Pension stuff, how's it all looking ? HAve you prepared ?

[Count Steer]

£20k might seem like a fraction of a retirement pot but, if a body had taken advantage from their introduction (even though the permissible amount was lower previously) and ignoring PEPs before I believe that the diligent saver could have put £346,500 in. Double that at £683,000 for a couple and *chews pencil* that's returning ~ £30k pa, tax free in cash ISAs. Quite nice but if one were to be in the 40% or 45% tax bracket that wouldn't be too painful at all.

(+ that's ignoring all the luvverly interest - or growth if in share ISAs - accrued en route so it isn't necessarily all new cash used in getting to the £346,500 figure. Compound interest, Einstein's 8th Wonder of the World ).

[IccyV2]

£20k might seem like a fraction of a retirement pot but, if a body taken advantage from their introduction (even though the permissible amount was lower previously) and ignoring PEPs before I believe that the diligent saver could have put £346,500 in. Double that at £683,000 for a couple and *chews pencil* that's returning ~ £30k pa, tax free in cash ISAs. Quite nice but if one were to be in the 40% or 45% tax bracket that wouldn't be too painful at all.

(+ that's ignoring all the luvverly interest - or growth if in share ISAs - accrued en route).

I agree, if you used ISAs every year and maxed out then they're a decent vehicle to use, at least now with half decent interest rates, that's why the government have curbed them. But I don't think the average person has put £20k a year in every year so I didn't want to say that.
If you made use of them then £30k a year tax free is excellent, then you've got both your allowances on top to use, so you can make a decent wage before the tax man gets a sniff.

But if you're only just starting out it's small beer, although as I said you might as well because it's there and it's a chunk of cash that isn't using up your tax allowance.

I actually don't mind paying tax, I could moan about how it's spent but in principle I'm ok with it and I don't go looking for loopholes, I'm ok with tax on income as a principle. The tax I fundamentally disagree with is stuff like IHT and CGT, because that's not income, that's just good provisioning and it feels punitive.

[gremlin]

And, still banging on, if anybody has the chance to make Additional Voluntary Contributions via their work pension then look very closely at that. Yes, it's gonna get capped £2k before being hit with NI soon, but still worth doing as it's salary sacrifice so you save the tax. Ain't often you get summat for nowt.

[Count Steer]

On the tax situation - the freeze on the levels at which the rates are paid has been pretty heinous. 40% at £50k? Like £50k pa is riches beyond the dreams of avarice? The number of people fiscally dragged into that must be pretty significant*. They could have added a 30% step at least but doubling the rate at a pretty measly level?

* Edit: if it had risen at the same rate as wage inflation it would be £76k before the 40% kicks in and £87k estimated in 2030 which is the earliest that the thresholds will change.

So, yup, I'll pay my taxes like a good citizen but if the government offer me a perfectly legit way of avoiding getting rinsed - I'm in.

CGT and IHT? Not too bothered personally, they're both income, but I know people do get very agitated about IHT, - particularly now since things got so tough for the next generations in just about all departments. It's still £325k - 500k tax free for the recipients which is, as they say, better than a poke in the eye with a sharp stick.

[IccyV2]

CGT and IHT? Not too bothered personally, they're both income, but I know people do get very agitated about IHT, - particularly now since things got so tough for the next generations in just about all departments. It's still £325k - 500k tax free for the recipients which is, as they say, better than a poke in the eye with a sharp stick.

IHT is an entirely voluntary tax depending on how much you trust your kids.

Give you kids all your money ten years before you die and you'll escape at least one part of it.

[Dodgy69]

I'd drawdown from the taxable pension keeping inside the lower rate tax and supplement with non taxable drawdown. or for every drawdown payment 25% is taken from the non taxable portion, or summot like.

[MyLittleStudPony]

I'm not an expert but I think it's worth noting there are commercial bonds which are very different from government bonds.

FWIW I've used the former but not the latter, which I think was right for me at the time, but we all have different positions.

[MyLittleStudPony]

I'm just breaking your balls!

And I'm not claiming to be anything other than a rough old scrimper.

I genuinely hope you never stop doing it, you've been a worthy adversary, if there was a heart emoji I'd post it

I aspire to be a rough old scrimper
None of us are anything, that's why I always found it so amusing to wind people up, it used to be fun, some of the characters on the forums could play the game very well but now it's all bitterness and "I'll phone your boss and get you fired".

The further I've ploughed into the echelons of people who by conventional measures appear to be successful, the more I realised they're bigger chancers than I am, which does beg the question that if that's true (and it is) then why have some people not figured it out and bought a fleet of jet-skis.

I suspect some of them have. But they choose not to mention it.

[Nobby]

[quote=MyLittleStudPony

And I'm not claiming to be anything other than a rough old scrimper.
[/quote]

I am.
There’s me , two years into my retirement ( one year early) and I’m sitting here looking at my pot and wondering when I should start spending some of it ?
I managed to live off my wits for the first year until the SP kicked in, but I have never been frivolous since the days of being poor in the late 80’s early 90’s.
I suppose I am keeping my stash in case it all goes wrong and I need to delve. Retrieving what’s mine in the best tax efficient way is my main priority.
Am I correct in believing that the Pension Inheritance rules are changing next year ?
I’d gladly give it all to the next generation, but I’d be grave turning knowing that the Exchequer has taken a lump.

[Count Steer]

Am I correct in believing that the Pension Inheritance rules are changing next year ?
I’d gladly give it all to the next generation, but I’d be grave turning knowing that the Exchequer has taken a lump.

Yes.

Changes from April 2027: Unused pension funds will no longer be considered outside the estate. They will be added to other assets (property, cash, etc.) when calculating IHT.
Exemptions: Pensions passing to a surviving spouse, civil partner, or a registered charity will remain exempt from IHT.

More info here:

https://www.gov.uk/government/publicati ... h-benefits

Doesn't apply to spouses or civil partnerships. Wonder if people can make their children 'registered charities'

[JackyJoll]

Doesn't apply to spouses or civil partnerships. Wonder if people can make their children 'registered charities'

It’s a better idea than marrying them.

[Count Steer]

I assume i could leave the £150k in the pension and drawdown that as tax free only ? Which would mean that the £100k in year 2 would still be gaining interest/capital ?

Short answer, yes.

Or take the 25% and shove it in a combo of ISAs and Premium Bonds, up to your limits, obvs. This will give tax free savings (I'm not a big fan of PBs, but they serve a purpose).

Or put it in a special income fund with one of the online fund managers.

Depends on your risk appetite and how quickly you might want to access the funds. A good spread of investments isn't a bad idea. As CS said, individual needs will dictate how you should invest.

Plus don't forget to factor in my invoice when drawing down from the lump sum. This advice don't come cheap, Sunshine.

Well, once i know my work situation more i will be seeing an IFA, but that's not quite yet. No point going to see one until i have all the scenarios playing out fully.

On the subject of options for taking the tax-free allowance from a pension fund - in a timely fashion this popped into my inbox and it lays out, pretty much, all the options and risks etc etc. Worth a read although I think much of it has been mentioned on here.

https://www.fidelity.co.uk/markets-insi ... 7hPUeljdCz

[Taipan]

Short answer, yes.

Or take the 25% and shove it in a combo of ISAs and Premium Bonds, up to your limits, obvs. This will give tax free savings (I'm not a big fan of PBs, but they serve a purpose).

Or put it in a special income fund with one of the online fund managers.

Depends on your risk appetite and how quickly you might want to access the funds. A good spread of investments isn't a bad idea. As CS said, individual needs will dictate how you should invest.

Plus don't forget to factor in my invoice when drawing down from the lump sum. This advice don't come cheap, Sunshine.

Well, once i know my work situation more i will be seeing an IFA, but that's not quite yet. No point going to see one until i have all the scenarios playing out fully.

On the subject of options for taking the tax-free allowance from a pension fund - in a timely fashion this popped into my inbox and it lays out, pretty much, all the options and risks etc etc. Worth a read although I think much of it has been mentioned on here.

https://www.fidelity.co.uk/markets-insi ... 7hPUeljdCz

Not something I've ever considered, but my wife would like us to be retired. I'll have a read, thanks.

[Horse]

On the subject of options for taking the tax-free allowance from a pension fund - in a timely fashion this popped into my inbox and it lays out, pretty much, all the options and risks etc etc. Worth a read although I think much of it has been mentioned on here.

https://www.fidelity.co.uk/markets-insi ... 7hPUeljdCz

@weeksy Could this affect your decision?

Might also depend on when you leave your current job (redundancy payment?) and any other work.

" At a basic level, most people avoid taking a huge chunk of their pension upfront as it would risk pushing them into a higher tax bracket. Instead, they stagger their withdrawals over many years."

[Dodgy69]

Make sure you use your tax allowance 12570 every year. Basically, always draw 12570 from the taxable portion even if you withdraw all your tax free 25%. Imo.

[Count Steer]

Make sure you use your tax allowance 12570 every year. Basically, always draw 12570 from the taxable portion even if you withdraw all your tax free 25%. Imo.

Ah, but if you are getting a state pension that's most (if not all) of the 0% allowance gone.

[Dodgy69]

We do hear about one day state pension will be means tested, but how can they, SP isn't a benefit, it's in return for NI contributions.

[Horse]

We do hear about one day state pension will be means tested, but how can they, SP isn't a benefit, it's in return for NI contributions.

An aside: there's a court case underway (or about to) to get the pension age back to 65.

If that succeeds it might affect some peoples' plans

[Nobby]

We do hear about one day state pension will be means tested, but how can they, SP isn't a benefit, it's in return for NI contributions.

It is in Australia.
Those that have accounts floating above the limit seem to have plenty of cash stashed around their homes.
My neighbour told me recently that he needed to buy “something” soon to get him down under the threshold and was scratching his head trying to figure out what to buy.

[Count Steer]

NI is a tax that pays for the state pension system (among other things). It's not a personal pension payment. All your payments when working pay current pensioners and when you get your pension it is being paid by current NI payers.

They can means test it if they decide to. It's a common fallacy that NI payments go into your very own pension pot. That misconception will make it difficult to do though.