Retirement funding, pension etc - advice?

[Whatsmyname]

Hi, I'm 38 years old with not much of a pension pot (average at best) but one thing I have going is that I'm mortgage free so I suppose that's something I suppose.

Am I right in thinking if you've got the money to do it then first pay £40k / yr (total allowable payments) into my pension and obviously take advantage of the tax relief.

If that's the right road to go down then I'd be left with about £3500 - £4000 every 4 week so I was then thinking to do something with some of that say £1k every 4 week? to fund maybe going part time or even tossing it off for a bit in my 50s

So is this the right way - pension first then ideas on what to do with the second?

Thanks,

[bogie]

Yep thats what i do, mix of pension and then stocks n shares ISA. No tax relief on ISA of course, but at least no tax on gains ever either, but you can get the money out if you need it.

The tax relief can make a huge difference in building a pot up, particularly for higher rate tax payers, wished I had made more of that earlier in my thirties rather than later....but still on track for mid fifties and retirement options if I feel like it.

you can see example figures here

https://www.moneysavingexpert.com/tax-calculator/

[Mr Pointy]

Whatsmyname said:

Am I right in thinking if you've got the money to do it then first pay £40k / yr (total allowable payments) into my pension and obviously take advantage of the tax relief.

If that's the right road to go down then I'd be left with about £3500 - £4000 every 4 week so I was then thinking to do something with some of that say £1k every 4 week? to fund maybe going part time or even tossing it off for a bit in my 50s

Don't forget you can use up any unused pension allowance from the last three tax years as well provided you made a payment of some sort in those years. You can put £20k a year into an ISA & can put anything over that into a GIA. Although gains in the GIA are subject to CGT you can withdraw from the initial capital sum without penalty/tax.

[Testaburger]

As mentioned, it’s difficult to overstate the benefits of pension tax relief. The downside is of course that you’re unable to access it (without penalty) until 55 and subject to changes in government policy. Those downsides, however, don’t negate what is effectively a 40% immediate uplift to your savings (in my opinion).

Probably wise to put some away into a stocks & shares ISA too. No tax relief, but no taxes on any gains/dividends in it either - and it’s accessible.

[Fatlad1973]

Pension/ISAs are obvious for a good reason!

But once you've got the tax 'wrapper' there is the underlying investment to consider. As you've got (hopefully!) at least 30 years for the money to last you, compound growth is a massive factor to consider.
I haven't got my laptop with me, but try calculating the difference between £40k p.a. Gross into a cash account at, say, 2% growth vs shares at say 7%.
Then google active fund performance vs passive over 15 year periods and longer... then google and read JL Collins Stock Series.
Money where mouth is: my pension now sits in a completely transparent AJ Bell SIPP in three Vanguard funds (FTSE250 tracker, global small cap tracker and Vanguard's 2035 targeted retirement fund of funds (it's a combination of lots of trackers including some bonds)).

FTSE100 trackers (with dividends reinvested) look tempting from a yield perspective and hopefully should not suffer too much when sterling strengthens again (sentiment vs exchange rate hedge??) but for me the FTSE250 should win over a multi-decade period. I like global growth funds for a similar reason, having pretty much no fears about the inevitable volatility and apparent 'losses' when these indexes go on sale. As I near the point where the money is needed I map swap out to less volatile funds, but that's not for at least a decade (I'm 46).

[KTF]

Is it better to drip feed the AVCs in over the year or wait until near the end of the tax year to do it? I would assume drip feeding is better to spread the risk?

How do you then claim the tax relief on the contributions? Is that done via the provider or do you have to contact HMRC?

[JulianPH]

KTF said:

Is it better to drip feed the AVCs in over the year or wait until near the end of the tax year to do it? I would assume drip feeding is better to spread the risk?

How do you then claim the tax relief on the contributions? Is that done via the provider or do you have to contact HMRC?

With Pensions/SIPPs/ISAs it is always drip feeding. The question is whether you do this with a large about once a year or a smaller amount once a month!

For the OP - As it certainly sounds like you are a higher rate tax payer then maxing out your pension allowance can make fantastic sense. Then you can use and ISA, followed by a GIA.

The only thin to look for is what exactly is your pension allowance as you may very well be hit by the tapered annual allowance.