Help! is it too late to start a pension at 58?

pwakley

margaretclare wrote:

Hi

You could of course cash in all those useless Premium Bonds, stick the proceeds in a new stakeholder, thereby gaining 22% from the nice taxman, and leave the stakeholder to grow! You can do this at any age. I've been doing it from retirement income only. Or you could start a SIPP using the Premium Bonds money adding the 22% to it in the process - that way you have other options than an annuity. You don't HAVE to take any of your funds at any specific age (well, age 75 is still under discussion) but apart from that, you don't have to take them at 60, 65 or any other time.

Not an expert, by the way!

Margaret

Yes this was the sort of thing I was thinking of but how do i work out how much I am allowed to pay in per annum

Paul_Herring

EdInvestor wrote:

It seems you will end up with around 66,000 in capital, which should produce an income of 3,300 a year @5%.

That sounds like a cash mini-ISA.

So you need to start opening an annual 7k investment ISA and feeding the money in, so that the 3,300 income top up is tax-free.

And that is a stocks and shares maxi.

I don't think quoting the cash ISA rates and extrapolating it to apply the maxi is wise, especially if you're considering post-retirement where the investment period is likely to be shorter than during the pre-retirement period.

dunstonh

Yes this was the sort of thing I was thinking of but how do i work out how much I am allowed to pay in per annum

Your total pension contributions can go upto 100% of your earned income per year. So, in crude terms, if you earn £40,000 a year you can pay £40,000 into pensions.

I like this idea but probably only because I still really don't understand pensions. Thanks for your help

Benefit is that you retain the capital but down side is that the income generated will be lower than the pension. You need to decide which is most important. Perhaps a combination of both.

Paul_Herring

pwakley wrote:

Yes this was the sort of thing I was thinking of but how do i work out how much I am allowed to pay in per annum

Maximum of £3,600 gross (£2808 net) or 100% of your gross take home pay (Edit: Subject to a maximum of £215,000 [Thanks chickencow]), whichever is larger.

Slightly off topic question for DH (or other IFA reading): Does pension received count as take-home pay for this calculation?

chickencow

Paul_Herring wrote:

Maximum of £3,600 gross (£2808 net) or 100% of your gross take home pay, whichever is larger.

Slightly off topic question for DH (or other IFA reading): Does pension received count as take-home pay for this calculation?

Up to a maximum of £215,000.

I'm actually writing this from the Stakeholder dept at Norwich Union. The legislation brought in after 6 April 2006 mean that you are able to pay in up to 1 x your annual (taxable) earnings to a maximum of £215,000 per annum.

If you did invest it in a stakeholder pension, you would gain 22% tax relief (more if you are a higher rate tax payer) on the contribution.

For example, if you sent in a cheque of £7,800.00, the actual payment into the pension would be £10,000.00 gross.

dunstonh

Slightly off topic question for DH (or other IFA reading): Does pension received count as take-home pay for this calculation?

Nope.

There is an exemption in the final year of employment that means you can contribute upto your remaining lifetime allowance (currently set to £1.5 million).

EdInvestor

Paul_Herring wrote:

That sounds like a cash mini-ISA.

It wasn't in fact.There are plenty of investments which will pay out a 5% income.I am surprised you don't know that.

DH

When you say that pension income is higher than ISA income, are you taking into account the fact that the OP's tax allowances are already taken up by her existing pensions?

It seems to me there's no way you can actually estimate an ISA's income in the way you can an income from a pension annuity. Annuity rates are well known, but an ISA's income depends on what the money in the ISA is invested in.

So there's no way to compare the two.

EdInvestor

pwakley wrote:

I like this idea but probably only because I still really don't understand pensions. Thanks for your help

It's not a good idea to invest in something you don't understand of course. My concern would be that your income is quite low - though it will be all inflation protected, which is a big plus point, as you know your basic needs will always be covered.While your capital, though quite a decent sum, really could do with being larger because of your youthful age.

Bearing in mind that you have perhaps another 30 years to live :eek: I'd have thought your priority should be to learn how to invest that capital so that it *grows*, so as to provide a bigger cushion, and also a larger income as time goes by. This will involve taking some risk, but there are ways to minimise this.

Do you own your own home may I ask, and could you generate additional capital if necessary, either by downsizing to a cheaper property or through an equity release ( reverse mortgage) plan? If so, that's another useful safety factor in the background.

When things are fairly tight as here, you need to closely look at the tax factor and the age factor, as some strategies will be much better than others at specific times of your life.

Take your time about looking into all possible avenues.Don't rush into anything until you've worked out all the angles, and be sure to steer well clear of financial advisors, because in this situation they are most definitely an unaffordable luxury.

dunstonh

When you say that pension income is higher than ISA income, are you taking into account the fact that the OP's tax allowances are already taken up by her existing pensions?

Ignoring growth (as that would be same on pension or ISA), the ISA would be set for around 5% tax free income.

The pension would set set for 10% equivalent but taxable. Which makes it 7.8% net. Thats a lifetime guaranteed return. Nothing guaranteed comes close to that.

It seems to me there's no way you can actually estimate an ISA's income in the way you can an income from a pension annuity. Annuity rates are well known, but an ISA's income depends on what the money in the ISA is invested in.

You are correct that you do not know what ISAs will do but it is prudent to use 5% as an average.

It's not a good idea to invest in something you don't understand of course.

That is right to a point. I dont understand engines but I drive a car. You cannot expect the average person to understand the ins and outs of every investment product out there. For example, we have only talked tax wrappers on this thread so far. It hasnt got as far as investment funds yet

and be sure to steer well clear of financial advisors, because in this situation they are most definitely an unaffordable luxury.

The OP clearly doenst know or understand the options available. So not using a financial adviser could result in it being far more costly than using one.

We also dont know the timescales. You dont have to crystallise benefits at the same time you take the occ scheme. It could be a phased income that is required.

pwakley

Thanks for your help everyone, I've got lots to think about, incuding whether to see a IFA or not