Pensions and retirement savings
Discussion
I think the time has come to start thinking about my dotage. I realise this is probably a conversation to have face-to-face with an IFA, but I was wondering if anyone on here could give me a few points to consider on the topic of pensions.
It's something I've always treated with a degree of suspicion, having watched my dad work very hard to build up a pension fund and then give it to Equitable Life, who promptly lost a load of it. I really don't want this happening to me, so I was wondering if there were any alternatives to a traditional pension or at least varying levels of risk to consider.
Speaking of risk, should I hold off until after Brexit?
I've also got a slightly complicated situation as I'm self-employed and my income fluctuates to a certain extent, so ideally I'd like something with a low basic contribution and the option to overpay.
I'd be the first to admit I'm pretty clueless on financial matters, so any guidance would be much appreciated.
It's something I've always treated with a degree of suspicion, having watched my dad work very hard to build up a pension fund and then give it to Equitable Life, who promptly lost a load of it. I really don't want this happening to me, so I was wondering if there were any alternatives to a traditional pension or at least varying levels of risk to consider.
Speaking of risk, should I hold off until after Brexit?
I've also got a slightly complicated situation as I'm self-employed and my income fluctuates to a certain extent, so ideally I'd like something with a low basic contribution and the option to overpay.
I'd be the first to admit I'm pretty clueless on financial matters, so any guidance would be much appreciated.
Chris71 said:
Speaking of risk, should I hold off until after Brexit?
Throughout history there have always been reasons not to invest. Chris71 said:
I'd be the first to admit I'm pretty clueless on financial matters, so any guidance would be much appreciated.
There's so much decent info out there, and you wouldn't be wasting your time doing some reading around the subjecthttps://www.pistonheads.com/gassing/topic.asp?h=0&...
Chris71 said:
It's something I've always treated with a degree of suspicion, having watched my dad work very hard to build up a pension fund and then give it to Equitable Life, who promptly lost a load of it.
It's a real shame that people have an (understandable) nervousness, but as you will hopefully discover, the investing landscape has changed immeasurably for the better over the last 10 years.red_slr said:
How old are you now?
What age do you want to retire?
I'm 36. I'll retire when no one wants to pay me anymore. That's not being flippant, I genuinely don't know how long I'll want to continue a job that requires quite a lot of travel and physical activity, so I suppose I would start winding down at 65 and aim to stop at 70?What age do you want to retire?
Neither of us are particularly well paid, but my wife and I stand to inherit enough to pay off the mortgage and give the pension pot a bit of a jumpstart, so something that allowed us to add a lump sum in the future would be handy. Basically, the more flexibility the better in terms of how and when we put money in, but something that's quite hands-off would be good in terms of the actual management of the investment.
Sounds like a SIPP is going to be suitable, IMHO.
The next question is what sort if income do you want in retirement?
We now know you have at least 30 years to invest. So its just a case of taking your SIPP from £a to £b.
Whilst not an exact science due to your risk profile and market returns you can use a rule of thumb which is 25 x your require yearly income as a balance in your SIPP.
So if you wanted an income of £25k a year you do £25,000 x 25 = £625,000 required in the SIPP.
You can then calculate how much you need to pay in each month / year in order to hit that goal. This calculation can be a bit tricky as your own tax situation and income will mean the numbers can be different from one person to the next however assuming a 20% tax payer who earns say £30k a year before tax they might want to start with £1000 per month to hit the £625k goal after 30 years.
Or you could look at ISAs. No tax credit on the way but no tax on the way out. Currently limited to £20k a year in. Per person.
The above are all just examples, and rough rules of thumb. Which at this stage (30 years out from retirement) is all you can do really.
Another bit of advice, get a state pension forecast. Make sure you are up to date with your NICs.
The next question is what sort if income do you want in retirement?
We now know you have at least 30 years to invest. So its just a case of taking your SIPP from £a to £b.
Whilst not an exact science due to your risk profile and market returns you can use a rule of thumb which is 25 x your require yearly income as a balance in your SIPP.
So if you wanted an income of £25k a year you do £25,000 x 25 = £625,000 required in the SIPP.
You can then calculate how much you need to pay in each month / year in order to hit that goal. This calculation can be a bit tricky as your own tax situation and income will mean the numbers can be different from one person to the next however assuming a 20% tax payer who earns say £30k a year before tax they might want to start with £1000 per month to hit the £625k goal after 30 years.
Or you could look at ISAs. No tax credit on the way but no tax on the way out. Currently limited to £20k a year in. Per person.
The above are all just examples, and rough rules of thumb. Which at this stage (30 years out from retirement) is all you can do really.
Another bit of advice, get a state pension forecast. Make sure you are up to date with your NICs.
Indeed. One of the biggest downsides of self employment is your pension is generally paid out of your own pocket.
Its a deeper subject though, in that you may wish to consider becoming a LTD company so you can pay into a SIPP out of company turnover pre tax. You wont get the tax break on the way in, but you wont pay corp tax on the money either. IYSWIM.
Its all very much swings and roundabouts and over the time frame you are dealing with the rules could (probably will) change.
Also looking at the age you plan to retire you could factor in some State Pension. Again, the rules could change though.
Most pension providers offer an online service these days were you can do payments into your pension on an adhoc basis.
Its a deeper subject though, in that you may wish to consider becoming a LTD company so you can pay into a SIPP out of company turnover pre tax. You wont get the tax break on the way in, but you wont pay corp tax on the money either. IYSWIM.
Its all very much swings and roundabouts and over the time frame you are dealing with the rules could (probably will) change.
Also looking at the age you plan to retire you could factor in some State Pension. Again, the rules could change though.
Most pension providers offer an online service these days were you can do payments into your pension on an adhoc basis.
red_slr said:
Indeed. One of the biggest downsides of self employment is your pension is generally paid out of your own pocket.
Its a deeper subject though, in that you may wish to consider becoming a LTD company so you can pay into a SIPP out of company turnover pre tax. You wont get the tax break on the way in, but you wont pay corp tax on the money either. IYSWIM.
I stayed as a ST because of IR35 & paid in as much as I could to use the additional 20% tax relief to reduce my annual tax bill. Every so often my accountant would run a comparision & being Ltd wasn't a big advantage.Its a deeper subject though, in that you may wish to consider becoming a LTD company so you can pay into a SIPP out of company turnover pre tax. You wont get the tax break on the way in, but you wont pay corp tax on the money either. IYSWIM.
OP: hopefully you know that if you are a basic rate tax payer you get 20% relief on any contribution so you pay in £1000 & HMRC add £200 to it. If you are a higher rate payer then you would get another £200 off your tax bill. You can pay in a maximum of £40k or your annual profit (whichever is smaller) per year so you could make a monthly payment & then add a lump sum at the end of the tax year.
The important thing is to get started so there's time for the power of compound interest to work. Charges are an absolute killer so watch out for how much you are paying an IFA & how much the pension provider (the platform) is charging. Anything much over 1% needs questioning. Consider having an intial review type arrangement where an IFA will go through with you what your plans are & what the options are, although there's a lot of information available about those sort of thing is this forum. Look at the sticky thread at the top of the forum as well.
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