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  • FIRST POST
    • JustAnotherSaver
    • By JustAnotherSaver 10th Oct 17, 8:18 PM
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    JustAnotherSaver
    Basic rate tax payers ... what do you use to save for retirement?
    • #1
    • 10th Oct 17, 8:18 PM
    Basic rate tax payers ... what do you use to save for retirement? 10th Oct 17 at 8:18 PM
    After recently discussing with Alexland in my other thread: http://forums.moneysavingexpert.com/showthread.php?t=5724275 where i'm not really any further forward in the search for a good cheap pension provider in that scenario, what s/he was saying made me wonder...

    ...made me wonder what many others, especially those with way more understanding than I about investing, what they use as they put money aside for retirement. Pensions, LISAs, S&S ISAs etc.

    Now if you're fortunate enough to have 'spare cash' that you can set aside every week/month/year that enables you to max out your pension allowance, and LISA allowance and ISA allowance and still have money left over to go on a number of round the world cruises each year then this thread really isn't for you. By that i'm looking for people similar to myself - those who with their earnings & bills etc are unable to max out even the ISA allowance never mind the pension allowance. For reference i earned £21k last tax year.

    So it's those people. Bearing in mind what Alexland said (that's why i linked the thread) i'm just wondering where you set your money and why?

    If Dunstonh sees this then i assume you'll be on the HR-tax but since i am guessing you deal with many different types of people from low to high earners then what do you see a lot of with the basic rate tax payers? I wont ask what you advise in case you can't so i'll just ask what you mostly see when dealing with BR tax payers?

Page 1
    • IanSt
    • By IanSt 10th Oct 17, 8:52 PM
    • 77 Posts
    • 39 Thanks
    IanSt
    • #2
    • 10th Oct 17, 8:52 PM
    • #2
    • 10th Oct 17, 8:52 PM
    If your pension contributions are paid via salary sacrifice then you will save on both national insurance and tax so that would be my preference as it also stops you from frittering away your long term savings. But if you do not have salary sacrifice then it is much more of an even race.

    If you are likely to be a higher rate payer at some time then you could consider saving into an ISA and then pay extra into a pension when you start paying 40% tax.
    • enthusiasticsaver
    • By enthusiasticsaver 10th Oct 17, 9:46 PM
    • 4,432 Posts
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    enthusiasticsaver
    • #3
    • 10th Oct 17, 9:46 PM
    • #3
    • 10th Oct 17, 9:46 PM
    Even paying small amounts extra in an occupational pension can be worth it for BR tax payers. This is what I have done and stocks and shares isas. You do not need to max these out for it to make it worthwhile saving a proportion of your income. When we had lots of outgoings when our children were small I was only managing the occupational pension contribution which was 6% of my income. By the time I was 55 I was saving 50% of my income and we were still managing to do holidays etc as both children independent and no mortgage by then. The advantage of being just a BR tax payer (I work part time) is that when it comes to retirement you have less of an income gap to fill.
    Countdown to early retirement on 21.12.17 2 months to go.
    • Bravepants
    • By Bravepants 10th Oct 17, 9:52 PM
    • 268 Posts
    • 302 Thanks
    Bravepants
    • #4
    • 10th Oct 17, 9:52 PM
    • #4
    • 10th Oct 17, 9:52 PM
    With a SIPP you would get a 25% tax free lump sum, making your total tax liability 15% rather than 20% for a basic rate payer on anything over your annual allowance.
    • JustAnotherSaver
    • By JustAnotherSaver 10th Oct 17, 10:21 PM
    • 2,402 Posts
    • 372 Thanks
    JustAnotherSaver
    • #5
    • 10th Oct 17, 10:21 PM
    • #5
    • 10th Oct 17, 10:21 PM
    If you are likely to be a higher rate payer at some time then you could consider saving into an ISA and then pay extra into a pension when you start paying 40% tax.
    Originally posted by IanSt
    For myself and those who frequently ask me about this stuff (wife, brother, sister) it is unlikely that any of us will ever be higher rate tax payers .... unless the minimum marker is brought down to the £20k-£30k bracket one day. This is why when i read through posts & threads i try and pick the people that i can relate to and see what they're doing. Not to copy them & assume they're right (because i'll make my own mind up at some point) but just because i'm interested in what people in similar situations to myself are doing & how they're finding that.


    I should've also specified that in the case here there is no great contribution from the employer. All involved, including myself, are on the workplace scheme where the employer only pays and only ever will pay (unless we switch employer) the bare minimum.

    So...

    Even paying small amounts extra in an occupational pension can be worth it for BR tax payers.
    Is this the same as or similar to workplace pension? If so then can i ask why you went this route rather than your own private pension?

    If your employer pays in above the minimum then i can understand as IF mine did that then i would be doing what i had to in order to get that, but as i've just said - they never will. They've openly grumbled about having to do the WPP as it is. My wifes place even tried to talk them out of opting in so they (employer) wont be paying in any extra either.



    From what i read i understand that the workplace pensions are quite basic and somewhere on the safety side which may not generate such high returns. There's no movement with NOW Pensions & there's a little with NEST. To compare, in my S&S ISA i'm with the Vanguard LifeStrategy range.

    With a SIPP you would get a 25% tax free lump sum, making your total tax liability 15% rather than 20% for a basic rate payer on anything over your annual allowance.
    Ok pass me my dunces hat

    I understand that i get 25% lump sum tax free.

    I don't know what you mean about tax liability becoming 15% so i'll take your word for it. I don't know how this links to 20% but i get the feeling you're saying this as a good thing (as in 15% is better than 20% & therefore you're giving the SIPP the thumbs up)?

    I'll keep that hat on for the duration of this thread i think
    Last edited by JustAnotherSaver; 10-10-2017 at 10:23 PM.

    • zagfles
    • By zagfles 10th Oct 17, 10:25 PM
    • 12,365 Posts
    • 10,363 Thanks
    zagfles
    • #6
    • 10th Oct 17, 10:25 PM
    • #6
    • 10th Oct 17, 10:25 PM
    For myself and those who frequently ask me about this stuff (wife, brother, sister) it is unlikely that any of us will ever be higher rate tax payers .... unless the minimum marker is brought down to the £20k-£30k bracket one day. This is why when i read through posts & threads i try and pick the people that i can relate to and see what they're doing. Not to copy them & assume they're right (because i'll make my own mind up at some point) but just because i'm interested in what people in similar situations to myself are doing & how they're finding that.


    I should've also specified that in the case here there is no great contribution from the employer. All involved, including myself, are on the workplace scheme where the employer only pays and only ever will pay (unless we switch employer) the bare minimum.

    So...



    Is this the same as or similar to workplace pension? If so then can i ask why you went this route rather than your own private pension?

    If your employer pays in above the minimum then i can understand as IF mine did that then i would be doing what i had to in order to get that, but as i've just said - they never will. They've openly grumbled about having to do the WPP as it is. My wifes place even tried to talk them out of opting in so they (employer) wont be paying in any extra either.

    Ok pass me my dunces hat

    I understand that i get 25% lump sum tax free.

    I don't know what you mean about tax liability becoming 15% so i'll take your word for it. I don't know how this links to 20% but i get the feeling you're saying this as a good thing (as in 15% is better than 20% & therefore you're giving the SIPP the thumbs up)?

    I'll keep that hat on for the duration of this thread i think
    Originally posted by JustAnotherSaver
    Basic rate tax is 20%. But as you get a quarter of it tax free you only pay tax on three quarters of it, so effectively 15% tax. As 15% is three quarters of 20%.

    Assuming basic rate tax stays at 20%.
    • davieg11
    • By davieg11 10th Oct 17, 11:04 PM
    • 248 Posts
    • 110 Thanks
    davieg11
    • #7
    • 10th Oct 17, 11:04 PM
    • #7
    • 10th Oct 17, 11:04 PM
    By that i'm looking for people similar to myself - those who with their earnings & bills etc are unable to max out even the ISA allowance never mind the pension allowance. For reference i earned £21k last tax year. So it's those people. Bearing in mind what Alexland said (that's why i linked the thread) i'm just wondering where you set your money and why?
    I earn £25k, have no savings, ISA or anything like that and probably never will. I put 14% into works Pension (£295) which with tax relief and salary sacrifice costs me £200 from my wage. My work contribution is 10% (£211). I recently got married tax allowance which saves me £20pm, so I'm happy to have £506pm going into my pension that only costs me around £180pm.
    • crv1963
    • By crv1963 10th Oct 17, 11:58 PM
    • 130 Posts
    • 392 Thanks
    crv1963
    • #8
    • 10th Oct 17, 11:58 PM
    • #8
    • 10th Oct 17, 11:58 PM
    After recently discussing with Alexland in my other thread: http://forums.moneysavingexpert.com/showthread.php?t=5724275 where i'm not really any further forward in the search for a good cheap pension provider in that scenario, what s/he was saying made me wonder...

    ...made me wonder what many others, especially those with way more understanding than I about investing, what they use as they put money aside for retirement. Pensions, LISAs, S&S ISAs etc.

    Now if you're fortunate enough to have 'spare cash' that you can set aside every week/month/year that enables you to max out your pension allowance, and LISA allowance and ISA allowance and still have money left over to go on a number of round the world cruises each year then this thread really isn't for you. By that i'm looking for people similar to myself - those who with their earnings & bills etc are unable to max out even the ISA allowance never mind the pension allowance. For reference i earned £21k last tax year.

    So it's those people. Bearing in mind what Alexland said (that's why i linked the thread) i'm just wondering where you set your money and why?

    If Dunstonh sees this then i assume you'll be on the HR-tax but since i am guessing you deal with many different types of people from low to high earners then what do you see a lot of with the basic rate tax payers? I wont ask what you advise in case you can't so i'll just ask what you mostly see when dealing with BR tax payers?
    Originally posted by JustAnotherSaver

    Hi JustAnotherSaver,


    Glad that you started this thread-I had read the original that you've linked at the time you posted it.


    I started a couple of years ago reading on this forum and joined a few of the 3-6 month challenges etc without much success I must admit! Recently I had a spell of long term sick leave returning to work this week.


    A bit about me- NHS worker so defined benefit pension, full years in March next year, can retire with pension at 55 towards the end of next year. Basic Rate Taxpayer.


    However my divorce a few years ago has had a major impact on the size of the pension and although still a decent amount is not sufficient for my wife (new one that is) and I to actually stop work next year.


    Have managed to save a bit- pension contribution costs me 9% of my salary, 300 pm into employer Christmas Savings Club- refunded with a little interest each November- used to buy xmas presents, and car insurance!


    We have always sought best deals for energy supply, car ins and mortgage. During my time off I have researched this site and others and also stopped smoking- saving 250pm (was heavy smoker!!). We have now got deals for tv/ broadband/ telephone saving 80pm, switching to better mortgage deal- saving 90 pm and wife has down sized car to more economical model- saving 70pm n the payments and twice as economical in terms of petrol usage- also mobile phone save 9pm (me) and 15 pm (wife) all with our original suppliers. Total savings 514pm- £6168pa!


    I would really advocate taking a couple of days per year and seek out the best deals to release additional monies for savings, we don't live a life of sackcloth and ashes but we were not aware actively of how much we wasted until I really read this site thoroughly!


    Personally I always buy second hand cars (high mileage pa and I've always hated the idea of paying interest on a depreciating asset so I don't like finance for cars, my wife however is low mileage user and prefers latest model but buys demonstration models!), lawn mowers and work shirts ( a good boil and no one knows any differently.


    Plans for the savings- regular savings account to build cash for retirement emergency fund. Probably me Nationwide and wife Halifax.


    I am transferring a small AVC (circa 6k) to a HL SIPP (VLS 60 or 80) and will put £100 pm into it this coming year and only save £200pm into xmas savings club. Then retire at 55 from current role (using DB lump sum to finish the mortgage add to saving probably mix of cash and S&S ISAs) and work in another role saving into SIPP for myself(as above) and wife (VLS 60 or 40 as she is more cautious than I with risk) she then will alter her hours/ change career direction (on the cards/ planning stage at present). This is to build a sum up so we can both use to bridge the funding gap until we reach SPA.


    So hopefully between my being 55 and reaching age 60/62 we can both retire until SP kicks in when I'm 67 followed a few years later with wifes SP.


    Hope that helps with your research although I note that the people you were asking for in linked post are a lot younger than us- if I were under 40 I would have seriously looked at LISA even if I only put a couple of hundred pounds pa into one.


    CRV
    CRV1963- Light bulb moment Sept 15- Planning the great escape- aka retirement!
    • TheShape
    • By TheShape 11th Oct 17, 12:02 AM
    • 1,044 Posts
    • 803 Thanks
    TheShape
    • #9
    • 11th Oct 17, 12:02 AM
    • #9
    • 11th Oct 17, 12:02 AM
    I earn £27.5k. I'm a Civil Servant so accruing a civil service pension.

    My position as of now re investments is approx £23.5k in p2p, £14k in S&S ISA, £5k in a SIPP.

    I'm intending to maximise my contributions to a LISA over the next few years at least on the basis of being able to take tax-free income from it. I'll also be continuing with SIPP contributions and some additional payments to my civil service pension to allow me to bring forward the date at which I can take it without reduction. A mixture of taxable and tax-free income should provide me with a degree of flexibility.
    Last edited by TheShape; 11-10-2017 at 12:05 AM.
    • JustAnotherSaver
    • By JustAnotherSaver 11th Oct 17, 2:13 PM
    • 2,402 Posts
    • 372 Thanks
    JustAnotherSaver
    I'm just coming to the end of my dinner break at work so don't have time to reply in more detail. I can do that tonight at home.

    The post from TheShape though triggered a thought to me.

    Would the better scenario be to put into both a pension and LISA so you don't end up with an eggs in 1 basket position?

    Question would be what ratio. If you're only contributing £200 total for the month then £100 to each? £50 to one, £150 to the other and so on? If so which to give the higher ratio? That kind of thing.

    I mean if you can invest in the exact same fund in both wrappers then might it be best to do that (going off the flexibility comment TheShape made).

    Alexland not sure if you're reading this but thoughts on the split? Would be interested in other regular posters views on that rather than lumping all into a pension or all into a LISA.

    Just to note- I have opened a LISA just for the option. Just with the minimum of £100.

    • captainreckless
    • By captainreckless 11th Oct 17, 6:33 PM
    • 20 Posts
    • 15 Thanks
    captainreckless
    In terms of having all your eggs in one basket, the wrapper doesn't make much difference. It's the investments that you select that determine the risk / performance. For example, if you were only investing into a FTSE 100 tracker (not a good idea) and holding some units in an LISA and some in a SIPP you would still most certainly have all your eggs in the same basket. The ratio of LISA to SIPP contributions doesn't matter as much as the balance of the funds that you are buying to hold in them.

    I have a SIPP, ISA and a LISA, and like you I am nowhere near the annual limits for these. I hold a range of funds across both wrappers - passive index trackers for the US, UK and Europe & some actively managed funds for Japan and the Emerging markets. Whenever I buy something in either the SIPP or the LISA I look to ensure that this fits in with the rest of the portfolio. In terms of sector allocation, I don't differentiate between the two wrappers.

    As I started the SIPP a few years before the LISA, I've got all of my core funds in there. Money into the LISA is currently going to buy funds in specific sectors that I want to hold more of. At the moment that's Health Care and Pharma. It's also handy that the fund I'm buying invests mostly in the US as the EM funds in the SIPP have increased in value quite a bit with the falling pound and this has reduced the % of my overall portfolio that's in the US. My point is, in terms of keeping your eggs in different baskets the fact that the funds are held in different wrappers doesn't matter to me.

    The LISA can be drawn upon from age 60 and the SIPP from 55 (will be at least 57 by the time I get there). Whatever is in the LISA is not subject to tax. The SIPP is taxed, but only on money above the personal tax allowance. Since my means are modest, and I'll be relying on a DB pension for my main income in retirement, I intend to empty the SIPP before I start the DB by taking out less than the annual allowance for however many years it takes to withdraw it all (probably only one!). The trick here is to have enough tax free investment income from my ISA that, along with the SIPP I'll be able to stop work early and not have my DB pension reduced.

    I must admit that because the amounts that I invest are small and the effect of huge losses on my long term plans would be marginal, I don't consider things quite as carefully as I should. If you're talking about investing where the results of your actions might be life changing then I'd suggest that you pay no attention to what I do and ask somebody who really knows what they're doing!
    • JustAnotherSaver
    • By JustAnotherSaver 11th Oct 17, 9:12 PM
    • 2,402 Posts
    • 372 Thanks
    JustAnotherSaver
    In terms of having all your eggs in one basket, the wrapper doesn't make much difference. It's the investments that you select that determine the risk / performance. For example, if you were only investing into a FTSE 100 tracker (not a good idea) and holding some units in an LISA and some in a SIPP you would still most certainly have all your eggs in the same basket. The ratio of LISA to SIPP contributions doesn't matter as much as the balance of the funds that you are buying to hold in them.

    I have a SIPP, ISA and a LISA, and like you I am nowhere near the annual limits for these. I hold a range of funds across both wrappers - passive index trackers for the US, UK and Europe & some actively managed funds for Japan and the Emerging markets. Whenever I buy something in either the SIPP or the LISA I look to ensure that this fits in with the rest of the portfolio. In terms of sector allocation, I don't differentiate between the two wrappers.

    As I started the SIPP a few years before the LISA, I've got all of my core funds in there. Money into the LISA is currently going to buy funds in specific sectors that I want to hold more of. At the moment that's Health Care and Pharma. It's also handy that the fund I'm buying invests mostly in the US as the EM funds in the SIPP have increased in value quite a bit with the falling pound and this has reduced the % of my overall portfolio that's in the US. My point is, in terms of keeping your eggs in different baskets the fact that the funds are held in different wrappers doesn't matter to me.

    The LISA can be drawn upon from age 60 and the SIPP from 55 (will be at least 57 by the time I get there). Whatever is in the LISA is not subject to tax. The SIPP is taxed, but only on money above the personal tax allowance. Since my means are modest, and I'll be relying on a DB pension for my main income in retirement, I intend to empty the SIPP before I start the DB by taking out less than the annual allowance for however many years it takes to withdraw it all (probably only one!). The trick here is to have enough tax free investment income from my ISA that, along with the SIPP I'll be able to stop work early and not have my DB pension reduced.

    I must admit that because the amounts that I invest are small and the effect of huge losses on my long term plans would be marginal, I don't consider things quite as carefully as I should. If you're talking about investing where the results of your actions might be life changing then I'd suggest that you pay no attention to what I do and ask somebody who really knows what they're doing!
    Originally posted by captainreckless
    Thanks and an interesting view.

    I came into all of this looking for a cheap SIPP that is suitable for stated situation. At the very least a choice of 2 or 3 or so.

    I've ended up with no such choice and instead i'm left wondering whether a pension is good or right at all & whether a LISA should be used and if so then how much in relation to a pension.

    Basically i now have more questions than when i asked the damn thing

    I know what will happen. It'll just get to the stage where it's like ok this is dragging on now, time to make a decision and just stick with it & see what happens.

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