pension or ISA

Karinia

I am doing this for a neighbour who has no computer.

Marion is 65 later this year and is still working. She doesn't have any pension to come from work but just has the state pension on her husbands contrib. Her husband is also still working and has his own pension.

She wants to know whether to put some money now in to a pension for say 3 years, as she read about the government add to it, or just put it in to an ISA. She has savings but no ISAs at present.

Thanks

kidmugsy

There was a recent discussion about how saving in a pension and then taking advantage of the "triviality" rule can be very advantageous.
https://forums.moneysavingexpert.com/discussion/3274114

dunstonh

Cash ISA or S&S ISA?

When comparing pension with ISA, you have identical investment options. So, it comes down to which of the tax wrappers meets her objectives in the best way. To decide that would require knowing what assets she has, what income she has, what she wants from the money, what her tax position is etc.

Karinia

kidmugsy wrote: »

There was a recent discussion about how saving in a pension and then taking advantage of the "triviality" rule can be very advantageous.
https://forums.moneysavingexpert.com/discussion/3274114

Thanks for that. She's read that and thinks that's the best option. Now got to find where to open the pension.
Is there anywhere she could find out which company would be best to use for small pension as this? Also should she open them both now or does she wait till she has £6,000 in one before opening the other?

Thanks for help - you are all so wonderful on here! :j

atush

There is also a sticky on the top page abt pensions vs ISAs though for most there the time between investment and taking the proceeds would be longer as your friend is already 65.

As they are both working I am going to assume they pay tax. So you should tell her to put as much cash into a cash isa each year she works strting now (and the rest into the NSI ilsc max of 15K) to protect the interest earned from being taxed.

As for pensions, she can contribute to one each year and then immediately 'retire' or use the triviality rule above mentionned.

Karinia

Thanks Atush.

We have both tried to read the sticky but it went straight over the top of our heads...
So, if she takes out a pension - she could put her wages in of £5,000 per year - could she also put her state pension in as well? If she did this then added to it will be 20% even though she doesn't pay tax?
Then draw out under triviality rules.

Would the charges involved in a pension wipe out the 20%?
How long would she have to leave it in for?
Is there a name of the type of pension that she would need to use?
Where would be the best place to find one?

Sorry for all the questions.

Karinia

dunstonh wrote: »

Cash ISA or S&S ISA?

When comparing pension with ISA, you have identical investment options. So, it comes down to which of the tax wrappers meets her objectives in the best way. To decide that would require knowing what assets she has, what income she has, what she wants from the money, what her tax position is etc.

When you say assets do you mean her house - she has half share with her husband. She has a few bank shares, premium bonds and some cash in bank account (not a lot I don't think - I didn't like to ask how much).
Income is just under £5,000 per year and state pension of £3000 per year.
What she wants is to try and make the best of what she has and try and earn a bit on it.
She has just been paying a small amount of tax since getting her pension.

kidmugsy

The most she's allowed to contribute to a pension each tax year is her earnings, which do not include any pensions she's receiving: so, just her pay. EXCEPT, she is allowed to contribute up to £3600 (gross) in a tax year however low her earnings are, even if they are zero. Remember that if she wants to use "triviality" she doesn't want to accumulate more than £18k in her pension fund.

As for "Is there anywhere she could find out which company would be best to use for small pension as this?", I don't have much useful to say. I use Hargreaves Lansdown myself, who provide a good service but pay lousy interest on money on deposit within the fund - and if the fund is going to be open for quite a short time, a deposit is probably what you want. I hope someone else can come up with a suggestion.

On second thoughts: if the money isn't there for long, it's not the end of the world if interest is lousy. So perhaps HL is a contender.

Karinia

Do you know if there would be a minimum time to leave it in for to get the tax relief on it?

I said it may be a good idea if that could be done quickly then draw it out and put in an ISA. Does that sound about right?
But then I'm only 18 and haven't a clue !!

kidmugsy

"Do you know if there would be a minimum time to leave it in for to get the tax relief on it?

As far as I know, only the few weeks required for the provider (the pension company) to actually receive the tax rebate from HMRC.

jamesd

No legal limit. HMRC sends the tax relief about a month after the money goes in. It would take a few weeks or a month, perhaps two for a slow pension company, to use the triviality option. Call it three months elapsed time from last payment to having the money.

She does need to be certain that other than the state pensions she has no other pensions - personal, work or whatever else. The triviality limit is the total value ofall of those other pensions, not checked per pension. It looks like a good deal for her, though. 25% more money beats any interest rate she could get.