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  • FIRST POST
    • londonlydia
    • By londonlydia 14th Jun 17, 1:09 PM
    • 417Posts
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    londonlydia
    What counts towards the personal savings allowance?
    • #1
    • 14th Jun 17, 1:09 PM
    What counts towards the personal savings allowance? 14th Jun 17 at 1:09 PM
    Hi,

    I'm trying to find the balance between what savings I have for this year in ISAs and how much I have in other places. One of the factors I'm trying to get my head round is the Personal Savings Allowance. I'm unclear as to what counts towards it, and I was wondering if any of you could say which of the following counts towards it (and what I might have missed/ things I may not have considered):

    - Interest from my BoS current account (2% kept above £5k ~ £100)
    - Interest on my Nationwide current account (5% on £2500 ~ £125)
    - Nationwide regular saver (5% on £500 per month, £6000pa)
    - NS&I Bond (2.2% on £3k ~ £66)

    My other interest sources are already covered I believe (already in 17/18 ISAs, or in the case of share sell-off, I paid tax on sale).

    One last question, as a higher rate tax payer, am I right in thinking my allowance is £500? As you can see, if all of the above count, then I'm quite close to this threshold. I've still got £8k of ISA allowance left for this year (and around that to put away still) but the rates don't appear to be as good as some of the other mechanisms...
Page 1
    • eskbanker
    • By eskbanker 14th Jun 17, 1:24 PM
    • 4,753 Posts
    • 4,491 Thanks
    eskbanker
    • #2
    • 14th Jun 17, 1:24 PM
    • #2
    • 14th Jun 17, 1:24 PM
    Yes, all taxable (non-ISA) interest qualifies for the PSA, which is indeed £500 for higher rate taxpayers, see https://www.gov.uk/government/publications/personal-savings-allowance-factsheet/personal-savings-allowance and/or http://www.moneysavingexpert.com/savings/personal-savings-allowance for further details.
    • badger09
    • By badger09 14th Jun 17, 3:34 PM
    • 4,974 Posts
    • 4,173 Thanks
    badger09
    • #3
    • 14th Jun 17, 3:34 PM
    • #3
    • 14th Jun 17, 3:34 PM
    As a higher rate taxpayer, are you paying the max into your pension?

    If not, that would be a good use of any additional savings.
    • londonlydia
    • By londonlydia 15th Jun 17, 1:21 PM
    • 417 Posts
    • 476 Thanks
    londonlydia
    • #4
    • 15th Jun 17, 1:21 PM
    • #4
    • 15th Jun 17, 1:21 PM
    As a higher rate taxpayer, are you paying the max into your pension?

    If not, that would be a good use of any additional savings.
    Originally posted by badger09
    I'm just about to change job actually, and I'm walking away from a final salary pension which I topped up with a further 7% of my salary as AVCs into a DC bit. In my new job, they've only got the new government scheme, and it will take me 18months to get to the full matched 4%. So I would have less pension contribution for the next 18months...and I did consider taking out a LISA for pension purposes (I'm 31 so im age eligible). However, I must confess I was a bit nervous about locking the money away for 29 years like that - seemed a bit risky as that's a long time to make assumptions about rates etc. Hadnt thought about a private pension yet either, I've always just figured my work pension would be sufficent. Might rethink that though...
    • bowlhead99
    • By bowlhead99 15th Jun 17, 6:32 PM
    • 6,405 Posts
    • 11,334 Thanks
    bowlhead99
    • #5
    • 15th Jun 17, 6:32 PM
    • #5
    • 15th Jun 17, 6:32 PM
    Hadnt thought about a private pension yet either, I've always just figured my work pension would be sufficent. Might rethink that though...
    It's likely that the final salary pension calculated with reference to your "higher rate taxpayer" salary would have given you a very decent pension (especially when supplemented by your extra 7% of voluntary contributions on top) and yes, would have been sufficient. Even if the markets perform terribly, your pension is still healthy because it's the employer's job to keep it funded - they have already defined what benefits you're going to get, and it's their responsibility to make sure they can afford to pay it. They'll put in money each year as you go along but the specific amount in any particular year is not important - they'll simply be paying in whatever is necessary over the years to meet the target.

    Now you're no longer going to be building up any benefits that are defined by the ending salary you'll have, only benefits that are defined by how much is put into the pot for you each year and the amount of growth you end up getting on that pot each year, depending on the whim of the market. Clearly under that system if only small amounts get paid in, there will only be small amounts for you to draw out as a pension at the end.

    So while you could previously figure that your pension would take care of itself, (because the company would put in 10% or 15% or 20% or whatever​ it needed to, from time to time and year to year, to keep the fund on target to deliver the agreed defined benefits), that's no longer going to happen. It only happens to the DB pot you left behind, which is defined in respect of the years of service you already did. All future years of service that you're earning and contributing in, need to be funded by yourself.

    So for example if the new employer will only put in a bare minimum 1% and you want 20% going into the pension pot, you have to put 19% in yourself. Or as you say, in another 18 months they'll be willing to put 4% in, and so then you only have to put 16% in yourself to make up to the 20% (if 20% is the sort of contribution needed to be invested each year to deliver a big enough pot of money when you get to your late 50s, or whenever you plan to retire).


    ...and I did consider taking out a LISA for pension purposes (I'm 31 so im age eligible).
    Originally posted by londonlydia
    As you can avoid high rate tax now by putting money into a pension, and might not be a high rate taxpayer in retirement, it can make a lot of sense to make large pension contributions now to take advantage of the tax relief. Generally more lucrative than LISA if you're a higher rate taxpayer, as the "bonus" of tax relief is bigger than the LiSA bonus.

    However, the LISA from some angles is more flexible. If you need the money back in an emergency, you can get it (albeit with a loss of the bonus and a small penalty). And when you get to age 60 you can draw as much of it as you like, tax free, whenever you like - without worrying (as you might with a pension) that a really big withdrawal in any one tax year would attract high rate tax that year. Pensions can be accessed below the age of 60 but draw too much at once and the tax bill won't be pretty.

    In your shoes I wouldn't do LISA in preference to pension straight away (because of all the high rate tax relief available) but once you are making large personal pension contributions and eliminating a lot of your high rate tax band for the current year, LISA can be another potential prong on your fork for retirement and there's no need to write off the idea completely.

    However, I must confess I was a bit nervous about locking the money away for 29 years like that - seemed a bit risky as that's a long time to make assumptions about rates etc
    .
    Whether you're locking money into investments inside your pension until your late 50s (25yr+) or into a S&S LISA until age 60 (29yr+) it doesn't make sense to say "it's risky, it's a long time to make assumptions about rates". The timeframe is similar. Both LISAs and pensions can hold basically the same investments and will earn the same rates of return - which are determined by the investments held, not the choice of tax wrapper​ you hold them in (ISA/pension).

    It's basically just the size of bonus vs flexibility argument that you need to go through, not some estimation of "rates". Just assume inflation at 3% and investment returns on both LISA and pension at 6-7% if you want to be conservative.
    Last edited by bowlhead99; 15-06-2017 at 6:38 PM.
    • londonlydia
    • By londonlydia 16th Jun 17, 9:42 AM
    • 417 Posts
    • 476 Thanks
    londonlydia
    • #6
    • 16th Jun 17, 9:42 AM
    • #6
    • 16th Jun 17, 9:42 AM
    Thank you for that in depth reply bowlhead, I'm going to have a slower read of it again later when I look at my financials. Much appreciated.
    • Dazed and confused
    • By Dazed and confused 16th Jun 17, 10:09 AM
    • 1,375 Posts
    • 567 Thanks
    Dazed and confused
    • #7
    • 16th Jun 17, 10:09 AM
    • #7
    • 16th Jun 17, 10:09 AM
    If you are only just into the higher rate tax band then additional pension contributions can reduce your taxable income (some company pension schemes) or more commonly extend the amount of basic rate tax you can pay so you are able to benefit from the full £1000 of personal savings allowance.
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