[Misc] Retirement

[Shropshire Seagull]

We are indeed all different. For my part, I would not have accepted what the IFA told me, without evidence to back it up. I would have still wanted to see the numbers in various scenarios, especially my own scenario. I'm not talking about the advantages and disadvantages of SIPPs (20% tax relief upfront, only available after 55, taxed on way out) vs. ISAs (20k limit, no tax relief on way in, but no tax taken on way out). I'm talking about the relative capital growth over different periods and different growth rates, and different marginal rates of income tax.

In short, does the 20% effective hike in money going into a SIPP at basic rate tax, outweigh the tax payable on money you take out, years or decades later, when your circumstances, and possibly your marginal rate of income tax, will have changed?

He did run some simple numbers. The key one I can't see mentioned in your response is the 25% tax free you can take from your SIPP. Lump sum not always the right choice. Example, assuming no other income, you can be drawing down £16,760k - so tax only due on 75% which keeps it to £12,570 threshold, so tax free. With a partner, you can thus get out £32.5k income without paying a penny in tax.

In regards to whether an ISA or SIPP investment performs best, I couldn't say. I also don't know what charges are made for S&S ISAs either.

 

[Weststander]

We are indeed all different. For my part, I would not have accepted what the IFA told me, without evidence to back it up. I would have still wanted to see the numbers in various scenarios, especially my own scenario. I'm not talking about the advantages and disadvantages of SIPPs (20% tax relief upfront, only available after 55, taxed on way out) vs. ISAs (20k limit, no tax relief on way in, but no tax taken on way out). I'm talking about the relative capital growth over different periods and different growth rates, and different marginal rates of income tax.

In short, does the 20% effective hike in money going into a SIPP at basic rate tax, outweigh the tax payable on money you take out, years or decades later, when your circumstances, and possibly your marginal rate of income tax, will have changed?

On your last point/question, could it be looked at with the following comparison?

Both 15 years, monthly contributions and 5% annualised growth, net of charges:
ISA - £1k invested per month = a pot of £267k, sitting there tax free.
SIPP - £1.25k invested per month = a pot of £334k, 25% also tax free, 75% might be taxed.

Subject to pension restrictions not suiting some, shirley the compound growth over 15 years of investing 25% more into funds etc, swings the argument in favour of SIPP over ISA? Have I missed a key point?

 

[timbha]

On your last point/question, could it be looked at with the following comparison?

Both 15 years, monthly contributions and 5% annualised growth, net of charges:
ISA - £1k invested per month = a pot of £267k, sitting there tax free.
SIPP - £1.25k invested per month = a pot of £334k, 25% also tax free, 75% might be taxed.

Subject to pension restrictions not suiting some, shirley the compound growth over 15 years of investing 25% more into funds etc, swings the argument in favour of SIPP over ISA? Have I missed a key point?

Depends what your other income is and marginal rate of tax. Basic rate favours SIPP but of course you can adjust what you withdraw to minimise tax payable. With an ISA you can draw the full amount in one go for a major purchase, eg a property abroad without any tax implications.

 

[dazzer6666]

Depends what your other income is and marginal rate of tax. Basic rate favours SIPP but of course you can adjust what you withdraw to minimise tax payable. With an ISA you can draw the full amount in one go for a major purchase, eg a property abroad without any tax implications.

SIPP also falls outside of your estate for IHT purposes
Until recently LTA might gave impacted decisions for some too

 

[dazzer6666]

He did run some simple numbers. The key one I can't see mentioned in your response is the 25% tax free you can take from your SIPP. Lump sum not always the right choice. Example, assuming no other income, you can be drawing down £16,760k - so tax only due on 75% which keeps it to £12,570 threshold, so tax free. With a partner, you can thus get out £32.5k income without paying a penny in tax.

In regards to whether an ISA or SIPP investment performs best, I couldn't say. I also don't know what charges are made for S&S ISAs either.

How can you get pension income from your pension (drawdown) to your partner tax free ?

 

[Rugrat]

I assume you retirees that are enjoying it have decent pensions and paid off mortgages?

I've just turned 50 but am looking at trying to get higher up the greasy pole again because I'm seeing my energy bills and mortgage payments growing like Topsy. Without wanting to dig into anyone's real personal data is there anyone out there who thinks they know what sort of size pension pot allows for a comfortable retirement?

Too many variables to answer the question. Outgoings, other income, what does “comfortable” mean, and and and.

I’ve helped a few people answer the question, but the first thing you need to do imo is capture what you’re spending now and get it categorised. Then you can fast forward into retirement years making adjustments for inflation and any expected changes in spending habits etc

The real unknowns, inflation, investment returns and life expectancy need some thinking but if you maintain the sheets (as I have for 10 years now) then they provide a pretty reliable picture

If you can use Excel at a fairly basic level I’d be happy to help you get started, just pm if interested

If not then the answer is £750K

 

[PILTDOWN MAN]

How can you get pension income from your pension (drawdown) to your partner tax free ?

Read it again.

 

[dazzer6666]

Read it again.

Doesn’t assume the partner has a separate pension

 

[Eric the meek]

On your last point/question, could it be looked at with the following comparison?

Both 15 years, monthly contributions and 5% annualised growth, net of charges:
ISA - £1k invested per month = a pot of £267k, sitting there tax free.
SIPP - £1.25k invested per month = a pot of £334k, 25% also tax free, 75% might be taxed.

Subject to pension restrictions not suiting some, shirley the compound growth over 15 years of investing 25% more into funds etc, swings the argument in favour of SIPP over ISA? Have I missed a key point?

Those are useful figures which highlight the uplift in the size of the final pot, that an upfront tax giveaway can make. On that summary, the SIPP wins hands down.

But, it isn't quite as simple as that*

What I asked was 'does the 20% effective hike in money going into a SIPP at basic rate tax, outweigh the tax payable on money you take out, years or decades later, when your circumstances, and possibly your marginal rate of income tax, will have changed?'

It was an impossible question to answer of course (too many scenarios, ifs, buts, rules, shifting circumstances, other income*, tax rates etc). So I'm going to answer it myself.

I've just taken a modest payment from my drawdown SIPP. I took a gross payment of £1500, with a PAYE tax deduction of £257. So the tax paid was 17.133% of the gross. So I can categorically say, based on my sample size of one, (one retiree, one tax code, one pension payment) that the tax take on money in drawdown is less than the 20% uplift the government kindly allowed me to add to er, my money, whenever it was I paid it in.

****Folds arms, satisfied with himself****

 

[dazzer6666]

Those are useful figures which highlight the uplift in the size of the final pot, that an upfront tax giveaway can make. On that summary, the SIPP wins hands down.

But, it isn't quite as simple as that*

What I asked was 'does the 20% effective hike in money going into a SIPP at basic rate tax, outweigh the tax payable on money you take out, years or decades later, when your circumstances, and possibly your marginal rate of income tax, will have changed?'

It was an impossible question to answer of course (too many scenarios, ifs, buts, rules, shifting circumstances, other income*, tax rates etc). So I'm going to answer it myself.

I've just taken a modest payment from my drawdown SIPP. I took a gross payment of £1500, with a PAYE tax deduction of £257. So the tax paid was 17.133% of the gross. So I can categorically say, based on my sample size of one, (one retiree, one tax code, one pension payment) that the tax take on money in drawdown is less than the 20% uplift the government kindly allowed me to add to er, my money, whenever it was I paid it in.

****Folds arms, satisfied with himself****

…………that assumes the tax code applied to the SIPP drawdown is correct. Mine never is for some reason and my overall tax gets adjusted every year (even though my drawdowns don’t change). For example I usually take a 12k lump sum from one pot around this time of year to use up the nil rate band (and it does have the right PAYE code) but that still gets taxed anyway as the system assumes there will be further drawdowns during the tax year so only gives me quarter of the annual allowance when I make the drawdown

 

[Eric the meek]

…………that assumes the tax code applied to the SIPP drawdown is correct. Mine never is for some reason and my overall tax gets adjusted every year (even though my drawdowns don’t change). For example I usually take a 12k lump sum from one pot around this time of year to use up the nil rate band (and it does have the right PAYE code) but that still gets taxed anyway as the system assumes there will be further drawdowns during the tax year so only gives me quarter of the annual allowance when I make the drawdown

Indeed. Tax codes you say?

One year, I made the stupid mistake of submitting my SATR in December, to avoid the rush in January. Result - my tax code was changed by someone in HMRC (who didn't want to be there on 29 December) who put me on an M1 basis, for the rest of the tax year. This was to collect the tax that he/she anticipated I would owe - in advance - of tax year end, rather than let me delay the calculation and payment as usual.

Result - I didn't make any further drawdown withdrawals that tax year, and just took the money I needed from other pots.

 

[happypig]

Is it possible to bequeath your estate to a child to escape the whole nursing home/taking your estate away ?

Mrs H and I have a will that, upon the death of the first one, the house goes into a trust with the trustees being the surviving partner and our son.
That way, should the surviving partner need residential care and Social Services force the sale of the house to pay for it, half of the proceeds of the sale go to each trustee.
Personally, having seen my mum and mum-in-law wither away in a care home, I don’t intend to spend my last days in one.

 

[A mex eyecan]

Mrs and I are just redoing our wills. Our solicitor has also suggested one of the ‘lifetime interest trusts’ that as you say once the first of us turns up our toes their share of the house goes into trust for the kids and is supposedly untouchable for care home fees etc that may one day be needed by the survivor.

It sounds tempting, but like all things it sounds too good to be true. There must surely be pitfalls, or am i just being my normal overly suspicious self?

 

[dazzer6666]

Mrs and I are just redoing our wills. Our solicitor has also suggested one of the ‘lifetime interest trusts’ that as you say once the first of us turns up our toes their share of the house goes into trust for the kids and is supposedly untouchable for care home fees etc that may one day be needed by the survivor.

It sounds tempting, but like all things it sounds too good to be true. There must surely be pitfalls, or am i just being my normal overly suspicious self?

Not really, very standard thing to do. My parents did it and we’ve done it. Pitfalls mainly surround the survivor wanting to change properties at some point - the trustees then need to agree to the deceased’s share being used towards the new property (if needed) so unless the beneficiaries want to be awkward it’s usually fine.

 

[Shropshire Seagull]

How can you get pension income from your pension (drawdown) to your partner tax free ?

Apologies if I didn't explicitly state, but Mrs SS has her own SIPP too.

Of course I couldn't use my SIPP to pay someone else.

Worth bearing in mind though, when paying in to a SIPP that putting all your eggs in one basket could close off some tax efficient drawdown options in retirement.

 

[CoolTed]

Mrs and I are just redoing our wills. Our solicitor has also suggested one of the ‘lifetime interest trusts’ that as you say once the first of us turns up our toes their share of the house goes into trust for the kids and is supposedly untouchable for care home fees etc that may one day be needed by the survivor.

It sounds tempting, but like all things it sounds too good to be true. There must surely be pitfalls, or am i just being my normal overly suspicious self?

Mrs Ted and I looked into Trusts, predominantly to protect our joint wishes but also with an eye on care home fees. We concluded that:

- if you are going to set up a Trust, then you need to have full confidence in the person(s) making any decisions.

- one of the selling points of a Trust is to preserve joint wishes after first death. Our will writer pointed out that, should Mrs Ted marry someone after I die then the inheritance that is currently intended to go to our only daughter could be decimated, or even obliterated. But we noted that a Trust could preclude Mrs Ted making changes (to her will) that I would have agreed with had I still been alive.

- if the existence of a Trust results in care home fees not having to be paid, councils can make a challenge if they believe the Trust was set up for that purpose. Our will writer was very clear not to use care home fees as a trigger for any discussions about setting up a Trust.

 

[The Clamp]

I’ve been looking at property in Tuscany.
Very quickly coming round to the idea of early retirement there.
I am in the process of renewing my Irish passport so living there should not be an issue.

Lots more research to do beforehand but retirement in the U.K.? No thank you.

Abandoned my boat idea after spending some time on one. Too much like hard work.
Nice holiday, no good for sustained living.

 

[LamieRobertson]

I’ve been looking at property in Tuscany.
Very quickly coming round to the idea of early retirement there.
I am in the process of renewing my Irish passport so living there should not be an issue.

Lots more research to do beforehand but retirement in the U.K.? No thank you.

Abandoned my boat idea after spending some time on one. Too much like hard work.
Nice holiday, no good for sustained living.

No idea why you are thinking of giving up Lancing for a pleasurable life in beautiful Tuscany

 

[Herr Tubthumper]

I’ve been looking at property in Tuscany.
Very quickly coming round to the idea of early retirement there.
I am in the process of renewing my Irish passport so living there should not be an issue.

Lots more research to do beforehand but retirement in the U.K.? No thank you.

Abandoned my boat idea after spending some time on one. Too much like hard work.
Nice holiday, no good for sustained living.

Good work. Also. The idea of maybe paying 7k a month in care home fees is scary when you can get it for free in other counties.

 

[The Clamp]

Good work. Also. The idea of maybe paying 7k a month in care home fees is scary when you can get it for free in other counties.

Quite.

Pick up a decent property in Tuscany or Sicily for anything between 30 and 60k euros.

Much prefer to see out my years in the sun with good food and wine. Rather than scraping together my pension to get a suet pudding from Morrisons.