Investments instead of a pension - anyone worked it out yet?

jamesd

VCTs can be OK, it depends on which ones you use. There's a wide range of risk levels from very high to quite moderate.

I use and suggest the Hargreaves Lansdown pension calculator when I want one. It's reasonable enough for estimating things.

For investing I now work out how much income I will need and what investments I need to get it. Since I'm not over 55 that means I need investments outside a pension that are sufficient to provide my target income level until I can get money from a pension. Then I can top that up with pension income.

Depending on your target income you might be able to retire at 55. If not, from 55 you can take your pension lump sum and start using income drawdown to take the maximum permitted income level from the pension. That'll be taxed so if your income tax rate when you do this is above the income tax rate when you expect to retire you might want to reinvest the taxed income into another pension to get another lot of 25% lump sum on it later. If the rate is the same then you an either do that or invest it outside the pension if you prefer. This will accumulate a lump sum outside the pension that you can move into ISAs over time or where you can use your annual CGT allowance to reduce the tax on it to some degree.

The effect is an increase in the pension flexibility because you'll have taken more than just 25% out of the pension by the time you retire. Or you can put it into another one to get a second bite a the tax relief to get a better reward for the restrictions.

For death after taking benefits from 55 or whenever the most efficient tax way is putting it into a pension for them which has no tax charge. You should use life assurance and other investments to provide them sufficient income until they reach 55. If you use the income calculation I suggested in the third paragraph you'll have a large amount of money outside the pension pot that will make this easier because it'll provide them with some accessible money until they reach 55.

For rental property you can deduct the interest part of a mortgage payment from the rental income. Not the capital repayment. This is limited to interest on a mortgage up to the purchase price of the property at the time you first acquired it for the letting business or transferred it into that business. This mortgage doesn't have to be a BTL mortgage, it can be your own residential mortgage. You could just take the money from your offset pot, lend it to the business (on the business capital account) and then deduct the interest cost. Since residential mortgages are cheaper than BTL this is generally the most efficient way to do it short of setting up a company for the business.

gmgmgm

I have a similar concern to the OP.

Currently there are advantages to the pension wrapper, but what is stopping the rules from changing dramatically over the next 25 years? What's stopping a left-wing govt from thinking up a "windfall tax" again and taking 25% of everyone's pension on retirement to fund the state?

Reaper

noblelord wrote: »

Do you (or anyone come to that) happen to know if there's some sort of online pension calculator which will give me some sort of indication of how much I'd need to pay into a pension over 25 years to get an income at the end of X in today's money?

There is a good one here. Do check the assumptions they use and tweak them (eg your expectations of inflation).
http://www.h-l.co.uk/pensions/interactive-calculators/pension-calculator

bendix

What's stopping martians from landing on earth and sucking your brain out of your nostrils with a straw? It's a nonsense approach to life; i always get the impression people use the 'what if' set of objections as some kind of emotional crutch or excuse not to do what they know they should do - a reason for delay.

At the end of the day a balanced approach is right. Use the tax benefits of pensions to build a pension pot, but think about your need for cash savings too. My plan is that my pension pot will be around 30% of my total retirement savings - i want to exploit the tax benefits while i can, but also retain control over a fair chunk of my retirement savings myself.

dunstonh

What's stopping a left-wing govt from thinking up a "windfall tax" again and taking 25% of everyone's pension on retirement to fund the state?

As pensions use the same investments as ISAs and unwrapped investments then it would be difficult to see how one you could hit one method that way.

A windfall tax couldnt be applied that way anyway as pensions dont make money. Nor do ISAs. So, a windfall tax to a pension or an ISA would result in zero income to the treasury. The investments within them make money and the investments have legal structures. If you want to hit JPM Natural resources with a windfall tax then it wouldnt matter what tax wrapper it was in. You would also require primary legislation and would probably find that it would not be allowed under EU rules as many of these structures are based on European compliance.

As bendix infers, a "what if" like that is effectively trying to come up with an excuse where no such excuse makes sense.