Pardon my ignorance, but where’s the extra £138 coming from?
One of the perks my company does is adding their employer"s NI to anything I put in my pension. So far so un-mazing, but the weird thing is that they do it at the 13.8% lower ( standard?) tax rate rather than the marginal 2% rate that they are actually saving. So I save 40% tax and 13.8% NI. Daft but handy
its always worth remembering that you’ll get taxed on 75% of that later on,
Agreed, but at a pissy rate. There's no way my post work income will be above £50k, And around a third of it will be from ISA so I doubt I'll be paying more than 10% tax in total. Which is about what I pay now....
My Dad died aged 67. 6 Months after retirement.
I stopped work at 51 in 2016 after taking a big redundancy payment. Now have a small business which have built up and now takes a couple hours a day and pays enough to be comfortable, but not extravagant with no mortgage. My work pension kicks in in 5 years aged 64 and will be £22k plus they make up my £11.5k state pension for the 3 years until I am 67.
I consider I am very lucky. I was also piling money into my pension at 30 when my peers were having great holidays every year. Luckily cycle touring holidays are cheap. Also I have no kids & I cashed in my Thames Valley house for a much nicer house in Scotland 2 years ago.
Its simple really the more you pay when younger the better off you will be. Plus you need way less than you think in retirement and whilst working are trapped in it. Once out a whole new world of possibilities emerge that you would never see when in your career. I do a bit of voluntary work which I would like to increase. Quite liberating really. Go as young as you can.
I’ve been planning for retirement since age 25. Now 43 and the concept is becoming real which is quite strange. I’ve tried to balance spending and saving but feel I can dial back saving now. Investment returns should see me have enough at age 55. Plan is to carry on saving into ISAs more so I can bridge over to pension from around 50. I’ll probably reduce hours significantly at 50 or change career.
I overpaid into AVCs on top of a final salary pension for 22 years. Then just into a DC pension for the past two years. I plan on taking the 25% lump sum, living off the final salary benefit, and leaving a DC lump sum in a will (free of IHT). If (actually when) tax laws change, I’ll change my plans.
I could retire at 56, but like my job - I think for a living rather than lift bricks or dig roads like my grandfather. If the the rules change, I’ll retire and do something else. Voluntary academic sounds like a nice role. I wouldn’t mind a little travel chasing the tours in a motorhome. I have no idea of life expectancy as I’m a member of the orphan club, and one sister died at 48. So am older than the median age for my family already, and financially probably far too cautious!
Question: I have a tiny amount in an old civil service scheme from 30 years ago. I can claim it at 55 it will pay £1500pa and a approx £5k lump sum. What are the benefits of leaving it for the next 5 years.
Can I even access it and if so will it be taxed at 42% (my current tax band)?
Yes you will be taxed on the £1500 as it is income on top of your existing income so the benefits of leaving it for 5 years is that you won't be losing 42% of 1500 a year in tax and in theory it will continue to grow where it is so may be more than 1500 a year in 5 years time (guessing as don't know your pension scheme)
Anyone that's done it know the answer to this as there were two versions earlier and I couldn't see a definitive resolution.
Background - I've got 6 DC pensions - yes, I should look at consolidation - 4 employer that I'd categorise as 1 small (20k) 1 medium size (50-100k), one quite large (300k+), and one current that is reasonably generous on contribs and so keep paying all the time I work - which i enjoy and don't plan to give up yet (I'm 55). I don't want to touch that.
Then I have as a result of paying into an AVC another 12k approx in a last one.
So - I can take up to 25% of any of these (or all) as a lump sum.
The question - someone said if I take this tax free cash, I am then capped to 10k a year in future contributions.
Someone else said no - as long as it's within the 25% then the MPAA isn't triggered.
Who's right, as accessing the tax free cash from a couple of these could be very useful in a few months time. I could find it another way but I think getting 8-10k out tax free hardly affects my overall pot (-2% ish) and is better than a loan.
Depends on the markets!
Though within the next few years would be nice. Planning on dropping to 4 days a week next year anyway. In the fortunate position of doing a fun job that pays OK.
SO retired early a couple of years back and can’t believe how they squeezed everything in back then .
folks may already have seen that Martin Lewis did 2 MSE specials on pensions recently.
https://www.moneysavingexpert.com/site/listen-to--the-martin-lewis-podcast-/
How to take money from your pension July 2024
Pension need-knows July 2024
Just checked If I retire at 60 I get 15k a year...guess I'll be working for a while then.
The question – someone said if I take this tax free cash, I am then capped to 10k a year in future contributions.
Someone else said no – as long as it’s within the 25% then the MPAA isn’t triggered.
I went through this recently and you can take tax free amount and up to £10,000 taxable amount before MPAA is triggered.
It is detailed here --> https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/money-purchase-annual-allowance-mpaa
Older readers will remember SERPS, and the option to contract out. I did, and its worked for me. Just taken 25% tax free and drawing down the rest (as a monthly amount) from about a month ago, to give me enough to last until the state pension arrives in 5 years (with some other private pensions). So have just retired at 62. I have a long list of things to do so it's working fine for me, but it is the summer, so we'll see how it is in the dark winter days when cycling is less of an option.
I was also piling money into my pension at 30 when my peers were having great holidays every year.
Auto enrollment is a great thing. I've a 21 year old with 2 years of pension already saved, and an employer who matches employers savings up to 10%.....The maths on him starting a pension at 18 and it compounding is startling
As Einstein noted, compound interest is the eighth wonder of the world. Given your son will not be able to access those carefully accrued pension savings until at least 57 he may want to consider putting some money into an ISA - there are no top ups but the increase in value is tax free and the money can be accessed earlier free of tax if needed.
Hmmm. Members of that famous fund/ pension provider that went bust a while back would beg to differ. I’m keeping my eggs in a few different baskets.
Me too, I've 5 DB and 3 DC pensions, all kept separate.
Old enough to remember Maxwell, and I know the world of pensions has changed, but the people in it haven't...
Auto enrollment is a great thing. I’ve a 21 year old with 2 years of pension already saved, and an employer who matches employers savings up to 10%…..The maths on him starting a pension at 18 and it compounding is startling
I wish auto-enrolment had been around when I was starting out. As it is aged nearly 40 I've only been saving into a pension for roughly 10 years, and am doing my best to make up for lost time by piling as much money into that (and my S&S ISA) as is reasonably practicable while bringing up two small children. I cannot wait for the nursery free hours to kick in that's for sure.
No complaints here though, as I also have benefited from things like hand me down cars (currently driving a deeply fashionable 20 year old Honda Civic), and a job where I can WFH, walk or cycle to work.
I'm not worried about retirement per se, but I've definitely got an eye on it. I just hope I can provide for my kids how I'd like while still being able to retire at some point.
Money and things you can re-aquire…. Time, you cannot.
Again, this kind of fridge magnet philosophy could very well come back to bite you when you're in your early eighties, penniless, with the very real prospect of living another ten or fifteen years.
Auto enrollment is a great thing. I’ve a 21 year old with 2 years of pension already saved, and an employer who matches employers savings up to 10%…
Public Sector?
This is a greater matching percentage than I've seen in the Private Sector for even DC's never mind just basic Auto Enrolment for at least decade (probably +15 years), and for senior SME's.
As Einstein noted, compound interest is the eighth wonder of the world. Given your son will not be able to access those carefully accrued pension savings until at least 57 he may want to consider putting some money into an ISA – there are no top ups but the increase in value is tax free and the money can be accessed earlier free of tax if needed.
He has two years of maxed out LISA's already, a third year underway.
He also has significant savings.
All of it is his earnings.
I don't think he yet appreciates how well he is doing at this age.
He plans to buy a flat or house as soon as he can.
He plans to buy a flat or house as soon as he can.
I was going to say make sure it's a house not a flat so as to avoid pouring his earnings into a leasehold black hole but then I remembered you're in Scotland where apparently you can have nice things.
The only advice I would give on pensions is spend time understanding them, it really isn't that difficult although the pension companies, IFAs and other parties taking a slice of your pot try and make it so. Start off with the Boring Money videos on YouTube. Other good YouTube channels on this topic are Chris Bourne, PensionCraft and Damien Talks Money.
edit - and The Martin Lewis links above
Does anyone publish a comparison of charges & performance of pension companies?
I’ve got pensions with Reasure, Phoenix life & Peoples pension but feel I should transfer for a better deal.
Phoenix are notorious for high charges and in my case make it difficult to transfer out based on the transfer value. I've got a pension with them that is currently worth £45k but a transfer value of £24k. This is one of the old With Profits pensions so things may have moved on. If you can get a good transfer value moving to a SIPP should be a better option but some of the older policies have minimum guarantees so you may need to take that into consideration.
My SIL is in a place where she could retire. One of her pensions 'matured' a couple of years ago - lump sum and started paying out. When my wife asked her this week, why doesn't she stop working (only part time) she said she still had to pay NI and didn't agree with it. Reason:- she's done the maximum years for state pension, but she believes she still has to pay NI so she needs to work - thinks it's unfair. No point explaining that if you aren't earning you don't pay NI, and if everyone pay's tax and NI if earnings are above a certain amount. She has it in her head she's got a bum deal !
If you take any out, you need to limit it to the 25% tax free without it kicking in the limit. This is important to me as my contributions, plus my employers are well over the £10k per year.
My Plan...
Work full time till early 60's - then bumble around doing part-time work as and when I fancy! 🙂
No cruises for us, as neither of us has great pensions, but we own our own home and have little debts. But to be honest the thought of a cruise sends shivers down my spine anyway.
We may move to the east coast as property is cheap there and we could release some capital.
My employer pays 14% if you volunteer to increase your contribution to 8% OR more.
So I pay 9% and they top me up with 14%
This , plus a few quid bunged into vanguard every month makes a huge amount over time . And yet very few people actually take advantage, same as the share option scheme which sells you discount shares on a sort of hp deal
Again, this kind of fridge magnet philosophy could very well come back to bite you when you’re in your early eighties, penniless, with the very real prospect of living another ten or fifteen years.
True, but I'm not planning on sitting out my years in a country that's expensive and has shitty weather..... Not stuck indoors all day and no heating bills to worry about.
And if things get that bad I know a few places where you get top yourself without any paperwork or a trip to Switzerland.
55 next year but an unexpected and deeply saddening inheritance has changed things for us, with a possibility of winding down at 55.
I did post a while ago about the “value” of an IFA, and can now attest that ours has helped us hugely. They are not unsympathetic, but purely from a numbers game, ours is all over our options and provides excellent modelling and scenario comparisons to help us make decisions.
I know that it’s possible to deal with all this yourself, and plenty of good videos out there (James Shack being a good one) but for all their life lesson and money sense, they can’t help your individual set of circumstances.
I do think engaging a good Financial Planner is a good investment.
I woke up to the reality of my finite career in my late-mid 40s, which is apparently completely normal.
It took me a year or two of half hearted and intermittent self education to learn enough to start making active choices with fund allocations and consolidation.
I have consolidated a series of smaller DC pensions into my workplace pension where I have just enough choice of funds for the options to be meaningful and hit the maximum rebate on the management fee.
I have a small DB pension from my graduate job that is worth about 3k a year I'm about to pull my share out of the scheme and invest it in a SIPP where I'm confident I can get it to perform much better than it is.
50 at the moment an aiming for early 60s to retire when the mortgage is paid off at 62. In the meantime I'll start saving into the pension more aggressively once a kids are finished union a couple of years.
Again, this kind of fridge magnet philosophy could very well come back to bite you when you’re in your early eighties, penniless, with the very real prospect of living another ten or fifteen years.
Or you could retire with the very real prospect of dying within a short time.
For me there is a balance - I am saving for a retirement, I know I will not be rich, but I can get out and walk, ride and enjoy where I live.
I plan on working full time until after 60ish, then look to step down hours. I plan on moving to a cheaper, more countryside accessible place, a place I may not need a car, downsize to an energy efficient home and release more money, and look to volunteer in the community and enjoy the nature around me.
I do see people, and so many recommendations, that somehow working so hard you lose out on life now, so that you can afford holidays and cruises as a 'dream' in old age just means nothing to me. I want to have food, clothing, a warm home and some friends and nature around.
If you take any out, you need to limit it to the 25% tax free without it kicking in the limit
Whilst we're on the subject of the 25% tax free lump, bear in mind that if you take it as a lump early on then it's likely to end up being a lot less than 25% of the money you get from your pension fund.
it’s likely to end up being a lot less than 25% of the money you get from your pension fund
Not sure what you mean exactly but if you have a SIPP then an option is to crystallise a portion of your total fund then take 25% of that tax free. You can leave the remaining amount invested and hopefully that will grow. The remaining uncrystallised amount remains untouched and again, hopefully that will grow also. You can then crystallise a further amount and take 25% of that. You can continue to do this until you have crystallised your whole fund but in doing it in stages (possibly 1 years cash requirement at a time) then by the time you have finished, assuming some growth in your fund, then you will end up with >25% tax free cash in total.
Never had a specific plan or strategy, but we are both fortunate & higher earners, other half is in the civil service so she has a great pension & im able to max out my annual contributions along with other investments, ISA’s etc.
We both had a life before we met & we’re now late 30’s & early 40’s so we had a property each which we kept & have rented out, both with only a few years left on the mortgage & our main house is a now a pretty low LTV, so once they are done, I think we will look to make some choices with how we live.
I think realistically we could jack it all in before we got to 50 & have a comfortable life but I still have a bit of a dream of having a little place somewhere along the Ligurian coast that we can just disappear off to when we fancy it - maybe we should just stop dreaming & start doing.
I don’t see the point in living like a monk to enjoy a life over 60, my view was always a bit more skewed to living for the moment - in the last 10 years or so, work has enabled both an early finish option, without living like a monk to achieve it, which is a fortunate position to be in.
I've pals my age who haven't had kids (and then grandkids) and I've no idea why they're still working - they won't be spending their wealth before they die.
Not sure what you mean exactly but if you have a SIPP then an option is to crystallise a portion of your total fund then take 25% of that tax free. You can leave the remaining amount invested and hopefully that will grow. The remaining uncrystallised amount remains untouched and again, hopefully that will grow also. You can then crystallise a further amount and take 25% of that. You can continue to do this until you have crystallised your whole fund but in doing it in stages (possibly 1 years cash requirement at a time) then by the time you have finished, assuming some growth in your fund, then you will end up with >25% tax free cash in total.
We're basically talking about exactly the same thing, but with a slightly different perspective . In fact I agree with everything you wrote there apart from your >25% conclusion. In my mind it's <25%
I have a suspicion that you're saying it's >25% of the total pension value at the point you take your first crystal. I'd say that was true but not a relevant measure.
What I'm saying is that it's <25% of the total amount you will get out of your pension.
Would you agree?
compound interest is the eighth wonder of the world
that may be, but for a pension that has a chunk invested in equities or funds it only takes a Truss/Kwarteng type snafu and a chunk of growth and even capital can disappear in an instant.
see also ‘inflation’.
that may be, but for a pension that has a chunk invested in equities or funds it only takes a Truss/Kwarteng type snafu and a chunk of growth and even capital can disappear in an instant.
Yes indeed, it would be pretty sub-optimal if that happened just before you were about to retire. The point though is that if you are invested for long enough, you will be up overall compared to cash in the mattress regardless of peaks, troughs, and inflation. All about time in the market, not timing the market...
One of the perks my company does is adding their employer”s NI to anything I put in my pension. So far so un-mazing, but the weird thing is that they do it at the 13.8% lower ( standard?) tax rate rather than the marginal 2% rate that they are actually saving. So I save 40% tax and 13.8% NI. Daft but handy
13.8% is correct. Employers doesn't vary. It is 13.8% on every pound above the secondary threshold calculated per period of pay (i.e. no aggregation over the tax year; it is a weekly or monthly threshold value depending on how you're paid).
You'll also be getting Employees NIC reductions on your payslip (just less NIC paid). If you drop down through the thresholds you'll be getting some relief at 2% and then some at 8%.
It's not a kick in the teeth
What I’m saying is that it’s <25% of the total amount you will get out of your pension.
It wont be <25% of the total. The point being that by taking only some of your 25% entitlement you leave the remainder in to grow. When you take your next chunk you are taking it from a slightly larger pot. You are not getting >25% but because you are taking say 5% of your 25% each year for 5 years, and assuming the pot grows, each time you come back for another 5% it is 5% of a slightly larger amount.
Chris Bourne explains it here:
13.8% is correct. Employers doesn’t vary
Aha, thank you. I've had another look and I was indeed confusing Emp'ee and Emp'ee NI. Makes sense now
Surfer, when you crystalise each of your chunks, what are you doing with the corresponding 75%? In your post above you seem to be saying you leave it in.
I’ve always intended to take money as slowly as possible, using the 25% tax free amount as part of each withdrawal to minimise my ongoing tax bill and leave as much as possible still invested.
I’d think that unless you really need it, doesn’t make much sense to take 25% out straight away, since you then take away a huge chunk of possible future growth.
Yeah if you’ve no plans to spend the 25% pcls. Then might as well leave it in a very tax efficient wrapper.
I took the whole tax free amount out and paid for a big extension. May not have been a bad use of it as it has increased value of house by more than I spent plus I get a nicer house to spend the next 10 years in rather than wait until I am 66 and then get it done.
So if you had a pot of say, 750k, you could take out 25% tax free, so what if you took out 40k per annum, annually, would this be tax free up to the 25% limit ?
Yes, I do have an IFA managed fund and will hopefully retire in 3 years or so age 61, but haven’t done detailed drawdown planning yet.
