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  • FIRST POST
    • tobyj
    • By tobyj 11th Mar 17, 10:54 AM
    • 4Posts
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    tobyj
    Late to the pension game
    • #1
    • 11th Mar 17, 10:54 AM
    Late to the pension game 11th Mar 17 at 10:54 AM
    Hi All,

    As the subject says, I'm approaching 50 and until recently, haven't given much thought to retirement and pensions. Well, I have a pension which has laid dormant for > 10 years - I didn't have much money going spare at the end of each month and decided that it could be used elsewhere until recently.

    All employees in my current workplace were setup with pensions April 2016, a small portion of our salary's, as well as a small contribution from the firm are paid in each month. As I fall into the highest rate tax band, I believe as it stands, I can only contribute £10K this year towards a pension. I have £40K in savings that I would like to stick into a pension and believe that I can make use of the "Carry Forward" scheme. I think this means that I can make use of the past 3 years allowance, which if I am not wrong means I have a total of £130K (£50k + £40k + £40K) minus any contributions which I have made in the last 3 years. Does that sound right?

    I was thinking of sticking whatever money I could into a Hargreaves Lansdown SIPP, does that sound like a reasonable thing to do? Do I need advice from an IFA or can I glean enough information from the web to the right thing?

    Many thanks for any replies.

    Toby.
Page 1
    • kidmugsy
    • By kidmugsy 11th Mar 17, 11:40 AM
    • 8,955 Posts
    • 5,808 Thanks
    kidmugsy
    • #2
    • 11th Mar 17, 11:40 AM
    • #2
    • 11th Mar 17, 11:40 AM
    What tax rate do you expect/hope to pay in retirement?
    • atush
    • By atush 11th Mar 17, 12:14 PM
    • 15,697 Posts
    • 9,494 Thanks
    atush
    • #3
    • 11th Mar 17, 12:14 PM
    • #3
    • 11th Mar 17, 12:14 PM
    Why can you only put in 10K? if your income is up to 40K or more (and it must be if you pay HRT) then you can out in up to 40K net (ie 80%) less your current personal and employers contribution this year.

    I assume your employers contribution hasnt been high as you have only just been autoenrolled and those employers dont tend to b very generous.

    How much over the threshold do you earn? How much will you and your employer together pay into your pension this tax year? Should be on your payslips.
    • xylophone
    • By xylophone 11th Mar 17, 12:38 PM
    • 20,532 Posts
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    xylophone
    • #4
    • 11th Mar 17, 12:38 PM
    • #4
    • 11th Mar 17, 12:38 PM
    See http://www.hl.co.uk/pensions/sipp/pension-carry-forward

    "What carry forward is and who could benefit

    This year's pension annual allowance is as low as £10,000 for some high earners.

    However, pension carry forward is a rule that allows some people to contribute more and receive extra tax relief.

    Remember: tax rules can change and the value of tax benefits depends on your individual circumstances.

    Pension carry forward rules - the basics

    The principle is simple: if you haven’t used your full annual allowance in any of the last three tax years (see below), carry forward allows you to make up for that and contribute up to an additional £130,000 this tax year. If you're a 45% taxpayer, this could secure you up to an extra £58,500 tax relief.

    However, there are some restrictions. To qualify for carry forward, you must also:

    Have had a pension in each of the years from which you are carrying forward, even if you haven't contributed to it (the State Pension doesn't count);

    Have earnings of at least the amount you are contributing. For instance, to make a contribution of £130,000 and receive up to £58,500 tax relief you must have earnings of at least £130,000 this tax year.

    There are other factors to consider if you or your employer have contributed to other pensions in addition to your SIPP or you have been a member of a final salary scheme - please download the Annual Allowance & Carry Forward Factsheet for details."
    • tobyj
    • By tobyj 11th Mar 17, 3:39 PM
    • 4 Posts
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    tobyj
    • #5
    • 11th Mar 17, 3:39 PM
    • #5
    • 11th Mar 17, 3:39 PM
    Hey guys, thanks for all the replies - really appreciate it :-)

    I believe that the figure of £40k decreases by £1 for every £2 earnt over £150K, up until £210K (which equates to £10K). I also think I've seen it mentioned that this figure of £10K is going to go down to £4K next year?

    The total amount paid into the company pension will be around £3K by the end of the tax year.

    The main benefit to me as I see it, since I'm late to the game is that the £130K or thereabouts which I hopefully will be able to put in will effectively cost me £71,500 (as the government will put in 45p for every 55p I put in ) and when I want to crystalise the pension, I can take out 25% tax free.

    If the above is correct, does that mean I can stick in the £40K which I have in my savings into a SIPP (which will effectively be worth ~ £72K after I file my tax return). How would I go about that? Do I need to enlist the services of an IFA or is it something simple enough to do, if so can someone point me in the right direction.

    Also there seem to be many funds which one can invest money in. Is choosing one straightforward?

    Sorry for all the questions and thanks again.
    • atush
    • By atush 11th Mar 17, 4:18 PM
    • 15,697 Posts
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    atush
    • #6
    • 11th Mar 17, 4:18 PM
    • #6
    • 11th Mar 17, 4:18 PM
    the 40K allowance for this year should be reduced by the 3K paid in by you and your employer already.

    Of the 37K gross remaining, remember to reduce to take acct of the tax relief you will receive.
    • xylophone
    • By xylophone 11th Mar 17, 5:26 PM
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    xylophone
    • #7
    • 11th Mar 17, 5:26 PM
    • #7
    • 11th Mar 17, 5:26 PM
    http://www.pruadviser.co.uk/content/knowledge/technical-centre/consultations-budget-autumn-statement/summer-budget-2015/reduction-in-pensions-tax-relief-for-higher-earners/

    I also think I've seen it mentioned that this figure of £10K is going to go down to £4K next year?
    Are you thinking of the Money Purchase Annual Allowance which applies to those who have flexibly accessed their DC pension?

    http://www.pruadviser.co.uk/content/knowledge/technical-centre/money_purchase_annual_allowance_mpaa/

    https://www.employeebenefits.co.uk/issues/march-online-2017-2/government-confirms-reduction-in-money-purchase-annual-allowance/
    • OldMusicGuy
    • By OldMusicGuy 11th Mar 17, 5:28 PM
    • 23 Posts
    • 34 Thanks
    OldMusicGuy
    • #8
    • 11th Mar 17, 5:28 PM
    • #8
    • 11th Mar 17, 5:28 PM
    I've been in a similar situation. It's easy - you just pay cash directly into your HL SIPP. They add 20% automatically and then you claim the higher rate tax relief through self assessment and get a nice lump sum back from HMRC. No need for an IFA. All you need to do is make sure you aren't going over all your carry forward allowance and make sure you take into account what may have been paid in already this tax year.

    Put as much as you can in. I significantly boosted my pension pot over the last 5 years by maxing out what I could put in and using carry forward. You are in the sad position though that the amount you can contribute is significantly lower than it used to be. And like you said above, watch the allowance tapering if your income is above the £110K level.

    There is a good carry forward allowance calculator on the HL site.
    • tobyj
    • By tobyj 12th Mar 17, 6:50 PM
    • 4 Posts
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    tobyj
    • #9
    • 12th Mar 17, 6:50 PM
    • #9
    • 12th Mar 17, 6:50 PM
    I may be confusing myself with the "Money Purchase Annual Allowance" which presumably means that as things stand, I can still up in £10K annually into the pension.

    So I think I understand most of what's been said, just would like to clarify one thing.

    "carry forward allows you to make up for that and contribute up to an additional £130,000 this tax year"

    So I have a carry forward amount of £130K for this year (£50K + £40K + £40K). If I pay the £40K which I have into a SIPP (which equates to ~ £72K after rebate, etc) can someone tell me how much my carry forward allowance will be for next year? Sorry if this a straightforward question.

    Let say I transfer money into a HL SIPP, is choosing a fund to invest in straightforward and do their returns generally match past performance?

    Thanks again for all help, one step closer to pulling the trigger.
    • MoneySavingUser
    • By MoneySavingUser 12th Mar 17, 7:16 PM
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    MoneySavingUser
    I may be confusing myself with the "Money Purchase Annual Allowance" which presumably means that as things stand, I can still up in £10K annually into the pension.

    So I think I understand most of what's been said, just would like to clarify one thing.

    "carry forward allows you to make up for that and contribute up to an additional £130,000 this tax year"

    So I have a carry forward amount of £130K for this year (£50K + £40K + £40K). If I pay the £40K which I have into a SIPP (which equates to ~ £72K after rebate, etc) can someone tell me how much my carry forward allowance will be for next year? Sorry if this a straightforward question.

    Let say I transfer money into a HL SIPP, is choosing a fund to invest in straightforward and do their returns generally match past performance?

    Thanks again for all help, one step closer to pulling the trigger.
    Originally posted by tobyj
    Presumably, your salary is £200k + for you to be limited to £10k for MPAA.

    If you pay in £40k this is grossed up to £50k which uses up the current year £10k first, then £40k of the oldest year but that oldest year also drops off so the remainder of that years allowance is wasted so you might want to put in £48k which is grossed up to £60k which uses up the current year £10k and the oldest years £50k.

    Then next year you have £40k oldest year, £40k year after, None because you have used this years £10k and £10k as next years allowance so next year you have £90k which is £72k net to pay in.

    I've ignored your £3k for the moment, but basically you take that off the £10k first, leaving you with £7k for this year and £50k from the oldest year, giving £57k gross which is £45,600 net to maximise use of allowances.
    • MoneySavingUser
    • By MoneySavingUser 12th Mar 17, 7:18 PM
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    MoneySavingUser
    Let say I transfer money into a HL SIPP, is choosing a fund to invest in straightforward and do their returns generally match past performance?
    Originally posted by tobyj
    Past performance is never a guide to future performance!

    You might want to consider index funds

    http://monevator.com/low-cost-index-trackers/

    http://www.marketwatch.com/story/warren-buffett-to-heirs-put-my-estate-in-index-funds-2014-03-13

    My advice to the trustee couldn't be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's.) I believe the trust's long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers.
    Is the £3k inclusive of both your own and your employers contributions - you need to include both when testing the annual allowance limit.

    The drop to £4k is the MPAA which is for people who have flexibly accessed their pensions.

    The limit for you is the tapered annual excess allowance which stays at £10k.
    Last edited by MoneySavingUser; 12-03-2017 at 7:20 PM.
    • OldMusicGuy
    • By OldMusicGuy 13th Mar 17, 11:32 AM
    • 23 Posts
    • 34 Thanks
    OldMusicGuy
    Let say I transfer money into a HL SIPP, is choosing a fund to invest in straightforward and do their returns generally match past performance?
    Originally posted by tobyj
    Choosing funds on the HL site is very straightforward. It's easy to search for specific funds, there are a lot to choose from and there is lots of information on the site. Allocating your money to them is really easy and takes a few clicks.

    However, choosing which funds to invest in is much, much harder. Like MoneySavingUser said, past performance is never a guide to future performance. You either need to pay an IFA to select some funds for you based on what you tell them about your risk profile or you need to do it yourself. As someone deep into retirement planning myself, my advice would be to spend the time reading a lot of the excellent information on this site and educate yourself. You need to decide how much risk you are happy to accept and also what your retirement plans are, as I am assuming you may be planning on retiring in about 10 years. As there could be a significant market correction in the next few years (as many predict), you may want to make your choices with some care. I saw over 25% wiped off my main pension investments in 2008 because I hadn't been paying enough attention to the fund allocation.

    I can't emphasize enough what a great resource this site is. I have been lurking here for about 6 months and have learnt so much by reading a lot of resources on here. You may be late to the game but the good news is you aren't too late.

    I would start by looking at all the funds on the HL site by BlackRock and Vanguard. Those companies are two of the largest global fund providers, they offer a wide range of funds and their costs are generally pretty low (and HL has negotiated discounts on a lot of them). Read about the fund objectives and recent performance of some of the funds on the HL site (under the "Fund Prices & Research" section) and see which ones appeal to your risk profile. Then look at what people say about them on here and using a wider Google search to help you decide if they may be right for you. That will give you a start.
    Last edited by OldMusicGuy; 13-03-2017 at 1:38 PM.
    • tobyj
    • By tobyj 13th Mar 17, 10:29 PM
    • 4 Posts
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    tobyj
    Thanks again for the replies, learning so much
    Another question regarding a Hargreaves Lansdown Vantage SIPP. Am I right in saying that there are two fees which are applicable?
    • 0.45% per annum on the amount invested in a fund if < 250K
    • A fee charged by the fund itself
    If I do put money in the SIPP now, can I leave it in as cash (which wouldn't incur a charge), do my research and then invest in a fund when I have done my research.

    As an aside, I met with my HSBC wealth advisor (LOL - I'm not wealthy).
    He said that he could set up a pension for me for a one off cost of roughly £960 (for his advice). Advice includes calculating how much money I was allowed to stick into the pension and determining what level of risk I am happy with. Other than that, the only other fee is the fee charged by the fund.
    Costing the HSBC pension vs the HL Pension, it seems like the longer I keep money in the HSBC pension, the cheaper it becomes, unless that is, I want additional advice from HSBC, which comes at a price. I'm guessing that a fund offered by HSBC may also be offered by HL, if so would such a fund charge the same through HSBC/HL? Has anyone else been in the position of choosing between going with HL or through a high street bank / wealth manager? If so, which route did you choose and why?

    Thanks.
    • OldMusicGuy
    • By OldMusicGuy 14th Mar 17, 8:05 AM
    • 23 Posts
    • 34 Thanks
    OldMusicGuy
    I don't know what HSBC offers and I didn't choose HL over anything else because my employer set up a group SIPP with HL and I just decided to go with that.

    I've been using HL for about 8 years and have been very happy with HL because the choice of funds is broad and the online platform is very easy to use and full of helpful information. Their customer service is also excellent, their phone help is also very good and will answer any questions about the mechanics of pensions, although of course they do not offer financial advice. I did pay for an HL financial adviser and that was OK but after that I decided to control my investments myself. So I suspect I wouldn't like a "wealth manager" (whatever one of them is).

    HL is not the cheapest platform (there are threads on here that compare the different platform costs) but I am happy with it. You can put cash in there and just leave it. Once it is paid into the SIPP it counts as part of your pension pot and is therefore locked away until you are 55 but the cash you pay in immediately gets 20% added to it by HL (and you can them claim additional higher rate tax relief on your tax return in the next tax year).

    How you allocate funds in your pension pot between cash and investments doesn't impact tax treatment. The total in the SIPP is your pension "pot". I am a highly defensive investor and am retiring next year so I currently have 50% of my pension pot held as cash.

    Regarding fees, the .45 is the HL overall platform fee they charge monthly on all invested money (but not cash). This does reduce once your invested funds are over 250K (like you say). There are then additional fund fees on top of that (these are shown on each fund page on the HL site).

    Let me add: the best investment choice I have made by far was using carry forward allowance to make large contributions to my pension fund over the last five years. So, if like me, you are fortunate enough to be a higher rate taxpayer with cash available to invest in a pension, my advice would be do not delay.
    Last edited by OldMusicGuy; 14-03-2017 at 9:04 AM.
    • bowlhead99
    • By bowlhead99 14th Mar 17, 9:07 AM
    • 5,925 Posts
    • 10,438 Thanks
    bowlhead99
    Costing the HSBC pension vs the HL Pension, it seems like the longer I keep money in the HSBC pension, the cheaper it becomes, unless that is, I want additional advice from HSBC, which comes at a price.
    Originally posted by tobyj
    The longer you are invested after receiving the advice, the cheaper that advice becomes per year of investment, assuming you don't want to buy more, updated, advice or assistance for your circumstances.

    That would be the same with any piece of advice you could buy, such as from an independent adviser rather than a bank's tied adviser. But you shouldn't mix that up and think that the pension is effectively getting cheaper each year. The pension is costing the same each year, you are just no longer buying one-off services.

    I'm guessing that a fund offered by HSBC may also be offered by HL, if so would such a fund charge the same through HSBC/HL?
    Generically, the overall cost of providing you a pension includes the fund management and operating costs for the investment vehicle(s) you hold (Fund ABC, Fund XYZ etc) and then the cost of administering the investment platform on which it's held, providing customer service, doing their HMRC compliance etc etc.

    If you go direct to a pension firm or direct to the manager of the fund you want, they may be able to offer you one bundled price for the lot, charged as a high management fee. If you go direct to a fund supermarket platform provider like HL (other cheaper ones are available), they are required to explicitly charge you their own fee for the platform services that they supply and then you can have "unbundled" access to the cheaper classes of fund.

    So you may find that going via a DIY (or advised) platform and paying platform fees has better overall ongoing costs than the HSBC solution (even if the HSBC direct offering is marketed as having just one overall cost, rather than x% for fund and y% for platform access to be able to buy it).
    • MoneySavingUser
    • By MoneySavingUser 14th Mar 17, 12:26 PM
    • 1,570 Posts
    • 623 Thanks
    MoneySavingUser
    Thanks again for the replies, learning so much
    Another question regarding a Hargreaves Lansdown Vantage SIPP. Am I right in saying that there are two fees which are applicable?
    • 0.45% per annum on the amount invested in a fund if < 250K
    • A fee charged by the fund itself
    If I do put money in the SIPP now, can I leave it in as cash (which wouldn't incur a charge), do my research and then invest in a fund when I have done my research.
    Originally posted by tobyj
    Yes - 2 fees one for the platform and one for the fund.

    HL have secured some discounts with some fund providers to reduce the fund fee. However, HL is also more expensive than some other platforms (say Fidelity) so the total cost may be less on another platform even if they don't have a discounted fund.

    Yes, you can leave it as cash for now.
    As an aside, I met with my HSBC wealth advisor (LOL - I'm not wealthy).
    He said that he could set up a pension for me for a one off cost of roughly £960 (for his advice). Advice includes calculating how much money I was allowed to stick into the pension and determining what level of risk I am happy with. Other than that, the only other fee is the fee charged by the fund.
    Costing the HSBC pension vs the HL Pension, it seems like the longer I keep money in the HSBC pension, the cheaper it becomes, unless that is, I want additional advice from HSBC, which comes at a price. I'm guessing that a fund offered by HSBC may also be offered by HL, if so would such a fund charge the same through HSBC/HL? Has anyone else been in the position of choosing between going with HL or through a high street bank / wealth manager? If so, which route did you choose and why?

    Thanks.
    Originally posted by tobyj
    TBH the HSBC advisor will probably be biased (and may only offer you HSBC products) - consider using an Independent Financial Advisor if you don't want to DIY.

    Yes - they may offer the same fund, you'd need to check the prices for each fund as they will vary from provider to provider.
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