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    • Simon Jay
    • By Simon Jay 26th Oct 17, 10:03 AM
    • 13Posts
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    Simon Jay
    Should I start paying into a pension - advice appreciated
    • #1
    • 26th Oct 17, 10:03 AM
    Should I start paying into a pension - advice appreciated 26th Oct 17 at 10:03 AM
    Would really appreciate your views on pensions. I normally get around 20K dividend on top of 30k salary each year. This year the accountants have said we should take 5K dividend (tax free) and use the rest to make a company payment to pension. I am 52 with 400K house (no mortgage), 170K cash savings, 5K Ratesetter, 38K old Royal London pension (closed to any further payments) and no debts.

    I spoke to an IFA who agreed with company payments to pension. He also advised that the cash should be invested. I then spoke to a good friend who believes in BTL rather than pensions. He said that investments are on a high at present and that it would be very risky making lump sum investments to pensions. He also said that IFA’s have no other option but to advise pensions/investment ISA’s.

    I am in a real quandary. I like low risk, simple things. I would be grateful to know what people are doing, are pensions the way to go, do they generally grow each year or does the value go up and down, and are there any simple products where you can just make the payments without having to follow the markets, make investment decisions, etc. Or maybe it is better/safer to pay tax at the outset and put money in to stocks and shares ISA.

    Thank you very much indeed for your views.
Page 1
    • Stubod
    • By Stubod 26th Oct 17, 11:05 AM
    • 444 Posts
    • 295 Thanks
    Stubod
    • #2
    • 26th Oct 17, 11:05 AM
    • #2
    • 26th Oct 17, 11:05 AM
    Should I start paying into a pension...

    Yes....
    • PeacefulWaters
    • By PeacefulWaters 26th Oct 17, 11:06 AM
    • 7,527 Posts
    • 9,410 Thanks
    PeacefulWaters
    • #3
    • 26th Oct 17, 11:06 AM
    • #3
    • 26th Oct 17, 11:06 AM
    You have virtually no pension provision.

    Get some. Tax relief, range of funds including lower risk. Ability to benefit as both employer and employee. Your IFA is the man. Tax free lump sum on access and a chance to optimise your tax free personal allowance in retirement.

    You're also holding a ridiculously high amount in cash. Divert some to pension and perhaps play out the buy to let game with the rest.

    Although single asset investing, which buying a house is, can be inflexible and high risk anyway. Especially with increased stamp duties. Do you really want the hassle of tenants in retirement?
    • Tom99
    • By Tom99 26th Oct 17, 11:13 AM
    • 976 Posts
    • 599 Thanks
    Tom99
    • #4
    • 26th Oct 17, 11:13 AM
    • #4
    • 26th Oct 17, 11:13 AM
    Maybe only paid enough into the pension to make you a basic rate taxpayer, that way you will get 32.5% tax relief on that part of your dividend you are putting in to the pension.
    • Simon Jay
    • By Simon Jay 26th Oct 17, 11:37 AM
    • 13 Posts
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    Simon Jay
    • #5
    • 26th Oct 17, 11:37 AM
    • #5
    • 26th Oct 17, 11:37 AM
    Thanks for the advice. I think this is confirming my own view that I have to do something pension wise.

    Could I just ask...are the pension products with the ready made funds like those offered by Aviva ok or do you really need to learn more and make your own fund decisions to benefit. Ideally I would just like to find a product that I can pay into without worrying about funds, etc. Thanks
    • Terron
    • By Terron 26th Oct 17, 11:57 AM
    • 133 Posts
    • 157 Thanks
    Terron
    • #6
    • 26th Oct 17, 11:57 AM
    • #6
    • 26th Oct 17, 11:57 AM
    Maybe only paid enough into the pension to make you a basic rate taxpayer, that way you will get 32.5% tax relief on that part of your dividend you are putting in to the pension.
    Originally posted by Tom99
    It sounds like he is being advised to make contributions directly from the company.
    Presumably it is hos own company and he is a director.
    Such contributions count as an expense so the company does not pay corporation tax on it. Nor would he pay any other tax, so this is tax efficient.

    If he takes the money out any other way there would be quite a bit of tax to pay. So I would do that rather than BTL.

    Yes investments are at historical highs, they almost always are as the long term trendis upwards. There may be a drop but probably not more than than was gained in tax relief, and in the long term they will almost certainly go up.

    I have nothing against BTL. I get almost all my income from it. It isn't particularly high risk. Especially if you go for several properties. But you do need to know your area, or know someone who does. Different areas are suitable for different stratefies. If you can find good letting agents you don't need to deal with tenants - I have and don't. You would need to consider the impact of the new tax that has started to be phased in this year, (known as Section 24 to many landlords).

    Maybe consider investing some of your cash in BTL. Or maybe ISAs. But building a decent pension is definitely worth doing.
    • AlanP
    • By AlanP 26th Oct 17, 12:01 PM
    • 1,045 Posts
    • 746 Thanks
    AlanP
    • #7
    • 26th Oct 17, 12:01 PM
    • #7
    • 26th Oct 17, 12:01 PM
    Thanks for the advice. I think this is confirming my own view that I have to do something pension wise.

    Could I just ask...are the pension products with the ready made funds like those offered by Aviva ok or do you really need to learn more and make your own fund decisions to benefit. Ideally I would just like to find a product that I can pay into without worrying about funds, etc. Thanks
    Originally posted by Simon Jay
    You have a choice - DIY where you choose provider & funds, for example you could choose a standard Aviva type pension and let them worry about underlying investments, or go "all in" and make all your own decisions.

    Alternatively, work with the IFA and agree on objectives, timescales, attituade to risk etc. and they will come up with proposals.

    The former will probably be lower cost whilst the latter will be a chargeable service from the IFA.

    Which one will perform better in the future is an unknown, but all investments go up and down, historically though they have gone up over sensible time periods.

    The biggest issue with a BTL as your "retirment pot" to my mind is you can't sell off half a room to pay for that dream retirment holiday. Sure it can generate an income but difficult to realise a chunk of capital.
    • EdSwippet
    • By EdSwippet 26th Oct 17, 12:03 PM
    • 650 Posts
    • 615 Thanks
    EdSwippet
    • #8
    • 26th Oct 17, 12:03 PM
    • #8
    • 26th Oct 17, 12:03 PM
    Ideally I would just like to find a product that I can pay into without worrying about funds, etc.
    Originally posted by Simon Jay
    With a SIPP you could 'build' a fully diversified global stock/bond portfolio using just a single holding in one of the Vanguard LifeStrategy or Target Retirement funds. That is as simple as it can possibly be. All you need to do is to select the appropriate SIPP platform, set up payments, and you're done.

    Alternatively, a personal pension with a company like Aviva or Aegon would also fit the bill. Look at going through Cavendish online for the best pricing options. Most life insurance companies' default fund options might be decent enough, though take care over any offerings that provide 'lifestyling' -- a slow transition from equities to bonds as you age. This would be useful if you plan to take an annuity with your pension, but much less so if you expect direct drawdown. Annuity rates are currently low, so drawdown is the more likely route for most people at the moment.
    • kidmugsy
    • By kidmugsy 26th Oct 17, 12:09 PM
    • 9,974 Posts
    • 6,725 Thanks
    kidmugsy
    • #9
    • 26th Oct 17, 12:09 PM
    • #9
    • 26th Oct 17, 12:09 PM
    I normally get around 20K dividend on top of 30k salary each year.
    Originally posted by Simon Jay
    This is as a director of your own company I assume. But why do it this way? Usually it's thought to be best to take a salary that's just big enough to earn you rights in your State Retirement Pension, while still paying only a small sum in National Insurance Contributions. (That salary is somewhere just above £8k p.a. I understand: google for more info.) Then you'd perhaps take enough dividends to take your income up to the higher rate threshold (£45k or £43k in Scotland).

    If that leaves you spare cash in the company then have the company make pension contributions for you - that saves corporation tax, and income tax on the dividends that would otherwise be paid out. Or you might choose to take less in dividends and have the company contribute more to your pension.

    If you want to take the company into the BTL game, then you need to know about stuff that I know nothing about.
    • Simon Jay
    • By Simon Jay 26th Oct 17, 12:35 PM
    • 13 Posts
    • 0 Thanks
    Simon Jay
    This is as a director of your own company I assume. But why do it this way? Usually it's thought to be best to take a salary that's just big enough to earn you rights in your State Retirement Pension, while still paying only a small sum in National Insurance Contributions. (That salary is somewhere just above £8k p.a. I understand: google for more info.) Then you'd perhaps take enough dividends to take your income up to the higher rate threshold (£45k or £43k in Scotland).

    If that leaves you spare cash in the company then have the company make pension contributions for you - that saves corporation tax, and income tax on the dividends that would otherwise be paid out. Or you might choose to take less in dividends and have the company contribute more to your pension.

    If you want to take the company into the BTL game, then you need to know about stuff that I know nothing about.
    Originally posted by kidmugsy
    Hi thanks for coming back. You are correct that a lower base salary would make more sense but unfortunately I joined a company where this is the policy and thus I had to go with it. Thanks again for the info.
    • Terron
    • By Terron 26th Oct 17, 7:24 PM
    • 133 Posts
    • 157 Thanks
    Terron
    The biggest issue with a BTL as your "retirment pot" to my mind is you can't sell off half a room to pay for that dream retirment holiday. Sure it can generate an income but difficult to realise a chunk of capital.
    Originally posted by AlanP
    You could just sell a property, assuming you bought where prices are reasonable. Better though not to have BTL as your only retirement option.
    • AlanP
    • By AlanP 27th Oct 17, 12:29 PM
    • 1,045 Posts
    • 746 Thanks
    AlanP
    You could just sell a property, assuming you bought where prices are reasonable. Better though not to have BTL as your only retirement option.
    Originally posted by Terron
    Yes, but you can't sell "half a room" as per the example I used.
    • Terron
    • By Terron 27th Oct 17, 2:52 PM
    • 133 Posts
    • 157 Thanks
    Terron
    Yes, but you can't sell "half a room" as per the example I used.
    Originally posted by AlanP
    Well given that a whole property might fetch only £25k after repaying the mortgage (100k with 75k mortgage) why would you want to?
    Half a room would not pay for that dream holiday, assuming you were buying where prices are reasonable, as I said.

    My point is that in some areas BTL does not tie up large sums per property, which you seemed to be assuming.
    • Simon Jay
    • By Simon Jay 13th Jan 18, 7:05 PM
    • 13 Posts
    • 0 Thanks
    Simon Jay
    Sorry to add another post at this late stage but I have been looking at sorting things and would be grateful if somebody could confirm that I have looked at this correctly. Looking at reducing salary and paying extra as dividend or to pension

    CURRENT 30K SALARY

    Salary 30,000
    Tax on Salary (6318)
    Result = 23,682

    12K SALARY WITH 18K DROPPING THROUGH TO DIVIDEND

    Salary 12,000
    Dividend 16,592 (add emp NI, subtract corp tax)
    Tax on Salary (558)
    Tax on Dividend (1244) (7.5% - initial 5,000 exemption will have been used with other dividend)
    Result = 26,790

    12K SALARY WITH 18K TO PENSION

    Salary 12,000
    Company Pension Payment 20484 (18,000 plus emp ni)
    Tax on Salary (558)
    Tax on Pension (3072) (20% on 75% when taken)
    Result = 28,854

    Thank you
    • atush
    • By atush 13th Jan 18, 10:15 PM
    • 16,456 Posts
    • 10,199 Thanks
    atush
    yes you should use a pension
    • Dazed and confused
    • By Dazed and confused 13th Jan 18, 11:03 PM
    • 2,085 Posts
    • 936 Thanks
    Dazed and confused
    What are you basing the tax figures on as they both seem high.
    • Simon Jay
    • By Simon Jay 13th Jan 18, 11:30 PM
    • 13 Posts
    • 0 Thanks
    Simon Jay
    What are you basing the tax figures on as they both seem high.
    Originally posted by Dazed and confused
    Thanks for coming back. Maybe I have calculated things incorrectly - the tax figures are

    CURRENT 30K SALARY

    Salary 30,000
    Tax on Salary (6318)
    Result = 23,682
    [THIS IS THE TAX AND NATIONAL INSURANCE IF PAID AS SALARY £2500 EACH MONTH]

    12K SALARY WITH 18K DROPPING THROUGH TO DIVIDEND

    Salary 12,000
    Dividend 16,592 (add emp NI, subtract corp tax)
    Tax on Salary (558)
    Tax on Dividend (1244) (7.5% - initial 5,000 exemption will have been used with other dividend)
    Result = 26,790
    [TAX AND NI ON £12K SALARY PAID AS £1000 PER MONTH = £558, 18K DIVIDEND HAS EMPLOYERS NI ADDED, THEN IT DROPS THROUGH AS PROFIT SO 19% CORP TAX DUE AND THEN I PAY 7.5% TAX (I HAVE NOT INCLUDED THE 5K DIVIDEND ALLOWANCE AS I WILL HAVE OTHER DIVIDEND THAT WILL TAKE THIS]


    12K SALARY WITH 18K TO PENSION

    Salary 12,000
    Company Pension Payment 20484 (18,000 plus emp ni)
    Tax on Salary (558)
    Tax on Pension (3072) (20% on 75% when taken)
    Result = 28,854
    [TAX AND NI ON £12K SALARY PAID AS £1000 PER MONTH = £558, TAX ON DIVIDEND IS BASED ON PAYING 20% ON 75% OF THE AMOUNT (FIRST 25% TAKEN TAX FREE)

    I hope this is clearer on how I am looking at the tax but I might have it wrong.

    Thank you very much indeed for your help
    • atush
    • By atush 14th Jan 18, 8:35 AM
    • 16,456 Posts
    • 10,199 Thanks
    atush
    Tax on Pension (3072) (20% on 75% when taken)
    Not always correct- this is the worst case scenario. There could be little to no tax paid if you retire before SPA and use your PA
    • Simon Jay
    • By Simon Jay 14th Jan 18, 12:02 PM
    • 13 Posts
    • 0 Thanks
    Simon Jay
    Not always correct- this is the worst case scenario. There could be little to no tax paid if you retire before SPA and use your PA
    Originally posted by atush
    Thanks for your reply. Yes I see what you are saying. I have been looking at this further with the intention of trying to retire earlier than SPA. I am now thinking that, if I pay in to the pension in this way for say the next 8 years, stop work and then draw down against the pension. As my only income this would attract very little tax and could maybe support me for the following 7 years until SPA.

    Thanks again for your help
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