Post 'A' Day - maximum contributions?

ctdctd

Hi,

Advice appreciated from the gurus in this forum:-)

Aged 44, intend to be capable of not working by 50, savings currently sufficient to cover me for maybe 15 years, pension pot 70K, income 26K, single, no dependants, no mortgage.

I know, a nice position to be in, mainly thanks to good earnings in the 80's - remember them?!

Anyway, as the nice government have given us 'A' day, what do you think about me putting in 100% of relevant earnings in to a pension for the next few years to get the tax relief? Effectively paying no tax sounds like payback time! Then I can take tax free 25% and / or drawdown when needed after 55.

And if you think it's a resonable idea, e-SIPP or Stakeholder?. I'm familiar with shares, funds, and bonds but would prefer a cautious approach - I don't want to gamble too much with my future. Having dealt with several pension companies red tape, I like the freedom of a e-SIPP. I also like the idea of being in cash with a reasonable rate of interest when appropiate - after 3 years of gains on the markets, I'm mainly in cash at the moment.

Existing pension is 40% managed funds with Halifax & Canada Life, 60% contracted out NU With Profits. NU has a 4% minimum bonus on about 60% of the fund but only giving 3% on the rest so I could earn as much with cash ignoring possible terminal bonus - worth transferring as no MVA now or keep it going?

TIA

dunstonh

Stakeholder if you want it simple and prefer the defined charging strategy even if it means the fund selection would be a little on the limited side. Personal pension if you want close to stakeholder charging but want access to a greater range of investment funds. SIPP if you dont mind paying a little more but want access to the full range of investment opportunities.

Short time and cautious would probably suggest stakeholder or personal pension due to costs. That would give you enough time to then look at drawdown in the years to come and see what is available then and not now. A lot will move on the pension front in 6 years.

EdInvestor

Depending on your investment strategy, a low cost eSIPP with no annual charge can be significantly cheaper than either stakeholder or personal pensions.

For a lump sum and a buy and hold strategy involving shares/gilts and cash, costs can be cut to virtually nothing. Transition to drawdown is seamless.

You are of course aware that pensions are not tax free - other than the 25%, the tax is just deferred until after you start drawing the income - which is subject to strict limits set according to age, size of fund, and gilt yields. And you have lost access to the capital forever.

In your case I would tend to wait and see what happens with pensions.The incentives are simply not good enough for basic rate taxpayers at the moment IMHO with these additional dire restrictions still operating.It seems pretty clear the Revenue has still not fully accepted the end of compulsory annuitisation.:mad:

dunstonh

Depending on your investment strategy, a low cost eSIPP with no annual charge can be significantly cheaper than either stakeholder or personal pensions.

Its a big "depends". If its investment funds then this is highly unlikely when looking at the cautious investor.

In your case I would tend to wait and see what happens with pensions.The incentives are simply not good enough for basic rate taxpayers at the moment IMHO with these additional dire restrictions still operating.It seems pretty clear the Revenue has still not fully accepted the end of compulsory annuitisation.:mad:

This is of course an opinion and whilst valid in some areas, it still doesnt change the fact that the pension plus annuity at the end still provides the highest guaranteed income of the options available, even after tax (which is paid at appropriate tax rates to the personal allowance).

ctdctd

Hmmmm.......,

All useful advice,

dunstonh, why stakeholder / personal pensions? As far as I can see, an e-sipp such as Barclays or Sippdeal seems to have minimal charges and I have total control over the investments (which may not be a good thing!).

I want to be able to manage online - I've had enough of "press button 1 if your call is important to us, press 2 to go back to 1" telephone hell with traditional providers.

EdInvestor - I think I'll wait to see what products are lauched over the next few months. I can wait until towards the end of the tax year without losing a years allowances.

Any thoughts as to if I should tranfer my existing pension pot - particularly the With Profits bit? Growth seems to be slow in the good years, and it doesn't much of a set back in the markets for the funds to have an MVA applied - which kind of makes a mockery of the bonus.

EdInvestor

I think I'll wait to see what products are lauched over the next few months. I can wait until towards the end of the tax year without losing a years allowances.

There are no annual pension allowances any more, only a lifetime one.
It's the ISA allowance which is "use it or lose" it every year.

You can't at this point transfer a contracted out pension into a SIPP.It is hoped you will be able to do this in a year's time after SIPPs are formally regulated.

Seems to me you might as well wait till next year to see how things have settled down and in the meantime just keep maxing out your S&S ISA.

Incidentally, don't forget to check there are no valuable annuity rates attached to your WP pension before you move it out of WP.

ctdctd

EdInvestor wrote:

There are no annual pension allowances any more, only a lifetime one.
It's the ISA allowance which is "use it or lose" it every year.

Hi EdInvestor,

The annual allowance I mean is the 100% of relevant earnings one - say I put 100% in for the next 6 years and stop working at 50. If I miss a year, then it's gone.

Will check the WP pension - think it's got a minimum bonus rate on contributions pre 1998 but no final annuity guarantee. Didn't know you can't SIPP it yet - thanks

ReportInvestor

ctdctd wrote:

dunstonh, why stakeholder / personal pensions? As far as I can see, an e-sipp such as Barclays or Sippdeal seems to have minimal charges and I have total control over the investments (which may not be a good thing!).

As an outsider on the SIPP debate, I do think that it is this point that the IFAs aren't quite getting as they underestimate the growing popularity of SIPPs.

People who have been ripped off for decades by insurers rather like the idea of being in control of their money and their future - even if they know, like ctdctd, they might get it wrong.

It will be their mistake. Not some idiot's at Equitable Life or ANOTHER LifeCo.

dunstonh

dunstonh, why stakeholder / personal pensions? As far as I can see, an e-sipp such as Barclays or Sippdeal seems to have minimal charges and I have total control over the investments (which may not be a good thing!).

Because whilst the SIPP may have minimal charges, there are charges on the funds you invest in and these charges can be higher than the same funds within the personal pension/stakeholder wrapper. Plus you can place the protected rights into a personal/stakeholder pension but not a SIPP yet. And, there are a number of new launches of SIPPs coming over the next 12 months including one where you do not need a cash account within it and can directly purchase assets with the funds.

As an outsider on the SIPP debate, I do think that it is this point that the IFAs aren't quite getting as they underestimate the growing popularity of SIPPs.

No many are. However, you have the regulator issuing warnings regarding suitability and concerns that people who dont know what they are doing ending up with SIPPs and all their money in cash funds because they didnt know they had to buy investments with it.

SIPPs are a great product but they are not right for everyone. Yet the media has given the impression they are. The media used to back endowments and they used to back tech stocks. Now they are backing SIPPs.

People who have been ripped off for decades by insurers rather like the idea of being in control of their money and their future - even if they know, like ctdctd, they might get it wrong.

And yet you have warnings being issued on the SIPP product and these warnings are getting ignored.

I want to be able to manage online - I've had enough of "press button 1 if your call is important to us, press 2 to go back to 1" telephone hell with traditional providers.

Plenty of personal pensions have easy switching options.

As has been mentioned on another threads, say you wanted the schroder mid 250 fund (top performing fund historically in the short term. Only reason I picked it, no other). You can get this fund on a personal pension at 0.6% annual managment charge and NO other costs. On a SIPP you will pay a small initial charge and a higher annual management charge.

What is the point of using a SIPP when the same investments are available cheaper? This is a moneysaving site. So, why pay more in a SIPP when you can get it cheaper in a personal pension. It may not always be the case but you havent given us where you want to invest yet you have the usual "you need a SIPP" response.

Whilst the advantages of SIPPs are clear to see, they are not automatically the best option for everyone and a few on this site continue to push them as the answer for everything and everyone.

Personally, I am waiting for the hybrid SIPP which is due to be launched in May and that will wipe the floor with the current cheap SIPP providers if it is funds that you wish to invest in.

EdInvestor

DH always mentions funds.In this case I said:

For a lump sum and a buy and hold strategy involving shares/gilts and cash, costs can be cut to virtually nothing.

This is correct. You can't invest directly in shares, gilts and cash in an ordinary pension anyway. This is the way the SIPP product was designed to be used.

There are some products available in Sipps which are cheaper than the equivalent product in pensions.They are:

Exchange Traded Funds (compared with unit trust index trackers) and
Investment Trusts (compared with unit trusts and OEICS)

There is now a big range of ETFs, and the product is superior to u/t trackers IMHO ( which are anyway not cost effective in traditional oensions). THe IT list now includes some interesting commercial property trusts.

The point in opening a SIPP in lieu of an ordinary pension if you are going to invest in funds is that you can obatin accress to the full range of top performers. There won't be a cost advantage - indeed for a regular saver it could be more expensive if not properly managed - just a potential performance advantage. There may be also be a pro Sipp argument on personal control and on admin/customer service/online access grounds.

...new launches of SIPPs coming over the next 12 months including one where you do not need a cash account within it

What would be the advantage of that?

dunstonh

Quote:
...new launches of SIPPs coming over the next 12 months including one where you do not need a cash account within it


What would be the advantage of that?

Direct investment each month into the funds without going into the cash account first. Therefore no need for any action on behalf of the individual, which avoids the risk of someone paying £300 pm for 20 years only to find out that they should have been investing the money out of the cash fund periodically. Plus immediate investment with pound cost averaging for monthly contributions. If you do a VISA/Switch transaction on a working day, within 24 hours it would be invested in the funds you choose. Quicker and simpler than a full SIPP.

Hybrid SIPPs can take protected rights as well and the paperwork is a lot less as it uses the insured rules for trust purposes. Again, a full SIPP offers flexibility but not everyone needs that flexibility and why pay for something you dont use.