Rebalancing ISA into Pension
Discussion
I'm coming up to 50 and have found myself in a position with the following:
Pension of £220k
ISAs of £160k
The ISA balance has done well from a number of share option schemes which have performed really well.
I currently contribute 17% (including 5% from my employer) to my pension but I'm thinking that if I was to increase this and if required draw down from my ISAs I'd effectively be getting a 40% uplift on whatever I switch from my ISA to the pension.
Other than the fact the money's locked up in the pension are there any drawbacks to this as it seems like a no brainer.
Pension of £220k
ISAs of £160k
The ISA balance has done well from a number of share option schemes which have performed really well.
I currently contribute 17% (including 5% from my employer) to my pension but I'm thinking that if I was to increase this and if required draw down from my ISAs I'd effectively be getting a 40% uplift on whatever I switch from my ISA to the pension.
Other than the fact the money's locked up in the pension are there any drawbacks to this as it seems like a no brainer.
First thing is that it seems likely that there will be some changes to pensions made in the budget.
This isn't definite but there's strong speculation that the higher rate relief will go and be replaced with a flat rate that is better for lower rate tax payers and worse for higher rate tax payers.
Currently you have access to 100% of your ISA more or less instantly, and growth is tax free.
In return for the tax relief going in you are losing that access, and you will be restricted to 25% tax free with the rest being taxed as income.
So I suppose the question is - how will you fund a crisis? (of the real or mid life type)
This isn't definite but there's strong speculation that the higher rate relief will go and be replaced with a flat rate that is better for lower rate tax payers and worse for higher rate tax payers.
Currently you have access to 100% of your ISA more or less instantly, and growth is tax free.
In return for the tax relief going in you are losing that access, and you will be restricted to 25% tax free with the rest being taxed as income.
So I suppose the question is - how will you fund a crisis? (of the real or mid life type)
Also a chance that the TFC element currently at 25% may be reduced.
Whether tax relief also reduced , either way you already have tax free quantum secured in your ISA so would be tempted to keep that separate.
If Rachel goes after ISA's as well then one would hope that at least would carry a grandfather clause to protect existing pots.
Whether tax relief also reduced , either way you already have tax free quantum secured in your ISA so would be tempted to keep that separate.
If Rachel goes after ISA's as well then one would hope that at least would carry a grandfather clause to protect existing pots.
Also a chance that the TFC element currently at 25% may be reduced.
Whether tax relief also reduced , either way you already have tax free quantum secured in your ISA so would be tempted to keep that separate.
If Rachel goes after ISA's as well then one would hope that at least would carry a grandfather clause to protect existing pots.
Whether tax relief also reduced , either way you already have tax free quantum secured in your ISA so would be tempted to keep that separate.
If Rachel goes after ISA's as well then one would hope that at least would carry a grandfather clause to protect existing pots.
Thanks, good points. I'd overlooked tax on the way out of the pension
As for funding any future crisis, I've got more share options maturing this year which will be a big bump to the ISA balance.
I guess it would be prudent to wait for the next budget to see what gets announced before making any drastic changes
As for funding any future crisis, I've got more share options maturing this year which will be a big bump to the ISA balance.
I guess it would be prudent to wait for the next budget to see what gets announced before making any drastic changes
It looks to me like a "cash flow" question.
If you need more cash "now" you can claim some extra tax relief by switching from ISA to pension (thus reducing your immediate tax on earned income) but you'll pay more tax "later" instead, when you draw the pension. The cost of that later tax will depend on your tax rate at that time, and on whether 25% tax free will still be available.
If you need more cash "now" you can claim some extra tax relief by switching from ISA to pension (thus reducing your immediate tax on earned income) but you'll pay more tax "later" instead, when you draw the pension. The cost of that later tax will depend on your tax rate at that time, and on whether 25% tax free will still be available.
TownIdiot said:
First thing is that it seems likely that there will be some changes to pensions made in the budget.
This isn't definite but there's strong speculation that the higher rate relief will go and be replaced with a flat rate that is better for lower rate tax payers and worse for higher rate tax payers.
Is it the usual rumours though? I haven't seen anything being hinted at from Labour.This isn't definite but there's strong speculation that the higher rate relief will go and be replaced with a flat rate that is better for lower rate tax payers and worse for higher rate tax payers.
Puzzles said:
TownIdiot said:
First thing is that it seems likely that there will be some changes to pensions made in the budget.
This isn't definite but there's strong speculation that the higher rate relief will go and be replaced with a flat rate that is better for lower rate tax payers and worse for higher rate tax payers.
Is it the usual rumours though? I haven't seen anything being hinted at from Labour.This isn't definite but there's strong speculation that the higher rate relief will go and be replaced with a flat rate that is better for lower rate tax payers and worse for higher rate tax payers.
I've been doing exactly what you suggest OP - increased my pension contributions so that I drop below the 40% tax threshold, while at the same time withdrawing from ISAs to help pay the monthly living expenses.
So withdrawing a notional £60 from ISAs while an untaxed £100 goes into the pension. Under current rules only £75 of that will be taxed on withdrawal, and I will be a basic rate taxpayer, so I'll only pay £15 tax and get £85 net - an uplift of £15 on the ISA value.
Assumes zero growth. I'm also old enough to access my pension if needed, so appreciate that's a consideration.
So withdrawing a notional £60 from ISAs while an untaxed £100 goes into the pension. Under current rules only £75 of that will be taxed on withdrawal, and I will be a basic rate taxpayer, so I'll only pay £15 tax and get £85 net - an uplift of £15 on the ISA value.
Assumes zero growth. I'm also old enough to access my pension if needed, so appreciate that's a consideration.
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