Stakeholder turned into a SIPP

margaretclare

About 4 years ago I decided to start saving in a stakeholder. IMHO stakeholder pension schemes are one of Gordon Brown's better ideas, because it's possible to put money in from any source - previously it was only earned income that was allowed - and still attract tax relief. Put simply, this means that for every 78p you put in, the nice taxman puts in 22p, making £1 to invest. You can see that if you put in £7.80 it makes £10, if you put in £78 it makes £100, and so on.

Well, my stakeholder with Friends Provident grew nicely, and remember, this was all from retirement income, I was in my mid-60s when I started it. Following 'A' day this year I decided to transfer the fund into a SIPP with Hargreaves Lansdown, and by then it had grown to about £8,400. I needed to take the 25% tax-free lump sum to pay for essential roof replacement - 1930s asbestos replaced by modern concrete tiles - and DH and I shared the cost between us. The remaining fund went into drawdown and I can take £578.16 as income between now and next July. I also have an equity ISA with H-L and I intend to plonk the income, less tax, into the equity ISA.

As of this morning my SIPP sits at £6473.31 and my equity ISA at £1560.17. This has all come from nothing, over the last 4 years, from retirement income only.

I was told only yesterday on another thread that 'circumstances' mean that women can't save and can't accrue a pension fund in their own right. Well, rubbish, I say. It's not a question of 'circumstances' but of choices, of priorities.

People also say 'why are you saving at your age, what are you saving FOR?' Well, although DH and I each have our own income and we pool our resources, in the very nature of things one of us is going to be left on his/her own, it costs nearly as much to run a house for one person as for two, there may be things we need in the future - extra help etc. We already pay for help in the garden. We don't know what we might need in the years to come.

In addition, I've saved the cost of a new boiler from the WarmFront scheme - that will be £2,700 to put towards our trip to Niagara Falls next July!

Margaret

ReportInvestor

You're an inspiration, Margaret .

My hope is that your [belated] lesson is learned by people in their 20s & 30s so that they benefit from the power of compound interest/growth.

I've inflicted a rather small stakeholder pension on my teenage son, so that he is forced to watch the power of compounding, helplessly :rotfl: , over 50/60 years :rolleyes:. I don't particularly agree with stakeholders for children, but this is primarily educational so that he will think he can achieve similar results with his own money when he's earning it.

So far he's rather enjoying it.

It's worth noting that 78p buys 100p pension and that you are also allowed to take a lump sum of 25%.

So perhaps the real sum is 53p buys 75p pension (with 25p locked away, growing, for a few years).

Martin has got to get the message about compounding into our nation's schools.

It kills you, again & again, harder and harder, for ever and ever, when you're in debt .

And it lifts you beyond your initial expectations when you're saving/investing like Margaret

savingforoz

"I was told only yesterday on another thread that 'circumstances' mean that women can't save and can't accrue a pension fund in their own right. Well, rubbish, I say".

I agree, Margaret, what a bizarre thing to say ! I'm actively saving for my retirement and have quite a healthy pension fund that's growly nicely. And I'm enjoying life here and now whilst I do so - Morocco at Christmas here I come :j ! You definitely have the right idea.

margaretclare

savingforoz wrote:

"I was told only yesterday on another thread that 'circumstances' mean that women can't save and can't accrue a pension fund in their own right. Well, rubbish, I say".

I agree, Margaret, what a bizarre thing to say! I'm actively saving for my retirement and have quite a healthy pension fund that's growly nicely. And I'm enjoying life here and now whilst I do so - Morocco at Christmas here I come! You definitely have the right idea.

We're going on a 5-day Rhine cruise over Christmas, and what a nice feeling it is to think that it's all paid for. I paid Travelscope for it, DH is paying transport costs and an overnight stay at Ashford, coach picking us up there, otherwise it would have meant leaving home about 3 am to get to the Dover - Calais for 10 am. We share costs between us.

I have re-started £200 a month into my H-L equity ISA, I thought we were going to have to pay for a replacement boiler but thanks to the WarmFront grant of £2,700, we don't have that cost.

The comment I quoted was from someone who no longer loves her husband, children are grown and left, but she is staying only for 'financial security'. Haven't we progressed at all since Jane Austen's day?

I agree with ReportInvestor. I'd like Martin to do for money management among the young, what Jamie Oliver has been doing for school dinners. How about it, Martin?

I could weep when I read of so many young people deep in debt, and their pathetic cries for help: 'where can I get a consolidation loan to pay off my debts?' - not realising that 'consolidating' does NOT pay off your debts, it increases them!

There is so much information available now and I just wish more of it had been around years ago! But for some reason, it isn't getting through to the people who need to be convinced.

Margaret

savingforoz

margaretclare wrote:

We're going on a 5-day Rhine cruise over Christmas, and what a nice feeling it is to think that it's all paid for.

I have re-started £200 a month into my H-L equity ISA

Again, I agree. By the time I come to go to Morocco, I will have saved enough for the costs of the trip. I also have enough put aside for a short break to Poland in February. It's great to know that it's all paid for and not on credit, at the same time that I'm also putting money into a HL equity ISA to help build for the future.

Doing the HL equity was a step into the unknown for me, not helped by the fact that the fund value went zipping down over the summer! But it's recovering well now and I am considering buying shares directly now, or at least finding some new funds to diversify a bit.

I agree about teaching finance in schools - like nutrition (I'm a nutritionist) some basic teaching, at the very least, of these two important topics is badly needed.

margaretclare

Well, I've started taking income out of the SIPP in drawdown - I'd already taken the 25% tax-free lump sum. Last week I received £451 net (tax paid at source) and I've plonked it straight into the equity ISA, which now sits at £2021.84. I'm paying £200 a month into that.

The cash ISA is now at £1151.27 and I'm moving it from Smile, which pays 4.75% interest, to the Yorkshire Building Society which pays 5.15%. I'm paying £100 a month into it. DH now has £1800 in his cash ISA.

Some might say 'what are you saving FOR?' Well, there's the car, and before anyone says with a 'sour grapes' expression, that I'm 'fortunate' to have a car, it's not a 'young' car and I don't want DH taking out a loan to replace it if/when it falls over. It has just been MOTd and re-taxed for another year, so by next October we'll look at it again. It went up to the Midlands and back over the weekend, about 400+ miles, went like a bird, but it's 'M' reg and nothing lasts for ever.

Other than that, we could live another 20 years (5th wedding anniversary soon coming up!) and who knows what we'll need in those years?

DH said at the weekend, the key to successful retirement is money. I've just booked our family lunch celebration on our 5th anniversary, and it's lovely to be able to do things like that without giving it a thought. But, having said that the key to successful retirement is money, it does require some thinking ahead, decisions made at the right time, choices....all those kind of things. Just spending every penny as fast as it comes in, that's not a good way to go.

Margaret

Victors_Bruvver

Please come and move in next door to me Margaret. I would love to manage my savings in this way but just cannot get my head around all this!

Regards

margaretclare

Hi Victors_Bruvver

What can't you get your head around? It's a learning curve admittedly and I have been learning over a period of years, although I had the best possible example set me way way back by my thrifty Yorkshire grandparents who were as poor as the proverbial church-mice but always lived within their income!

This is the best place to learn - read what Martin says about savings and start simply. A cash ISA should be your starting-point because you don't pay tax on the interest you gain.

Best wishes

Margaret

Victors_Bruvver

Thanks Margaret,

As you suggested I have read what Martin has said about the ISA and I am going to start with NS&I ? cash ISA.

I will get that particular area sorted and then onto looking at the rest. try and keep you posted.

Regards

margaretclare

Hi Victors_Bruvver

Have you worked out a budget that you can live comfortably within, one that takes into account everything that might happen - car expenses/repairs, Christmas which, as Martin says, comes round regular as clockwork but for some reason takes a lot of people by surprise!

One of the best pieces of advice I ever heard was a few years ago now. A young businessman was being interviewed on radio, the business had just taken off and he was being asked for a 'secret of success'. He said that he and his business partner found it absolutely essential to know - on a daily basis - exactly what money was coming in and what had to go out. I took that idea on board. It takes literally minutes every morning to check the accounts and see what's coming in and going out.

DH and I both get pensions income separately into our accounts and we also have a joint account for household bills which we both tip into. Today, the 3rd of a new month, 5 out of 9 of our direct debits have already gone out, no need to worry about them, sorted. I know we are lucky because we have quite a reasonable income for a pair of wrinklies, and also we have no mortgage, no kids, no school expenses, no pets etc (well, all right, I buy dog-food to feed the foxes, oh and bird-food). Once you've worked out your income on one side and then all that you need to spend on the other, allowing a bit of a margin for unexpected hiccups, then whatever you have left is your disposable income and from that, you decide how much you want to save and where. Martin's 'money fountain' for savings is one of the best ideas I've ever heard.

HTH

Margaret

richone

Beware that by getting your pension income you may lose some of your age allowance,
Note from Financial Services Authority website:

Getting age allowance
If you're aged 64 or more at the start of a tax year, you get extra tax-free allowances. You lose £1 of this age allowance for every £2 of income above a certain level. If your income is close to or above that level:

DO consider tax efficient investments, such as ISAs and National Savings & Investments certificates.

DO consider other investments that give you a tax free return such as share-based ISAs.

DO consider single premium insurance bonds. Regular withdrawals from these investments are not considered income as far as the Revenue are concerned. Hence they will not affect your entitlement to age allowance when taking this 'income'.

DO be wary of stockmarket-linked bonds from banks and building societies. Typically these pay interest only at the end of a set term and you are taxed on all the interest in the year the bond comes to an end, which could cause you to lose age allowance and result in a hefty tax bill.