable for you.
Gulp. That sounds horrific! I bet there's some transactions fees floating around too which come out of you pot also.
I suppose one option would be to tell them you changed your mind and get them to re-allocate back to what it was. Then in a year, when you stop working, transfer the whole lot into a sipp and manage it yourself.
@@ChrisShawUK Yes, I’m seriously thinking of transferring into a SIPP, maybe with Hargreaves Lansdown (who I already have an account with). The customer services at SW is terrible if you try to talk to someone! 😞
@@stevegeek one think I've never been sure about ... Can you transfer part of your workplace pension to a SIPP whilst still working? So you can receive your contributions into the work place fund, but then transfer as soon as practical into a fund that you control directly?
I always waited until I left employment before transferring, but it occurs to me that maybe I didn't need to?
@@ChrisShawUK Good question! Apparently it is possible. “If you are thinking of transferring out of your existing workplace scheme first check with your employer if they would contribute to your Sipp. If this is not an option and consolidating your pension funds remains an appropriate course of action, it may be possible to transfer all or most of the funds out of a workplace pension while leaving the plan open - a partial transfer”. It seems like a lot of hassle though, so I’ll probably wait til I retire…not too long hopefully.
I have a civil service db pension, which although I don't really want to stay there my whole career, if I did assume I do stay and keep the same salary (adjusting for inflation), I'd have a VERY comfortable retirement. Not considering career progression.
I'm currently 25 I should mention. I'm also investing in my ISAs as, well my expen🎉are low living at home, and it can't hurt. Maybe FIRE one day?
So basically I've been considering staying fully in equities, (ignoring a cash buffer), in retirement, especially once the db pension kicks in. Of course life will change a lot by then so who knows.
Hi James - great content - like many others I've recently started taking some interest in my pension due to redundancy. I've got my pension in a Vanguard SIPP now. I also have a UK Armed Forces pension but haven't come across any financial channels mentioning Armed Forces pensions. I'm presuming I should leave it well alone but it would be good to know why that is. Would you be able to comment?
Is £550k what is really required to retire? I believe I'm not going to have anything like I need to retire and can't afford to retire.
No it’s not. Watch the video I like too at the end.
Was the first person, banking on a rising market, so when the house is sold he collects the increase in the price?
That is true although you'll also be taxed on the gain, potentially at 28%. A REIT would also be expected to rise in value but again that would be tax free within a pension.
If someone took their eye off the ball on one of their pensions and didn't spot it had moved 40% from stocks to bonds, and bonds had gone down, quite a lot, should they actively switch the money invested into bonds back into stocks? Or not? I know you can predict the future. But I think many might be in this position. And it would be a great future topic to talk about what might economic event(s) would reverse the recent fall in bond prices. So not saying how likely it is, but the mechanism (if there is one) that would restore bond prices. (I guess it is essentially confidence in the UK government/economy?) Or once the bond have fallen to their current levels, can they not increase?
Hi Mark, at that start of this comment you state "I know you can't predict the future" and at the end you're asking for content that might give you insight into what might happen in the future.
The honest answer is that no one knows, and you'll tie yourself in knots trying to guess. You need to focus on what you can control, like making sure you have an asset allocation that is going to set you up for success over the next 20 years, rather than the next 6 months.
@@JamesShack yes I was trying to avoid asking for crystal balls or advice. And ended up tying myself in knots! 😬 thx for the reply tho.
james im looking to find information about state pension....if you have all these savings/investments do they penalise the amount of state pension you recieve...great video by the way
No it doesn’t affect state pension.
You’re very switched on. I do think though that you missed something with the first example of the guy who took cash from his pension. His yield may have been lower with the property right now, however, as this guy was 55, based on property value growth by the time he is 65 I would suggest his property could almost double in value.
Then his rents will increase significantly and his yield will smash what he got from the pension.
Thanks for the comments Ross. This was a mortgage on his own home so there's not rents involved.
In both scenarios he ends up owning the property outright.
I wonder how you retire early then say at age 55... i'm 40 now but if the government keeps putting the date up to when you can access your own pension then surely no one is going to retire earlier than 60 within the next 10-15 years. Or have a got this wrong?
You'd need to build up other assets like ISAs. And, as per this example, you can then use them to fund pensions later in life if you realise you do want to work longer.
James, some good information here as always. Could you share which app you got the backtracking data shown at time stamp 13:10? Many thanks
It's called Timeline app.
@@JamesShack this appears to be accessible only by financial advisors "Timeline is limited to financial advisors only." Is there any alternative that could be used by ordinary investors?
Hi James, if you carry forward you Annual Allowance, can you claim back tax paid from those previous tax years? Or do pension contributions only get deducted off the current tax year?
Current year.
So, I find myself having had to retire early At 55 - due to ill health. Therefore I am currently drawing my pension, which was a small final salary one - so that’s okay, but are you telling me in theory I could or even I should put away £4000 a year that I am getting from other sources into a pension and get the extra tax relief And draw it down in my 60s and 70
If you're not earning anything, the maximum you can put into a pension is £3,600 per year including tax relief. You could put money into a DC pension, but i can't say whether that is the right thing for you to do.
Great video! May I ask what calculator you are using for getting the percentage success of a portfolio?
Timeline
Sound advice....provided you are in the higher bands of income! Not a lot going on for those that have to continue working after they qualify for State Pension. If you are a basic rate tax payer, then pensions are limited in their power and benefits
Hi James good video. I’m currently drawing 5% per annum on my pension aged 61 but at 67 I can reduce this to 3% as I will be eligible for the state pension. I’m assuming that pensions grow in line with inflation which it’s has done previously, although there’s a gap at the moment - hopefully a blip! Any reason you haven’t taken the SP into account?
I have two pensions. Can I take one pension at 55 (finaly salary ) and then continue putting contributions into my second pension (Nest-defined contribution) without being capped at £4000 contributions a year for my Nest Pension? the plan would be to load up my NEST pension claiming 40% rax rebate and crystalise the Nest pension at 60?
Does the MPAA apply to each pension fund separately or does it apply to all pensions once one pension is crystalised? Hope that makes sense
I had that same scenario - hope James gets to see the question. I have done quite a bit of searching over the last year and still remains unanswered for me too.
Oh that is a really great question!
@@markukblackmore Hi Papi. The MPAA applies across all DC pension, but it does not affect DB pensions so you could still contribute to a DB pension.
It is possible to use the TFC and income from a DB pension to contribute to a DC pension. However there are some fairly particular pension recycling rules you need to avoid to make sure it's not an unauthorised contribution.
Have a read of this:
www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/pensions-recycling
@@JamesShack Thank you my friend - thats very hepful . Great videos , keep up the good work . A possible future video on recyclying DB pensions into DC pensions would be awesome ....
@@JamesShack I'd love to see more on this subject.
I'm a regular viewer, and I asked on PensionCraft, but I don't think I asked you.
I wondered if I could collect my DB at 55, and turbocharged my DC contributions by 10k, for 5 years.
Obviously, my DB level drops by taking it before 60, but it would be worth knowing if I could, and whether it would make sense to do.
you mention you can funnel back in - and I think thats ok as long as its only the tax free part - doesn’t trigger MPAA. As you can access from 55/58 when many will still be working (and maybe in HR/ART band) is it even worth considering doing a second round to get additional tax relief? if you took 60k and topped up to 100k, then the 25k tax free and paid that in, you’d get about an extra 10k in tax relief second time around. but of the 35k you then pay in you’d have 110k in total (from 60k contribution so not bad) but only have 8.5k ‘tax free’. which may be more risky from a tax implications pov on withdrawal? Is it a usable tactic or do you recommend not doing so?
Should I cash in my pension or sell my buy to let to finance 100k house extension . My financial adviser said cash in pension but I'm concerned as he is v vague
Way it is in england. My pension is tied to the state pension age which is currently 68 but will soon be 70 yrs old im sure. I will basically have to work till im nearly dead and have a few shit years of poor health before i am actually dead. I don't want to be living past 75 anyway, old age is nasty.
Does the MPAA apply to a Director’s Pension? I employ myself via limited company and my wife and I have our pension contributions made from the business.
Hi James. Thanks for your videos, they are useful and clear. A lot of your audience will have a mortgage free property. Have you done any videos on the reverse mortgage type products or plan to do one? It's a growing market so I think it will be of interest. Of the people I've spoken to, most don't understand them or trust them, but the market is improving as the providers increase.
Do you mean Lifetime mortgages or equity release?
@@JamesShack i guess both are types of equity release but any product that allows access to a lump sum or income from your property. Seems lifetime mortgages are the most popular. Most people seem skeptical which is surprising given its a huge asset to make use of
Your Client should have got himself a holiday home and run serviced accommodation… way more tax efficient than BTL…you didn’t factor in long term capital growth either.
Agree that taking out more than 25% to finance was a big mistake.
Indeed, a holiday let would be more efficient. I didn't assess capital appreciation because a REIT can increase in value too whilst also being CGT free whilst inside the pension.
You can use your pension to buy commercial property and keep that 10% roi, 7 years doubled pension.
Yes you can. Although it could make you a little over exposed to UK property.
True, however I doubt it drop 10% year on year.
Plus you don’t pay stamp duty
I’ve just had a thought can you take your tax free allowance @ 55 then reinvest that back into your pension if you regret it & still receive tax allowance on that reinvestment. I’m going to guess if the tax free sum was £20k then you’ll pay tax on everything added for the next £20k.
Unfortunately, like most ‘Aha!” moment’s with tax HMRC has already blocked this.
adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/recycling-of-tax-free-cash/
@@JamesShack Thanks 🙂 oh well! Can’t say I’m surprised.
I pay maximum contributions and draw maximum tax free cash and spend it on holidays I don’t want to be the richest guy in the graveyard just the poorest
You need to be careful with that.
If you're pension contributions are artificially high because you're taking tax free cash to live on then you may fall foul of pension recycling rules. Which could result in very large tax charges.
www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/pensions-recycling
I think it's a good idea to leave your money in your pension as much as possible . My strategy has been to build a large stocks and share Isa portfolio around 400k to produce a tax-free dividend income of around 8%. Whilst leaving my sipp alone, I retired recently and 53.
Also, retire without debt that helps 👍
That's a very high dividend income, how have you managed that?
@James Shack I have been adding over the years, particularly at year lows and aggressively in covid. I tend to buy only a few times a year when I see a bargain like we saw after the mini budget. I look for doom and gloom, ha!
Another great video, James, with some real life examples I'm sure many will be able to relate to. One observation about the gradual 'de=risking' you talk about - illustrated by the Aviva model: Could it be they're assuming you will take your money at retirement and buy an annuity? Hence a desire to reduce that volatility as retirement approaches so the recipient doesn't get an unpleasant surprise when he retires. I'm old enough to remember when buying an annuity was the norm! I don't know what percentage of SIPP holders actually do this now.
Yes the lifestlying of pensions (Aviva model you mentioned) is exactly to do with protecting sudden changes months, even days before retiring and dumping it all in an annuity.
The thing is though that since the pensions reforms for 2015 (I think) where you can do draw down instead, I can't see that many would go down the annuity route, however it's kept as the default end goal for all pensions and hence lifestlying switched on by default.
Hi Ed, that is correct. However there are different Lifestyle funds you can select if your goal is to buy an annuity. This specific fund is designed for drawdown.
If your provider of a defined workplace pension goes bust, are you only protected up to £85K via FSCS?
Still haven't found an investment expert that talks about the fact I will not be spending the same amount of money when I'm 65 and 85!
The care home bills are extortionate!
@@JamesShack One shouldn't forget equity people have in their main residence that can help with care home bills if required.
Food for thought… would love for you to do a video on an ISA vs. Pension, I feel like you’d explain it better than anyone else.
Well i kind of cover it in this video. You can always use an ISA to fund your pension. So you may as well build up an ISA too. It's more of an art than a science!
Hi James, what is the name of the forecasting software you use at around 12min45s in the video? Thanks
It's called Timeline. www.timeline.co/planning
@@JamesShack Amazing thankyou!
My understanding is you can take your 25% tax free lump sum, and provided you haven't accessed further amounts, your annual limit remains at £40k. Is this correct?
That is correct
but isn't an isa also tax free? or am I missing something here
So could you go through a process of taking £40k a year or the maximum threshold when I come to retire and then put it back in to get a further 40% tax relief year on year until you reach the 25% tax free allowance? And would you just need to be £1 into the 40% higher rate tax bracket to achieve this?
No. If you're retired you would have no taxable income and therefore your pension allowance would be £3,600 (which is the max amount someone can put in even if they have no income).
There are also tax free lump sum recycling rules that prevent people from using tax free cash to make larger pension contributions. www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/pensions-recycling
@@JamesShack hi James, I was thinking if I got to an age where ai could draw from my retirement, but also kept working.
@@jonathanhowson6420 Yes, then you'd likely be caught by the pension recycling rules.
Hi James, another awesome video,
The examples in this one describe my situation almost exactly (now 55, 500k (ish) pension pot, looking to retire in a few years time). Thankfully, due to your previous videos I became aware of the bad mistakes before I made any of them.
I'm on the verge of paying money from my ISA into my pension. I'm planning to access the unused "carry forward" from previous years before I lose it.
Obviously this needs some thought as money in an ISA is income tax free, whereas money in a pension isn't, but your comment on people dropping a tax bracket upon retirement is spot on. Many (most) people will not have an income over £50k in retirement.
Something you didn't mention, is Inheritance Tax. Money in a Pension is exempt from Inheritance Tax and so if that is a consideration, then keeping money in a pension pot, rather than in say a buy to let property or an ISA, might be an important consideration.
One final thing that recently dawned on me. It's a "mistake" my father made that I now wont, and is a different spin on your client who suddenly found that they could only pay £4k/year into their pension. Once I (or anyone reading this), does retire and starts drawing on their pension, they CAN still pay 4k into a pension and get tax relief on it. So if I/they are surviving on state pension, Rental income, DB pension and ISA savings, they can put still £4k into their pension and get 25% immediate growth from tax rebate (up to the age of 75).
Some very good point. Although pension growth is free of income tax just like an ISA. You you pay income tax on the way out but that should be more then offset by tax relief on the way in and TFC.
Fairly sure that the £4k includes the tax relief.
@@ryanyoungson6762 Yes, it does. That often catches people out.
Hey James. Could you do a video about small pot rules? I don't understand them but you explain things so well. 👌👍👍
Grows or falls free of capital gains tax....I know retired people who have lost 25% this year
It's been a tough year but those kinds of fluctuations are to be expected.
When you mentioned 60% tax relief on the upper tax bracket of £100k to £125k are you taking NI into this as well? not sure how you got to 60%? thanks
Because you lose £1 of your personal income tax allowance for every £2 you earn over £100k. Which is an effective tax rate of 60%
@@JamesShack Ah I see how you arrived at this. I earn £180k per year and invest the full £40k into my pension each year to reduce the amount of tax I pay. But I only get 45% relief as this (60%) then will not apply to me sadly. I have to be careful because I will be clobbered by the lifetime allowance soon so will stop investing in my pension when the time comes. Would be great to see a video from you on this if you haven't done one already because this is not easy when to time this correctly.
@@sl0w_racer ruclips.net/video/hqfsfpK8WZU/видео.html
One strategy is to make no pension contributions one year and then the following year make £80k meaning you get more than 45% relief. More like 50%.
It makes cash flow a little trickier but that would be the most tax efficient strategy.
@@sl0w_racer ruclips.net/video/hqfsfpK8WZU/видео.html
The focus is always on DC - I want more info on DB Pensions. And LTA, and under what circumstances does cashing it in make sense.
It doesn’t make any sense .
Poor guy. From the DB days… you’re one of the few lucky ones… live with it
My wife had a DB pension and the transfer value was equivalent to 29 years of payments (excluding RPI). We cashed it out in 2016 and it's now some 30% higher.
I can't believe there are many circumstances where taking a DB pension is better than converting to a SIPP and doing Flexi drawdown.
@@ChrisShawUK Lifetime allowance could be a consideration for some. The DB will be treated as 20x value for lifetime allowance calculations.
@@ryanyoungson6762 yep, if your DB pension is greater than £50k then you are likely to hit LTA issues either way.
If your DB pension is less than 30k pa, I can't think of any scenario where it is more beneficial to draw the pension instead of converting to a SIPP. Of course, if you are not comfortable with investing, then you should absolutely draw the DB
Thank god its inaccessible. I would surely have spent it if it was easier to.
I'm trying to plan out the 40% tax relief on my own contributions and can't quite get my head around how to factor this in. In the example in this video 50k of ISA contributions become 83k in the pension, so should I just be multiply my own contribution by a factor of 1.66? I.e. if my contributions are £2400 in a private SIPP (not through employer) for the year, does this then become £3840 after the 40% relief is applied?
Its not that straightforward AFAICR because only 20% gets added automatically and the govt gives you the extra 20% back via your tax code not into your pension.
What happens is that you will get 20% added by the pension co so your 2400 becomes 3000 in your pension in your example. (because 20% of 3k is £600 so you need to mukltiply amount you put in pension by 1.25 not 1.2 to see what gets added)
You then, again AFAICR as its a few years since i did this, claim you paid 3000 in and govt gives you £600 back.
So its better to pay in £3k which becomes 3750 after 20% tax added on then you claim you paid 3750 (not 3000, you claim the gross not net) and govt gives you 750 back, so total cost to you £2750. I think thats roughly how it goes my numbers may be slightly off and your pension co can hopefully advise. BUt the main thing to understand is the pension co only adds 20% and so to get the full 40% in your have to pay more in and then you'll get that 'more' back via tax. You may find worked example online in your pension co or via google i suppose.
As Joe says. If you pay into a SIPP your get 20% tax relief from which goes into the pension and the additional relief you claim back via a self assessment tax return.
If you’re a 40% tax paying wanting to put £40k into your pension. You actually put £32k in, that gets grossed up to £40k (20% relief) and then you get an additional £8k as cash when you do your tax return.
It’s much easier to just salary sacrifice into the pension, if your employer uses a scheme like that.
@@JamesShack Thanks. So working the other way, if I'm know I'm putting £2,400 does that just mean I get £600 from the initial 20% relief and then a further 20% for the higher payer relief. In simple terms, does my initial payment grow 50% from £2,400 to £3,600 after all relief is applied?
Mr Scarcity mindset!
Love your videos and know your audience will be mainly DC Pensions but think you could do one with a mix of DB. E.g One of the common DB Pension decisions is when to take it, retire early and take the DB reduced or leave it deferred. Your DB index linked could be say 15k at 55, 20k at 60 or 25k at 65. I would like to see a video of how much DC pension you should build up outside of the DB Pension to either bridge the gap to taking your deferred DB or simply take it early and have it payment longer. So if you wanted an income of say 30k, 35k or 40k how much would you need in the SIPP or AVC to bridge the gap. Thanks again for your videos.
Thank you for the ideas. DB pension are much more nuanced than DC pension and often have unique features. But i'll try and use some examples that tie some of these questions into it.
@@JamesShack Completely understand and know it's difficult to please everyone. I guess the question really is when you can retire if you have an element of fixed income in your portfolio. Your videos have got me thinking differently about planning for the future so thank you.
James - I understand that you can only put £4k into your Defined Contribution pension once you start to draw on it. An alternative if to cycle the money into 'your' wife's pension? My big question though is supposing you have 50% of Pension in Defined Benefit and 50% in Defined Contribution and you first started taking money from Defined Benefit - could you then cycle that money into you Defined Contribution >£4k.
I read further down the questions and see Pape asked the same question.....
If your spouse is still working this can be very effective. Taking TFC and putting it in your spouses pension.
Great content thank you. Although I always have to watch you on 0.75% (drunk setting) playback because you're too fast :P Creative brains are terrible with numbers.
Hi James, great video! With your example, if capital growth was taken into account, wouldn't property be a much better investment as he/she could then release the initial deposit (tax free) through equity release say 5-10 years down the line (property tends to double every 10 or so years)? Thus have none of their own money eventually left in the property, whilst also generating cash flow. Plus if it was set up through a limited company it would be more tax efficient to maximise returns.
Yes, but a REIT would also be expected to increase in value and it would be tax free within the pension. Unlike the BTL that may attract 28% CGT.
Holding property in a company can be more tax efficient but you need 4-5 properties minimum to make it more effective because you have higher interest rates and more accountancy setup costs and ongoing admin.
If you were that desperate to invest in direct property you could just do it within in SIPP. Although only with commercial property.
Hi James, great video! I have a question regarding higher rate tax payers and if I should increase my pension contributions past my employer match or if it's best to put spare income in a stocks and shares ISA. I'm in my mid thirties if that matters.
Hey Liam, if it were me it really would depend on what income tax band I was in, if you are a 40% tax payer then salary sacrifice would be my choice and you save both income tax and NI. If you are not a higher rate tax payer then I'd opt for S&S ISA. Hope that helps!
@@FIREarly thanks 👍
@@FIREarly S&S LISA with first £4k?
@@ryanyoungson6762 if you're a first time buyer I'd go for LISA first, otherwise stick all in S&S ISA.
LISA is not just for first time buyers. S&S LISA is the way to go for your first £4k as it’s free money, unless you plan on needing the money before you are allowed to use it.
Problem in America if you pay taxes all your life and if u make over a thousand a year government wont help you. If you are illegal they will give u all the help you need that is sad
Hi James, How can I contact you in terms of business cooperation?
I've just found your channel, this is fantastic advice! Really got me thinking
Whete this falls down is where pensions are losing money as a direct result of what the regime in power is doing.
We saw this with the Westninster regimes action in 2022 abd it will ve amazing of this wealth transfer doesn't occur again in 2023 and beyond. That's not even taking into account inflation which is running st 25% abd not the single digit fantasy the Westninster regime is spinning
This advice would be gold if we lived under a legal, democratically accountable politucal system. That's all gone.
Hi James great video. I have made the mistake and triggered the MPAA reducing my annual pension payments to 4k . What would you recommend for someone who has made this mistake who is 57 and still working ?
Will work pay the cash directly to you rather than putting it into a pension? I'm not saying that's necessarily the right thing but it's often an option for people who have a restricted pension allowance.
Contributing to a Defined Benefit scheme is not affected by MPAA, if you're aware of any employers in your industry offering final/average salary pensions? Other than that, maximise ISA contributions.
I made mistake No:1 at 55 I took £30k out and paid 25% tax.
I used the money as a deposit for a BTL.
I'm still working and 61 now and a higher rate taxpayer (now inside IR35 )
In December 2021 I started contributing again and I asked my IFA to instruct the umbrella company to pay £1,000/month into my pension, to get the £4K
However in April 2022 they didn't adjust the monthly payments and carried on at £1,000/month, meaning I've now paid in £4,800 over the £4,000 MPAA allowance
Gulp!
I guess I'll be hit for 40% tax on that
But I think I'd have paid 40% as Income Tax instead so I'm probably even
The BTL has increased in value by £50k and the tenant has paid me £36k, so swings and roundabouts
@@tonyh1460 Thanks for sharing. Hope your Tax burden is not to high !
@@ryanyoungson6762 Thanks for the advice.
Hi James. Good video. I’m 55 and now drawing down from sipp what I think is sustainable. Coupled with isa dividends and rental income I may even have some spare cash. Would you put that back into an isa or a sipp (up to 4k). I was thinking sipp May be better to reduce income tax bill?
If you have spare income then would it not make sense to just take less from the ISAs or the pension?
@@JamesShack I understand your point. I guess it's nice to have a bit of excess so that you don't budget to the wire and feel you can't do xyz that month. Especially with this inflation. But yes maybe I'll give it a year and see exactly where I am. Enjoy your channel. I worked in financial services for many years and you give good sound information and reflections.
James, can you do a video explaining how the low paid get a 20% uplift. Its beyond me to understand. In plain, simple terms, please.
Let's say you put £800 into a pension it will automatically have £200 added to it by HMRC.
Thanks James for another factual video. I understand defined contributions are mostly common and as you say, your mainstay pension. How does this sit if you already have final salary pensions and CARE pensions? would you still have that type of pension or just increase the contributions to a workplace one?
Yes you can have a DC pension too. You just need to be careful not to contribute more than £40k to pensions in a year, and not go over the Lifetime Allowance.
Great video! I have a question slightly more related to your previous video.
Does using salary sacrifice into a pension affect the personal savings allowance?
If you are a higher tax payer and sacrifice enough to lower your tax band, would that mean that you would also get the £1000 savings allowance instead of £500? Thanks
I had the same question. The answer is yes. This was also confirmed by James when I asked under different video. When you contribute to your pension you are efectively reducing your income by the amount of contributions you have made in a given year. That then can put you back into basic rate tax payer brackets. Say you've earned £54000 a year. But you've also contributed £5000 the same year into your pension. Efectivelly your taxable income is then £55000-£5000=£49000. So assuming you are based in England, you will not be higher rate tax payer in that year. Your income will be $49000 and higher rate tax band starts slightly above £50000. This then leads to having alowance of £1000 tax free interest savings alowance in that given year. After all you become basic rate tax payer in this example. Someone please correct me if I got anything wrong here.
Yes
hot diggidi i love watching your videos,very easy to understand and digest and i enjoy the very well put together and well thought out presentation.keep it up James.
Thanks Marcus. I'm glad you enjoy them!
Hi, do you have any opinions on the Teacher’s Pension Scheme?
Thanks for the video. Apologies if this has been asked already. Point #2, this sounds good but I am concerned about the pre-planning recycling rules. Can you explain when this would/would not apply please?
This would not fall four of that. They typically come into consideration when trying to use csh from other pension to fund a pension and when taking out a loan to make contributions.
Hi James. Once again great video, really love these as it helps get a basic understanding so I don’t look such a tool when I see my FA lol👏🏻
I’m glad it was helpful Neil!
Hi James.....if you're a higher rate tax payer and need to claim the extra tax relief on pension contributions, does it have to be done by HMRC adjusting the following years tax code, or can they just pay it out so you can pump the cash back into your pension? Really frustrating that it can't be done monthly like the 20% relief.
The best solution is to make pension contributions through salary sacrifice so you don't have to bother with a self assessment tax return.
You'd need to check with an accountant, but I believe that you can request a cash refund rather than have it adjusted through your tax code.
I'm in exactly this situation and have been for the past 6 or 7 years. I fire a letter off to the PAYE tax office every year, around June, laying out my personal gross Sipp contributions for the previous FY and requesting the higher rate relief. Every year, around October, the refund appears on my personal tax account for me to claim. I've never done a tax return yet:).
It takes around 20 minutes to fill in a self assessment form online and any tax refund due can be paid directly into your bank account. You normally receive any refund after 2 or 3 weeks. I've always found it to be a straightforward process.
Hey James, I have watched some of your retirement videos and feel like it often focusses on people close to their retirement . I’m 28 and want to know what I can do at a younger age to maximize my pension growth. I currently have £120k in my SIPP of which 90% are in foreign equities high risk as I have a long time till retirement. I’m a high rate tax payer and currently pay 21% towards my pension 7% + 14% company contribution. I also have a LISA that I plan on using for retirement in which I put £4000 a year, and put the remaining £16.000 in an ISA. However I still have spare cash to invest, should I contribute more towards my pension through salary sacrifice? Also how worried should I be about the Pension Cap as my projection is well above this at an age of 65 does this change everything? Thanks
This sounds amazing! I wish I was this educated at your age.
If you think you're going to hit the LTA at somepoint, then your goal is to make sure you get the highest possible levels of tax relief going into the pension.
As an example, if you earn £180k per year, you could be making £40k pension conts per year and getting 45% tax relief on that. Alternatively, you could not make any contributions one year and then next year make £80k bringing your taxable income down to £100k whilst also reclaiming your personal income tax allowance, which would equate to ~50% tax relief.
This is serious min max planning.
The thing you need to be mindful of however is that if, in the future, you earn over £200k then your pension allowance gets tapered eventually down to just £4k, so you may want to get as much into your pension whilst you are still earning less than this.
Hi there. Love watching your videos. I'm currently in full time employment and planning to retire in 3 years time. I am currently drawing a final salary pension from a previous job of £425pm net. Am I allowed to increase my contributions to my current works pension by £500 for the next 3 years? If so would that be a good idea?
Hi Manc, you could do that but i can't say whether it's the exact right thing you should do without knowing your full circumstances.
Hi James, love your content as always...
I am 56 and still working, running own business. I will be for at least another 5 years.
I have 2 pensions, one a standard IFA type product, and a SIPP. The SIPP is only about 5 years old and is underperforming at a 5% loss.
We want to do some home improvements in the next 6 months. It doesn't make sense to take anything from the SIPP.
If I take a tax free sum am I limited to take 25% max from each, or could I take the equivalent of 25% total of the combined pension values from one pension only?
I e. Is it 25% per policy, or 25 % of the totals combined.
If I took 25% tax free from one now-ish, could I come back later and take 25% of the other tax free also?
Am I right that the limit on contributions only comes into play when you go over the tax free sum?... As long as you're below or equal, you can still pay in as much as you like up to the lifetime allowance?
If I take money from my ISA and put into my pension how do I physically claim the tax rebate, or is it automatic? (all my contributions so far are in company only)
Many thanks in advance.
Are any of the pensions worth less than £30k?
If you run a business, it may be more tax efficient to make pension contributions from your business which avoids dividend taxes and you can offset it against corporation tax. This may result in you taking less cash out of the business for personal use so you just spend your ISAs. The end result is the same.
Alternatively, you make the contribution to the pension from personal cash. You get 20% tax relief added in, then you claim the additional tax back on your self assessment tax return.
If you're looking for someone to help you with this stuff and plan for retirement ,feel free to book a call with me, there's a link in the description.
@@JamesShack thanks very much, they are both worth more than £30k. I appreciate you're running a business too.
Too many assumptions about life expectancy and rules
Does the MPAA apply if you draw a defined benefit pension early, or does it only apply to defined contributions pensions?
It's only applies to DC pensions.
@@JamesShack Thanks James. That's a relief.