Thank you Will. I wish I could upload more regularly! There have been many reasons this year why that has been difficult, but I do hope to be back to a regular pattern soon. I appreciate your continued support 👍🏼
I love this video! It really demonstrates the advantages of pension contributions. I've been mulling this over in my head for the last few months as I'm a few years from retirement and wondering if I should reduce my company pension contributions and put the money into an ISA instead. This video has convinced me that I'm doing the right thing. There's also the salary sacrifice advantage for me being in the 40% tax bracket
If you can I would check the funds they are investing your money in ; checked mine & the bulk of the money was in a heavily esg tilted pot thats losing money big time..shifted to other funds in the portfolio which were much better performing & not biased to esg guff
@@davemitchell3998 Oh yes, I did this a few years back. I've removed my pension from the workplace default fund which was too risk averse for me. Now I'm out of that, I don't get hassled about lifestyling etc!
Quality differentiation Chris. 👍🏻 Now in my 50’s I aim to save 25% of income into my pension, and do this via salary sacrifice to give the max top up. Hope to get to £1m. 🤞
Hi Chris, have you produce a video in regards of persons who earn the average wage and how to ensure maximum benefits. Average earnings in the UK are around £30,000. These are the majority of people not those on 6 figures. Thanks for another informative video. be lucky stay safe.
Hi there. The same principles apply - tax relief will usually win the day. It’s not possible to demonstrate wrapper maximisation though unless there is significant excess income. Some of the examples wouldn’t work, or wouldn’t have the impact, unless I’m able to show the extremes.
One of the concerns I have is being a standard rate Tax payer going in to retirement. Then when retired the Tax threshold changes or the tax rate goes up so I end up paying a higher rate of tax. Whilst those on 40% tax would still benefit but not by so much. I started out working life paying 30% tax with MIRAS and 10-14% rate Mortgages - If something similar comes in again to help Mortgage holders then you are disadvantaged, so I and my Partner have 30/70 ISA/SIPP just incase.
Great video. This video reinforces my own view and what I'm doing which is putting as much as i can into my pension while in parallel trying to max out the ISA allowance
Great video Chris and adds really good balance to the previous one. Shows how the incredible power of compounding the savings (25% tax relief) on the way in, always beats the savings of tax-free withdrawals from alternative non-pension savings on the way out.
I do like a good cash flow planning video! I'm amazed there is always a debate around pensions. Even if you're on the FIRE path, I'd guess you'd want the pension loaded up for the long run and build up an ISA for the difference until you can access.
Definitely Roger! You’ll need other income vehicles to bridge the gap until pensions can be accessed, but you’d be at a disadvantage ignoring pensions altogether.
Thanks for putting this video together, Chris! It answered a question I had about what percentage to save into my SIPP and ISA each month for my retirement in my early 60s. It had been a question I’d considered for the last few months.
Great video Chris really appreciate the clear easy to understand explanations. The other thing that obviously for many will be beneficial over the ISA is that virtually all companies will contribute something to a pension if you do. So you're not only getting the benefit of your contribution but also the added company contribution. You wont get that if you just take the money as part of your salary and save it in an ISA. That's an additional 12% for me (on top of my 10% contribution) PLUS many companies will offer salary sacrifice and potentially the option of putting any bonus directly into your pension.
Hi Mark. The same principles would apply - tax relief tends to trump other factors if you’re measuring from a pure growth potential perspective. Non-pension accounts do offer advantages from a flexibility and access point of view. The examples shown are to demonstrate the extremes when able to fully maximise contribution limits.
@@chrisbourne-retirementplanner Chris. Thanks for replying. I guess what I was thinking of was people like me who have a work place pension already and who are not higher rate tax payers. I went for an ISA to put my spare cash into as I didn't want work place pension. State pension and an additional pension. My thinking was that if situations change at least I can access my ISA at any stage unlike the pensions. I'm really glad there are people like you about it makes people think about their own money and future which is definitely a good thing.
Great video! I guess the one thing in the past was the LTA charge and also the worry of it being reduced even further but without it, its pretty simple to see
Great demonstration of the power of pensions! I've done my own simple scenario modelling (using Excel) and what's scary is how much damage inflation does to any savings, including pensions, over time. I don't think the media / government do enough to explain (in simple terms than most people can understand) the damage that say 5 or 6% inlation does, compared to the BOE target of 2% inflation. Might help with the wage / price constraint argument.
Whats scary is that if the inflation were calculated using metrix that used to be used ( in the 70's for instance) I think most people would have a heart attack!! I think projecting on a 2 or 3% inflation rate is giving a false sense of what your spending power will be ...........its US data but take a look at 'shadow stats' to see what I mean ...not good !!!
Hi Chris, good video. I guess for most people it is visualising percentages rather than absolute cash values that could be taken from this. So % of gross income that is needed to cover your annualised expenditure converted to a monthly basis (another person has produced a GSheet for this). Then it comes down to pre-tax pension contributions and the limits that there are together with working out the 32% tax & NI above the personal allowance etc that would apply. Important for employees to know what does the employer contribute and that there's a rule of thumb that a % of salary should preferably be invested in a pension at ages (which might be averaged) of a person's working life. The essential message is that pension contributions, if you can make them (including AVCs or equivalent) is the best way for most people and that state pension helps from 67/68 so you can reduce gross outputs from a DC pension hopefully.
Great video, as always. Thanks. Post-retirement, is it always tax-beneficial to draw enough Tax Free Cash from a SIPP to max your ISA allowance (assuming they would both be invested in the same funds)? In my case, my DC pension will eat up my annual personal tax allowance, so anything I drawdown from my SIPP will be taxed (apart from the tax-free lump sum).
Hi there. You wouldn’t need to draw the tax free lump sum to pay into an ISA - it would still grow tax free and could be withdrawn tax free from the SIPP at any time. The tax free lump sum can either be taken at the same time as withdrawing taxable income, or it can be taken without taxable income withdrawn at the same time (the taxable portion can be placed into flexi-access drawdown and withdrawals deferred to a later date).
Hi Chris, compliments for your great videos. I watch and learn from them all! To set the scene: I have a lump sum lying in a bank account - now I need to invest it safely. (I am quasi retired). The 85K£ compensation limit applies to cash, but what about ETFs, shares bonds. etc. If the bank or trading broker where assets are held goes bankrupt, I have heard that shares, bonds ETFs are safe as they are "personal" - not "owned" by the bank like cash?????
Hi there. Many thanks for your kind words. You do tend to get broader protection on investment platforms and in funds because it is ‘multi-layered’ - the underlying assets are ring-fenced from those of the provider’s and don’t sit on their balance sheet like your cash in a bank account would.
Chris - great video - could you also show how much they would have been able to take yearly from the pension option and not have anything left at the end - I’m not sure everyone will want to leave that much money when they could have had an even better retirement.
Hi Steve. Yes Voyant does allow this to be demonstrated easily using the Spending Capacity insight - it’s a very useful indication of the additional headroom that you’ve got.
Yes, a pension can still be used and would be tax efficient, even if you can’t commit to high regular contributions. The contributions you make can be sporadic to suit business conditions.
Thanks for another great video. Regarding 40% higher rate tax relief for pensions - if I go into the 40% income band by just £1 - does this mean I can claim 40% relief on all my pension contributions? I know I would pay 40% tax on everything above the tax threshold. But it seems too good to be true that just nudging into this tax band by a few quid gives me 40% relief on all my SIPP contributions. Have I misunderstood? Thanks.
Hi Eamonn. You only receive higher rate tax relief on the portion of income that falls in the higher rate band. If you earned 60k for example, you’d pay 40% tax on c10k, but if you made a pension contribution of 10k you’d receive that extra tax paid back.
Great Video, I'm still working my way through educating myself on all of this so this is really helpful. One question, I assume that the topic of this video was made possible due to the Government removing the cap on individual pension funds?
Hi there. The removal of the LTA is certainly helpful. Although even with the LTA charge I found that pensions usually came out on top in a straight comparison.
I think a combination of isas and pension is the right way. ISA because it is accessible before retirement for emergencies and in retirement for topping up pension tax free. I just don’t know the correct ratio. I guess 80% pension and 20% isas? Anyway the tax thresholds will be increased at some point so things may be slightly easier!
But once you've maxed your annual pension allowance and maxed your ISA allowance - what next? Have you got any videos/suggestions on that? A very informative video, thank you!
Great video thank you. Given that tax is ever increasing with band changes and overall rates paid Any idea as to what the rate of tax/allowances would have to be at retirement to make the isa a better option? Bands and tax now could be vastly different for me in 35 years. It’s a tough call as I don’t see it going any way but up.
Yes if the bands stayed fixed where they are now forever, I dare say the ISA would start to look increasingly attractive. As you quite rightly say though, they are likely to increase and that is built into the projections, which would continue to make pensions more attractive.
Sadly it's almost certain that the state pension in the future will only be paid on a means tested basis, the government will cry it's not fair that "wealthy" people who scrimped and saved their own pension receive state money in addition.
Thanks for that great video, Chris. If you wanted to retire before 55 yo then, would you invest everything (or as much as possible) in a pension and at some given point change to ISAs? In this case, work your way back from the target date, then calculate how much is needed between the target date and 55 yo and make enough ISA investments as needed?
Hi Chris. Could you cover the scenario of someone who earns less than or slightly more than the personal allowance in relation to pension contributions and if tax relief is available? I understand the unearned income limits of 3600 gross but am not sure of the former scenario. For example if I earn 10000 pounds a year and am able to contribute 5000 to a pension, will tax relief be provided on that? Great video, Thanks.
Thanks for the great video. I'd be interested to know how this compares to products such as LISAs in the UK which contain tax benefits both at the point of deposit and withdrawal (although recognise this is a niche product with limited annual deposit amounts).
Hi there. LISAs are useful, but as you quite rightly say, they restrict how much you’re able to pay in and of course when you can take out (age 60, or for a first house purchase). Tax relief is also restricted to 25%, whereas pensions allow up to your highest rate of tax (potentially 45%).
This example was well above average income. I do not remember you doing a video of avoiding higher rate tax although by using salary sacrifice as I think that is the most beneficial use of that. Salary Sacrifice does not just include pensions of course there are other options like paying for EVs and many others.
Hi Greg. I can’t make any specific recommendations on here. The provider to use depends on individual needs though. At the low cost end of the market, if you’re looking at direct to consumer platforms, the likes of Vanguard, A J Bell, Interactive Investor and many others do a good job, but no single platform will meet every person’s requirements.
Hi Chris. Nice video, but is it a fair comparison? Is the model assuming the pension remains invested and still growing after retirement age, but the cash in ISA/GIA stops growing after retirement?
Very interesting the part about extra tax during drawdown from pension is easily outweighed by earlier growth. What I am a little confused about was the numbers in the GIA/ISA example. I think you said 3108 into GIA pa and 20k into ISA pa. They seem to grow for first few years as I’d expect. But at the end GIA has 500k (ish) and the ISA 800k (ish). Sticking numbers into a compound interest calculator shows the ISA grows as shown. But the GIA has grown phenomenally (ends up more than half of the ISA even though you are putting 6 times more into ISA pa). The compound interest calculator seems to show GIA is grow at 12.5+% What am I missing?
Hi Pete. You’re missing the fact that the excess contribution to the GIA doesn’t remain at £3,108, it increases over time as earnings increases are expected to outpace price increases.
Yes, as adequately explained above, your pension holdings would benefit from the fact that assets do not form part of the pension or investment provider’s own balance sheet and thus wouldn’t be exposed to that risk in the same way bank deposits would.
Hi Simon. You should find that pension and other main wrapper (certainly ISA and GIA) charges are very similar. You can also hold the same investment funds regardless of the type of account you use.
A question/comment: these two scenarios are based on 4.5% growth. However, outside pension there can be various vehicles which can give slightly higher growth and if we do thise comparisons then, will the pension strategy still hold true? Plus, while working, putting money in pension means locking it fully. But putting money in ISA etc means, you have access to these at all times. Then it makes sense to put in pension and ISA both.
Hi there. You can generally hold the same investment funds in a pension as you can an ISA or other wrapper, so it wouldn’t true to say that other accounts can grow more. In fact, a SIPP gives wider investment powers than other wrappers, so if anything it is the reverse that’s true. You can access other accounts earlier though and it does make sense to diversify, which is mentioned at 6:48.
Very useful to see. I'm in a advantageous position that these videos are relevant. I wonder if talking to an advisor wou!d be good, but don't know how to find one that is not a st James place sales person or then how to trust that it is the right thing. For example, the bonds video is really relevant due to inheritance, but not sure about just checking with Aviva etc. Fees all look complicated or too much.
I understand. I can only say that you should grasp fully what costs are going to be at outset, and to only proceed when you know what value you are going to get in return. If something costs 10k but provides a 20k tax saving it’s good value. This must be clearly demonstrated though.
Are ISAs a must as you approach retirement over the growth with pension funds? I know no tax is paid on growth so there is this benefit. It is has been mentioned ISAs help with where and how you take your money to live at retirement. I have a very small ISA fund compared to my pension funds. I understand pensions are generally are better way to grow wealth than ISAs especially if you are a higher rate taxpayer and so get the relief. If the benefit is where and how you take your money to live at retirement, then surely you can put some of the drawdown into an ISA and manage it that way. Any thoughts on this? I am just looking for a text reply here. thanks.
Hi Richard. I can’t think of any particular benefit of paying drawdown income into a pension, because you pay tax on the drawdown withdrawal regardless of where you place it afterwards. If you have ISAs, it generally makes sense to utilise them before pensions bother from an income tax perspective and an inheritance tax perspective (if that applies).
@@chrisbourne-retirementplanner Thank you Chris. Another great video. My question is about whether it is actually worth even having ISAs if the goal is to build wealth for retirement and you get better benefits with a pension, especially as as I am higher rate tax payer. I can not see any point putting much into an ISA, except to hold onto some savings which will tie me over should I loose my job etc.
£100,000 a year is hardly a realistic example for the majority of the population. Perhaps give an example for someone earning £26,000 a year and that is still more than most people earn.
I think the £100k amount is just to make the sums easier to understand. Chris is (I think!) simply using this to demonstrate the compounding advantages of contributing to a pension over other investments like ISAs and savings over a time period.
For 40% taxpayers, they would receive the income tax refund into their pensions at the basic rate initially. The amount between that and the 40% that they are paying is not paid by the state into their pension, but either as an adjustment of their personal allowance or a cheque in the post. Does that affect the projections?
No it wouldn’t affect the projections - that’s included in the plan John and explained. Basic rate tax at source is explained at around 4:50, and higher rate credits are then explained at around 6:20.
Eye opener, so it would appear I’m better off putting more into my pension than having that second vehicle of buying my company shares at preferential option price……
A lot would depend on the uplift you get on the shares Ian, as well as your current tax rate. Then, of course, it comes down to the performance of the shares. The pension will certainly be more diversified.
I missed the last video, I didnt take advantage of pensions being self employed for 20 years and then invested in a property which i sold and so then had what is my pension in cash, no income to be able to put it in a pension now so I am just maxing isa investments each year and have half in general incestment account , the rest is in short term savings accounts of a year or so. The isa investments are going to grow tax free and be tax free to draw on but should I consider a pension account in my wifes name to get the 20% tax break, her works pension is pretty good too but if anything happens to her i only get a half of that pension and I dont think it can then be passed onto our daughter. Obviously if she was earning enough to pay 40% it would be a no brainer.
Hi Nigel. Basic rate tax relief is still powerful, even if higher rate relief cannot be claimed. There is still the ability under existing rules to take tax free lump sum in the future, so even basic rate payers end up in a positive tax position.
@@roberthall8473 I can imagine it will be popular with core voters. There is an argument that some planning strategies are actually helpful in capitalising housing, property development and renewable energy through IHT portfolio services.
£300 a month for 37 years into a SIPP that was invested in the S&P 500 reinvesting dividends should get you there and if you did it starting at the age of 20 until retirement age 68 you’d be looking at £4.5 million in the pot. It’s all down to how motivated you are to do it.
@@sid35gb What??! £3.6k a year for 37 years is £133k! What drugs are you on mate? In order to make £1.5M you would need growth of over 10% per year ABOVE inflation!! This is not realistic.
Despite what most self-proclaimed UK FIRE experts will tell you, most people will never actually need an ISA if retirement planning is their only goal.
I was an additional rate taxpayer. In retirement I’m a basic rate taxpayer. How? I supplement pension drawdown with ISA so as not to go above £50270 gross. (Not that I get anywhere near it in reality, but that’s the theory anyway.)
What are the implications of money saved in a SIPP if I decided to retire in a different country, say the United States? If I saved in an ISA, it would be straightforward to transfer the account across.
Vinay, bizarre as it may seem as I understand it in some circumstances the Government / HMRC view the tax saving that has been paid in to your pension (as well as associated investment growth) as 'their' money. Even though the money would not exist if you had not earned it, doesn't matter it is tax that has been given to you from Government coffers. So be careful - don't lose it in a scam otherwise you can get a large tax bill as well (yes really!) because you have lost 'the Government's money''. The same principle applies to taking the money abroad - you are taking the Government's share of your pension money abroad. You will need to check if the country you are going to has a reciprocal tax scheme in place so that HMRC doesn't view their money as lost to another Government, if a reciprocal tax scheme is not in place the Government will want their money and the investment growth back before you go!
Hi Vinay. I’m not able to tell you what the exact situation would be if you moved to another country, aside from saying that any international income and growth would have to be reported to the US tax authorities if you lived there.
Read about QROPS.. you can transfer UK pension plan to overseas pension provider.. it would grow tax deferred till retirement or maturity as defined in plan.. On other hand, in case of ISA- the day you transfer it overseas you loose any prior tax benefits from date of transfer (obviously its liquid unlike Pension).. any future growth in the funds thereon would be taxable in the country where you are resident.. Hope this helps
@@RavichandraGv QROPS wouldn’t be relevant for people looking to move to the US though. They are generally for people moving to EEA states, or a small handful of countries outside of that.
Outside of the tax benefits of a pension, isn't this largely based on how well the Pension does? My dad retired about 3-4 years ago and his pensions have been losing money based on the funds that the provider has automatically put them in. He has actually lost quite a bit over the past couple of years 20-30%, which has probably wiped out a lot of the tax benefits. This is considering he is retired now so his pensions should be in low-risk funds. Is there a risk-based view to consider here? Not all your eggs in one basket type approach even if it's not the highest projected return?
Hi Jonathan. It is the underlying funds that drive performance rather than the type of account (pension, ISA etc), and unfortunately it is low risk funds that have been hit the hardest over the past couple of years. The good news is that the outlook for these types of investments is now much more positive.
stupid question, If you hit the 40% tax bracket, is it the difference between the top of the 20% bracket and whatever you earn after that, you get tax relief on that portion? for example, earn 1k over, extra tax relief on that bit? I've not been into the higher bracket before but may do this year.
Yes you're right. Only the earnings in each tax bracket are taxed at that rate (so going £1 over into the Higher rate does NOT mean every penny you earn becomes taxed at 40%, just the single £1)
Hi great video. Noticed you had 2.5 percent inflation and 4.5 percent growth on portfolio pre retirement. I thought in the past real returns for stocks would be more like 5-6 percent rather then 2 percent. Any reason why use that figure or just being conservative?
Hi Alex. Yes just erring on the side of caution. Real returns have historically been higher, but that’s not a guarantee going forward. Inflation is also not guaranteed to be low. It’s better to set targets using more conservative estimates, and then if you’re surprised on the upside it’s a bonus.
I'm still waiting for a video that applies to me. I'm a nil rate earner (disabled and can't work) but have some rental income (not relevant earnings). My husband earns around the median income and a basic rate earner. I'm stuck with only 3600 pension allowance, so most of our pension is in hubby's name. I'm stuck not being able to use my personal allowance both now and in the future. It feels like yet another hurdle because I'm sick. Guess I'll continue to be left behind. I'd really welcome more inclusion for basic and nil rate earners, but i guess we're not the target audience if personal finance fees are percentage based.
A really, micro-small thing. Luke is 35. Current government plans are for the pension age to rise to 68 (so Luke's private thing at 58) between 2044 and 2046. This means where at 7:00 on the video where you say the earliest the lad could get it, if no plans change, is 57. WELL, IF no plans change, poor Luke is actually gonna have to wait until he's 58. HOWEVER, the government says, paraphrased: 'Due to profound economic shocks we're gonna review this plan closer to the time'.
Hi Dave. There isn’t actually a definite plan to increase the minimum pension age to 58 yet. There’s an assumption that it will do so when the SPA goes to 68, but the government hasn’t actually built in an automatic link so it will need to be legislated for at the time.
@@chrisbourne-retirementplanner Aha! This is why you do the amazing videos, and I intend to hopefully use your skills on a more personal level as I approach retirement :)
You are WRONG! You have not factored in the costs of drawing down your pension, nore that income via limited companies can be engineered such that money fed into ISA is untaxed i.e. wholl;y ones tax free allowance, whilst yes that which IS taxed goes into the pension for a rebate. so you are not as clever as you think you are!
No, I’m not wrong. Let’s dissect what you said… Regarding costs of drawing down, you may find that some providers will slightly increase their platform % charge when you move into drawdown, or implement a fixed quarterly charge. Some providers don’t do this at all though, and their charges remain the same. In any case, the comparative difference this will make in relation to the taxation benefit will be negligible. Regarding the ability to pay into an ISA using company profits, you refer to the tax free allowance and I assume by this you mean the Personal Allowance. Let’s imagine for one moment that you only paid yourself £12,570 a year and were somehow able to pay all of this back into an ISA or pension. It is true you can draw £12,570 at 0%, which could then be paid directly into your ISA. If you decided to pay this into your pension instead though, it would only cost you £10,056 because the rest would be added in via tax relief at source. You would therefore be £2,514 better off at the start. That £2,514 you saved could then be placed into your ISA if you want. On day one, you’ve therefore got £15,084 invested rather than £12,570. Remember that in the future you are able to access 25% of your pension tax free, and you can utilise your Personal Allowance to draw income at 0%. Of course, it’s very unrealistic to assume you can pay yourself just the Personal Allowance and invest it all anyway - you have to live after all, so you’ll probably need to draw some dividends out of the business. Those dividends are personally taxed, after corporation tax has already been paid on the company’s profits. Paying money into a pension from your company instead will reduce your corporation tax burden, saving your company money. In summary, you’re the one who has it wrong I’m afraid.
You mention a SIPP can currently be accessed from 57, is this without penalty? My only reference point currently is my LGPS which I could access from 57 but penalises for every year before SRA.
Hi there. The current age is actually 55, but this changes in 2028 to 57. An LGPS is defined benefit, so although you are allowed to access benefits before the scheme’s normal retirement age, you will be penalised for doing so. That is simply because they have to pay your guaranteed pension for longer. It’s different with a SIPP as there are generally no guarantees - it’s just a pot of money that you manage (or someone does on your behalf).
@@chrisbourne-retirementplanner Thanks Chris. So a SIPP in addition to my LGPS would give me an option for phased drawdown avoiding penalty if I understand correctly? (SIPP from 55/57, and then LGPS from state retirement age)?
@@945965566 The only thing to bear in mind is foregoing matched contributions in favour of a private arrangement. If your employer would pay more into your pension or a separate AVC if you did, you have to weigh this up. Generally speaking, it’s best to maximise what an employer will offer you first before doing something separate, but if you’re already getting as much as you can from them, it’s not an issue.
@@chrisbourne-retirementplanner Thanks again Chris. Yes, considering continuing to pay in via LGPS and maximising any matches AVC (though employer unlikely to provide additional match), and having a SIPP in addition, solely with the purpose of accessing the SIPP funds between 57-67, before accessing full LGPS entitlement from 67 - trying to hack a way into early retirement without sacrificing continuations! 😊
![Hunxho - Ball Forever [Official Video]](http://i.ytimg.com/vi/nki9ZTF9Uls/mqdefault.jpg)
Videos of quality not quantity..........welcome back Chris
Thank you Will. I wish I could upload more regularly! There have been many reasons this year why that has been difficult, but I do hope to be back to a regular pattern soon. I appreciate your continued support 👍🏼
I love this video! It really demonstrates the advantages of pension contributions. I've been mulling this over in my head for the last few months as I'm a few years from retirement and wondering if I should reduce my company pension contributions and put the money into an ISA instead. This video has convinced me that I'm doing the right thing. There's also the salary sacrifice advantage for me being in the 40% tax bracket
Excellent Simon I’m glad it was timely!
If you can I would check the funds they are investing your money in ; checked mine & the bulk of the money was in a heavily esg tilted pot thats losing money big time..shifted to other funds in the portfolio which were much better performing & not biased to esg guff
@@davemitchell3998 Oh yes, I did this a few years back. I've removed my pension from the workplace default fund which was too risk averse for me. Now I'm out of that, I don't get hassled about lifestyling etc!
Quality differentiation Chris. 👍🏻
Now in my 50’s I aim to save 25% of income into my pension, and do this via salary sacrifice to give the max top up. Hope to get to £1m. 🤞
Thanks James. That’s a good level of contribution. I hope you reach your target!
Hi Chris, have you produce a video in regards of persons who earn the average wage and how to ensure maximum benefits.
Average earnings in the UK are around £30,000. These are the majority of people not those on 6 figures.
Thanks for another informative video.
be lucky stay safe.
£30-33k or so is the median. The mean average is far higher, around £45-47k.
Hi there. The same principles apply - tax relief will usually win the day. It’s not possible to demonstrate wrapper maximisation though unless there is significant excess income. Some of the examples wouldn’t work, or wouldn’t have the impact, unless I’m able to show the extremes.
@@chrisbourne-retirementplanner Thanks for getting back to us.
One of the concerns I have is being a standard rate Tax payer going in to retirement. Then when retired the Tax threshold changes or the tax rate goes up so I end up paying a higher rate of tax. Whilst those on 40% tax would still benefit but not by so much.
I started out working life paying 30% tax with MIRAS and 10-14% rate Mortgages - If something similar comes in again to help Mortgage holders then you are disadvantaged, so I and my Partner have 30/70 ISA/SIPP just incase.
@@simonkemp1030 For me it's 10/90 ISA SIPP. SIPP is more tax efficient. I'm a higher rate taxpayer.
Great video. This video reinforces my own view and what I'm doing which is putting as much as i can into my pension while in parallel trying to max out the ISA allowance
Glad to hear it. Between those two accounts most people have got a pretty generous tax efficient contribution allowance in the UK.
Amazing information Chris as I am 55 next year .....keep the videos coming ... cheers
Thanks Steven… will do!
You are my favourite finance youtuber Chris, keep up the good work!
That’s very kind of you! I will keep on trying 👍🏼
Really glad to see you back THE BEST FINANCE ADVICE ON YOU TUBE BY FAR!!!
Thanks for that very kind comment! Much appreciated.
Great video Chris and adds really good balance to the previous one.
Shows how the incredible power of compounding the savings (25% tax relief) on the way in, always beats the savings of tax-free withdrawals from alternative non-pension savings on the way out.
Thank you. Yes, at the extremes demonstrated, you can really see how significant the differences are!
I do like a good cash flow planning video! I'm amazed there is always a debate around pensions. Even if you're on the FIRE path, I'd guess you'd want the pension loaded up for the long run and build up an ISA for the difference until you can access.
Definitely Roger! You’ll need other income vehicles to bridge the gap until pensions can be accessed, but you’d be at a disadvantage ignoring pensions altogether.
Fantastic video Chris. I’ve forwarded this onto three people, who are dubious about pensions.
I really appreciate that. Hopefully they find the info helpful.
Thanks for putting this video together, Chris! It answered a question I had about what percentage to save into my SIPP and ISA each month for my retirement in my early 60s. It had been a question I’d considered for the last few months.
Glad it’s helped you Simon 👍🏼
Great video Chris really appreciate the clear easy to understand explanations. The other thing that obviously for many will be beneficial over the ISA is that virtually all companies will contribute something to a pension if you do. So you're not only getting the benefit of your contribution but also the added company contribution. You wont get that if you just take the money as part of your salary and save it in an ISA. That's an additional 12% for me (on top of my 10% contribution) PLUS many companies will offer salary sacrifice and potentially the option of putting any bonus directly into your pension.
Quite right Jason - if your company offers matched contributions it is a further boost to the pot and usually worth taking full advantage of.
Hi Chris any chance you could do the same thing for someone on an average salary? Ps great video!
Hi Mark. The same principles would apply - tax relief tends to trump other factors if you’re measuring from a pure growth potential perspective. Non-pension accounts do offer advantages from a flexibility and access point of view. The examples shown are to demonstrate the extremes when able to fully maximise contribution limits.
@@chrisbourne-retirementplanner Chris. Thanks for replying. I guess what I was thinking of was people like me who have a work place pension already and who are not higher rate tax payers. I went for an ISA to put my spare cash into as I didn't want work place pension. State pension and an additional pension. My thinking was that if situations change at least I can access my ISA at any stage unlike the pensions. I'm really glad there are people like you about it makes people think about their own money and future which is definitely a good thing.
Thanks again Chris for another informative video - this one was spot on for me it’s like you read my mind 😂. Looking forward to the next one 👍
Thanks Graham… I’m pleased it has come along at the right time! 😊
Great video! I guess the one thing in the past was the LTA charge and also the worry of it being reduced even further but without it, its pretty simple to see
Yes, it certainly makes things a little clearer, for the time being at least!
Most likely to be reinstated post election (depending on result)
Great demonstration of the power of pensions! I've done my own simple scenario modelling (using Excel) and what's scary is how much damage inflation does to any savings, including pensions, over time. I don't think the media / government do enough to explain (in simple terms than most people can understand) the damage that say 5 or 6% inlation does, compared to the BOE target of 2% inflation. Might help with the wage / price constraint argument.
Hi Steve. Yes well 2.5% inflation halved spending power in this example over 25 years, so 5-6% would do the same in less than 10.
Whats scary is that if the inflation were calculated using metrix that used to be used ( in the 70's for instance) I think most people would have a heart attack!! I think projecting on a 2 or 3% inflation rate is giving a false sense of what your spending power will be ...........its US data but take a look at 'shadow stats' to see what I mean ...not good !!!
Hi Chris, good video. I guess for most people it is visualising percentages rather than absolute cash values that could be taken from this. So % of gross income that is needed to cover your annualised expenditure converted to a monthly basis (another person has produced a GSheet for this). Then it comes down to pre-tax pension contributions and the limits that there are together with working out the 32% tax & NI above the personal allowance etc that would apply. Important for employees to know what does the employer contribute and that there's a rule of thumb that a % of salary should preferably be invested in a pension at ages (which might be averaged) of a person's working life. The essential message is that pension contributions, if you can make them (including AVCs or equivalent) is the best way for most people and that state pension helps from 67/68 so you can reduce gross outputs from a DC pension hopefully.
Hi Derek. Thanks for your comment.
Brilliant this and has made me reassess where I am placing my savings going forward
I’m always pleased to hear that content has been thought provoking 👍🏼
Thank you for this really good insight. Tim
You’re welcome Tim.
Great video, as always. Thanks. Post-retirement, is it always tax-beneficial to draw enough Tax Free Cash from a SIPP to max your ISA allowance (assuming they would both be invested in the same funds)? In my case, my DC pension will eat up my annual personal tax allowance, so anything I drawdown from my SIPP will be taxed (apart from the tax-free lump sum).
Hi there. You wouldn’t need to draw the tax free lump sum to pay into an ISA - it would still grow tax free and could be withdrawn tax free from the SIPP at any time. The tax free lump sum can either be taken at the same time as withdrawing taxable income, or it can be taken without taxable income withdrawn at the same time (the taxable portion can be placed into flexi-access drawdown and withdrawals deferred to a later date).
Hi Chris, compliments for your great videos. I watch and learn from them all! To set the scene: I have a lump sum lying in a bank account - now I need to invest it safely. (I am quasi retired). The 85K£ compensation limit applies to cash, but what about ETFs, shares bonds. etc. If the bank or trading broker where assets are held goes bankrupt, I have heard that shares, bonds ETFs are safe as they are "personal" - not "owned" by the bank like cash?????
Hi there. Many thanks for your kind words. You do tend to get broader protection on investment platforms and in funds because it is ‘multi-layered’ - the underlying assets are ring-fenced from those of the provider’s and don’t sit on their balance sheet like your cash in a bank account would.
Chris - great video - could you also show how much they would have been able to take yearly from the pension option and not have anything left at the end - I’m not sure everyone will want to leave that much money when they could have had an even better retirement.
Hi Steve. Yes Voyant does allow this to be demonstrated easily using the Spending Capacity insight - it’s a very useful indication of the additional headroom that you’ve got.
That’s really useful, but what if you have your own business but income is not steady. Would a pension still work?
Yes, a pension can still be used and would be tax efficient, even if you can’t commit to high regular contributions. The contributions you make can be sporadic to suit business conditions.
Thanks for another great video. Regarding 40% higher rate tax relief for pensions - if I go into the 40% income band by just £1 - does this mean I can claim 40% relief on all my pension contributions? I know I would pay 40% tax on everything above the tax threshold. But it seems too good to be true that just nudging into this tax band by a few quid gives me 40% relief on all my SIPP contributions. Have I misunderstood? Thanks.
Hi Eamonn. You only receive higher rate tax relief on the portion of income that falls in the higher rate band. If you earned 60k for example, you’d pay 40% tax on c10k, but if you made a pension contribution of 10k you’d receive that extra tax paid back.
Great Video, I'm still working my way through educating myself on all of this so this is really helpful. One question, I assume that the topic of this video was made possible due to the Government removing the cap on individual pension funds?
Hi there. The removal of the LTA is certainly helpful. Although even with the LTA charge I found that pensions usually came out on top in a straight comparison.
I think a combination of isas and pension is the right way. ISA because it is accessible before retirement for emergencies and in retirement for topping up pension tax free. I just don’t know the correct ratio. I guess 80% pension and 20% isas? Anyway the tax thresholds will be increased at some point so things may be slightly easier!
But once you've maxed your annual pension allowance and maxed your ISA allowance - what next? Have you got any videos/suggestions on that? A very informative video, thank you!
Yes, the video prior to this one looks at other investment options.
Great video thank you. Given that tax is ever increasing with band changes and overall rates paid Any idea as to what the rate of tax/allowances would have to be at retirement to make the isa a better option? Bands and tax now could be vastly different for me in 35 years. It’s a tough call as I don’t see it going any way but up.
Yes if the bands stayed fixed where they are now forever, I dare say the ISA would start to look increasingly attractive. As you quite rightly say though, they are likely to increase and that is built into the projections, which would continue to make pensions more attractive.
Sadly it's almost certain that the state pension in the future will only be paid on a means tested basis, the government will cry it's not fair that "wealthy" people who scrimped and saved their own pension receive state money in addition.
Thanks for that great video, Chris.
If you wanted to retire before 55 yo then, would you invest everything (or as much as possible) in a pension and at some given point change to ISAs? In this case, work your way back from the target date, then calculate how much is needed between the target date and 55 yo and make enough ISA investments as needed?
Hi there. Thank you! This would be as viable an option as any other.
Hi Chris, if you don’t pay any tax will you not get the 25% “tax topup” ? Cheers Mike 🇬🇧
Hi Chris. Could you cover the scenario of someone who earns less than or slightly more than the personal allowance in relation to pension contributions and if tax relief is available? I understand the unearned income limits of 3600 gross but am not sure of the former scenario. For example if I earn 10000 pounds a year and am able to contribute 5000 to a pension, will tax relief be provided on that? Great video, Thanks.
Hi Mark. If you earned 10k a year and made a pension contribution of 5k net, 6.25k would be invested for you (1.25k would be added as tax relief).
Thanks for the great video. I'd be interested to know how this compares to products such as LISAs in the UK which contain tax benefits both at the point of deposit and withdrawal (although recognise this is a niche product with limited annual deposit amounts).
Hi there. LISAs are useful, but as you quite rightly say, they restrict how much you’re able to pay in and of course when you can take out (age 60, or for a first house purchase). Tax relief is also restricted to 25%, whereas pensions allow up to your highest rate of tax (potentially 45%).
This example was well above average income. I do not remember you doing a video of avoiding higher rate tax although by using salary sacrifice as I think that is the most beneficial use of that. Salary Sacrifice does not just include pensions of course there are other options like paying for EVs and many others.
What pension providers do you recommend? Preferably providers which include pre funding. Getting very lost trying to find the right provider.
Hi Greg. I can’t make any specific recommendations on here. The provider to use depends on individual needs though. At the low cost end of the market, if you’re looking at direct to consumer platforms, the likes of Vanguard, A J Bell, Interactive Investor and many others do a good job, but no single platform will meet every person’s requirements.
Hi Chris. Nice video, but is it a fair comparison? Is the model assuming the pension remains invested and still growing after retirement age, but the cash in ISA/GIA stops growing after retirement?
No all plans continue growing at the same rate post retirement.
Very interesting the part about extra tax during drawdown from pension is easily outweighed by earlier growth. What I am a little confused about was the numbers in the GIA/ISA example. I think you said 3108 into GIA pa and 20k into ISA pa. They seem to grow for first few years as I’d expect. But at the end GIA has 500k (ish) and the ISA 800k (ish). Sticking numbers into a compound interest calculator shows the ISA grows as shown. But the GIA has grown phenomenally (ends up more than half of the ISA even though you are putting 6 times more into ISA pa). The compound interest calculator seems to show GIA is grow at 12.5+% What am I missing?
Hi Pete. You’re missing the fact that the excess contribution to the GIA doesn’t remain at £3,108, it increases over time as earnings increases are expected to outpace price increases.
@@chrisbourne-retirementplannerpussyhole ISA and LISA beat dc pension ANYDAY. you get killed with tax at drawdown phase.
Would it not be risky having over 85k in a uk pension company just in case they go bust?
Forgive my ignorance.
Client assets are kept separate - There are few you tube videos or Google CASS regulations explained!
You are confusing FSCS protection which applies the most UK bank accounts. With pension funds, you cant lose the money if the pension provider fails.
@Mr35000000 thanks for clearing that up guys 👍🏻
Yes, as adequately explained above, your pension holdings would benefit from the fact that assets do not form part of the pension or investment provider’s own balance sheet and thus wouldn’t be exposed to that risk in the same way bank deposits would.
@chrisbourne-taxfreeinvesti9688 thank you
Great video, but what about all the charges and wouldn’t it depend on where you invest?
Hi Simon. You should find that pension and other main wrapper (certainly ISA and GIA) charges are very similar. You can also hold the same investment funds regardless of the type of account you use.
Fabulous video ❤❤❤
Thanks Lawrence as always 👍🏼
A question/comment: these two scenarios are based on 4.5% growth. However, outside pension there can be various vehicles which can give slightly higher growth and if we do thise comparisons then, will the pension strategy still hold true?
Plus, while working, putting money in pension means locking it fully. But putting money in ISA etc means, you have access to these at all times. Then it makes sense to put in pension and ISA both.
Hi there. You can generally hold the same investment funds in a pension as you can an ISA or other wrapper, so it wouldn’t true to say that other accounts can grow more. In fact, a SIPP gives wider investment powers than other wrappers, so if anything it is the reverse that’s true. You can access other accounts earlier though and it does make sense to diversify, which is mentioned at 6:48.
Very useful to see. I'm in a advantageous position that these videos are relevant. I wonder if talking to an advisor wou!d be good, but don't know how to find one that is not a st James place sales person or then how to trust that it is the right thing. For example, the bonds video is really relevant due to inheritance, but not sure about just checking with Aviva etc. Fees all look complicated or too much.
I understand. I can only say that you should grasp fully what costs are going to be at outset, and to only proceed when you know what value you are going to get in return. If something costs 10k but provides a 20k tax saving it’s good value. This must be clearly demonstrated though.
Hi Chris, does HMRC automatically add the tax rate back into your pension account if you're a higher rate earner?
No you have to claim that back on your personal contributions via self assessment.
The best of them all. I need to chat to a financial advisor soon and I'd love to hire this guy. So Chris tell me how to contact you directly
That’s very kind! Contact details for all enquiries are shown in the About section of my channel homepage.
@@chrisbourne-retirementplanner sent
Are ISAs a must as you approach retirement over the growth with pension funds? I know no tax is paid on growth so there is this benefit. It is has been mentioned ISAs help with where and how you take your money to live at retirement. I have a very small ISA fund compared to my pension funds. I understand pensions are generally are better way to grow wealth than ISAs especially if you are a higher rate taxpayer and so get the relief. If the benefit is where and how you take your money to live at retirement, then surely you can put some of the drawdown into an ISA and manage it that way. Any thoughts on this? I am just looking for a text reply here. thanks.
Hi Richard. I can’t think of any particular benefit of paying drawdown income into a pension, because you pay tax on the drawdown withdrawal regardless of where you place it afterwards. If you have ISAs, it generally makes sense to utilise them before pensions bother from an income tax perspective and an inheritance tax perspective (if that applies).
@@chrisbourne-retirementplanner Thank you Chris. Another great video. My question is about whether it is actually worth even having ISAs if the goal is to build wealth for retirement and you get better benefits with a pension, especially as as I am higher rate tax payer. I can not see any point putting much into an ISA, except to hold onto some savings which will tie me over should I loose my job etc.
Great video
Thanks I appreciate that!
£100,000 a year is hardly a realistic example for the majority of the population.
Perhaps give an example for someone earning £26,000 a year and that is still more than most people earn.
Actually the median UK salary for 2023 is projected to be close to 30k
Either way, it's no where near £100k in this example. I'm fed up of videos always assuming their audience is only higher rate earners.
I think the £100k amount is just to make the sums easier to understand. Chris is (I think!) simply using this to demonstrate the compounding advantages of contributing to a pension over other investments like ISAs and savings over a time period.
Yes as Simon has said above, the examples given are purposeful in order to show the maximisation of tax wrappers.
For 40% taxpayers, they would receive the income tax refund into their pensions at the basic rate initially. The amount between that and the 40% that they are paying is not paid by the state into their pension, but either as an adjustment of their personal allowance or a cheque in the post. Does that affect the projections?
No it wouldn’t affect the projections - that’s included in the plan John and explained. Basic rate tax at source is explained at around 4:50, and higher rate credits are then explained at around 6:20.
Eye opener, so it would appear I’m better off putting more into my pension than having that second vehicle of buying my company shares at preferential option price……
A lot would depend on the uplift you get on the shares Ian, as well as your current tax rate. Then, of course, it comes down to the performance of the shares. The pension will certainly be more diversified.
I missed the last video, I didnt take advantage of pensions being self employed for 20 years and then invested in a property which i sold and so then had what is my pension in cash, no income to be able to put it in a pension now so I am just maxing isa investments each year and have half in general incestment account , the rest is in short term savings accounts of a year or so.
The isa investments are going to grow tax free and be tax free to draw on but should I consider a pension account in my wifes name to get the 20% tax break, her works pension is pretty good too but if anything happens to her i only get a half of that pension and I dont think it can then be passed onto our daughter.
Obviously if she was earning enough to pay 40% it would be a no brainer.
Hi Nigel. Basic rate tax relief is still powerful, even if higher rate relief cannot be claimed. There is still the ability under existing rules to take tax free lump sum in the future, so even basic rate payers end up in a positive tax position.
Was this video made before the life time allowance was removed?
Hi Robert. No, there is no lifetime allowance charge shown in the projections.
I understand what you mean now! The 1.5m target was just chosen as an arbitrary figure.
Thanks for clearing that up.
What's your thoughts on the government's plans to remove the IHT benefits?
@@roberthall8473 I can imagine it will be popular with core voters. There is an argument that some planning strategies are actually helpful in capitalising housing, property development and renewable energy through IHT portfolio services.
Most people have little chance of building up a £1.5M pensions fund. I wish these videos were geared more at ordinary folk instead.
£300 a month for 37 years into a SIPP that was invested in the S&P 500 reinvesting dividends should get you there and if you did it starting at the age of 20 until retirement age 68 you’d be looking at £4.5 million in the pot. It’s all down to how motivated you are to do it.
@@sid35gb What??! £3.6k a year for 37 years is £133k! What drugs are you on mate? In order to make £1.5M you would need growth of over 10% per year ABOVE inflation!! This is not realistic.
Luke Rative is a legendary name. Changing my name right now!!!!! 😂
Would love it if you did 😂
Despite what most self-proclaimed UK FIRE experts will tell you, most people will never actually need an ISA if retirement planning is their only goal.
I was an additional rate taxpayer. In retirement I’m a basic rate taxpayer. How? I supplement pension drawdown with ISA so as not to go above £50270 gross. (Not that I get anywhere near it in reality, but that’s the theory anyway.)
Unfortunately I'm only allowed to pay £3600 into a pension each year. So any extra money goes into an ISA. Never had enough left to put anywhere else!
Well, at least the maximising as much as you can, which is more than a lot of people do.
What are the implications of money saved in a SIPP if I decided to retire in a different country, say the United States?
If I saved in an ISA, it would be straightforward to transfer the account across.
Vinay, bizarre as it may seem as I understand it in some circumstances the Government / HMRC view the tax saving that has been paid in to your pension (as well as associated investment growth) as 'their' money. Even though the money would not exist if you had not earned it, doesn't matter it is tax that has been given to you from Government coffers. So be careful - don't lose it in a scam otherwise you can get a large tax bill as well (yes really!) because you have lost 'the Government's money''. The same principle applies to taking the money abroad - you are taking the Government's share of your pension money abroad. You will need to check if the country you are going to has a reciprocal tax scheme in place so that HMRC doesn't view their money as lost to another Government, if a reciprocal tax scheme is not in place the Government will want their money and the investment growth back before you go!
Hi Vinay. I’m not able to tell you what the exact situation would be if you moved to another country, aside from saying that any international income and growth would have to be reported to the US tax authorities if you lived there.
Read about QROPS.. you can transfer UK pension plan to overseas pension provider.. it would grow tax deferred till retirement or maturity as defined in plan..
On other hand, in case of ISA- the day you transfer it overseas you loose any prior tax benefits from date of transfer (obviously its liquid unlike Pension).. any future growth in the funds thereon would be taxable in the country where you are resident.. Hope this helps
@@RavichandraGv QROPS wouldn’t be relevant for people looking to move to the US though. They are generally for people moving to EEA states, or a small handful of countries outside of that.
Chris Bourne… the man with the jawline that could cut glass :D
😂 They say the camera adds 10 pounds, but in my case it just makes my face look like a cereal box.
Outside of the tax benefits of a pension, isn't this largely based on how well the Pension does? My dad retired about 3-4 years ago and his pensions have been losing money based on the funds that the provider has automatically put them in. He has actually lost quite a bit over the past couple of years 20-30%, which has probably wiped out a lot of the tax benefits. This is considering he is retired now so his pensions should be in low-risk funds. Is there a risk-based view to consider here? Not all your eggs in one basket type approach even if it's not the highest projected return?
Hi Jonathan. It is the underlying funds that drive performance rather than the type of account (pension, ISA etc), and unfortunately it is low risk funds that have been hit the hardest over the past couple of years. The good news is that the outlook for these types of investments is now much more positive.
Be good to see a more realistic scenario....100k PA is not your average punter Id suggest ?
That’s to illustrate the tax planning impact though - I wouldn’t be able to do that as clearly with a lower earner.
stupid question, If you hit the 40% tax bracket, is it the difference between the top of the 20% bracket and whatever you earn after that, you get tax relief on that portion? for example, earn 1k over, extra tax relief on that bit? I've not been into the higher bracket before but may do this year.
Yes you're right. Only the earnings in each tax bracket are taxed at that rate (so going £1 over into the Higher rate does NOT mean every penny you earn becomes taxed at 40%, just the single £1)
Yes, as explained above, you only pay the higher rate on income that exceeds the higher rate band, not on the income below.
I'm jealous of Luke ;)
😆
Hi great video. Noticed you had 2.5 percent inflation and 4.5 percent growth on portfolio pre retirement. I thought in the past real returns for stocks would be more like 5-6 percent rather then 2 percent. Any reason why use that figure or just being conservative?
Hi Alex. Yes just erring on the side of caution. Real returns have historically been higher, but that’s not a guarantee going forward. Inflation is also not guaranteed to be low. It’s better to set targets using more conservative estimates, and then if you’re surprised on the upside it’s a bonus.
"ISA is tax free" but not for inheritance tax for single people with no children. In fact, I'll be paying 40% of my ISA on tax when I die.
I'm still waiting for a video that applies to me. I'm a nil rate earner (disabled and can't work) but have some rental income (not relevant earnings). My husband earns around the median income and a basic rate earner. I'm stuck with only 3600 pension allowance, so most of our pension is in hubby's name. I'm stuck not being able to use my personal allowance both now and in the future. It feels like yet another hurdle because I'm sick. Guess I'll continue to be left behind. I'd really welcome more inclusion for basic and nil rate earners, but i guess we're not the target audience if personal finance fees are percentage based.
A really, micro-small thing. Luke is 35. Current government plans are for the pension age to rise to 68 (so Luke's private thing at 58) between 2044 and 2046. This means where at 7:00 on the video where you say the earliest the lad could get it, if no plans change, is 57. WELL, IF no plans change, poor Luke is actually gonna have to wait until he's 58. HOWEVER, the government says, paraphrased: 'Due to profound economic shocks we're gonna review this plan closer to the time'.
Hi Dave. There isn’t actually a definite plan to increase the minimum pension age to 58 yet. There’s an assumption that it will do so when the SPA goes to 68, but the government hasn’t actually built in an automatic link so it will need to be legislated for at the time.
@@chrisbourne-retirementplanner Aha! This is why you do the amazing videos, and I intend to hopefully use your skills on a more personal level as I approach retirement :)
Unless I missed it before, the username is a little gemm of humor
Yep you got it ☺️
You are WRONG! You have not factored in the costs of drawing down your pension, nore that income via limited companies can be engineered such that money fed into ISA is untaxed i.e. wholl;y ones tax free allowance, whilst yes that which IS taxed goes into the pension for a rebate. so you are not as clever as you think you are!
No, I’m not wrong. Let’s dissect what you said… Regarding costs of drawing down, you may find that some providers will slightly increase their platform % charge when you move into drawdown, or implement a fixed quarterly charge. Some providers don’t do this at all though, and their charges remain the same. In any case, the comparative difference this will make in relation to the taxation benefit will be negligible. Regarding the ability to pay into an ISA using company profits, you refer to the tax free allowance and I assume by this you mean the Personal Allowance. Let’s imagine for one moment that you only paid yourself £12,570 a year and were somehow able to pay all of this back into an ISA or pension. It is true you can draw £12,570 at 0%, which could then be paid directly into your ISA. If you decided to pay this into your pension instead though, it would only cost you £10,056 because the rest would be added in via tax relief at source. You would therefore be £2,514 better off at the start. That £2,514 you saved could then be placed into your ISA if you want. On day one, you’ve therefore got £15,084 invested rather than £12,570. Remember that in the future you are able to access 25% of your pension tax free, and you can utilise your Personal Allowance to draw income at 0%. Of course, it’s very unrealistic to assume you can pay yourself just the Personal Allowance and invest it all anyway - you have to live after all, so you’ll probably need to draw some dividends out of the business. Those dividends are personally taxed, after corporation tax has already been paid on the company’s profits. Paying money into a pension from your company instead will reduce your corporation tax burden, saving your company money. In summary, you’re the one who has it wrong I’m afraid.
You mention a SIPP can currently be accessed from 57, is this without penalty? My only reference point currently is my LGPS which I could access from 57 but penalises for every year before SRA.
Hi there. The current age is actually 55, but this changes in 2028 to 57. An LGPS is defined benefit, so although you are allowed to access benefits before the scheme’s normal retirement age, you will be penalised for doing so. That is simply because they have to pay your guaranteed pension for longer. It’s different with a SIPP as there are generally no guarantees - it’s just a pot of money that you manage (or someone does on your behalf).
@@chrisbourne-retirementplanner Thanks Chris. So a SIPP in addition to my LGPS would give me an option for phased drawdown avoiding penalty if I understand correctly? (SIPP from 55/57, and then LGPS from state retirement age)?
@@945965566 Yes, spot on.
@@945965566 The only thing to bear in mind is foregoing matched contributions in favour of a private arrangement. If your employer would pay more into your pension or a separate AVC if you did, you have to weigh this up. Generally speaking, it’s best to maximise what an employer will offer you first before doing something separate, but if you’re already getting as much as you can from them, it’s not an issue.
@@chrisbourne-retirementplanner Thanks again Chris. Yes, considering continuing to pay in via LGPS and maximising any matches AVC (though employer unlikely to provide additional match), and having a SIPP in addition, solely with the purpose of accessing the SIPP funds between 57-67, before accessing full LGPS entitlement from 67 - trying to hack a way into early retirement without sacrificing continuations! 😊