pension or ISA

Karinia

Marion says her husband wants to be sure this is all above board to do - legal wise.

Please could you tell me what she actually needs to ask for - the name of the type of pension.
Is it best to go through bank, building society or on-line?

TIA

jamesd

It's completely legal and completely routine. Well established practice with no legal issues or potential for HMRC trouble at all.

Any personal pension will do. Given the short timescale, amounts involved and a priority for ease of use she might consider using Hargreaves Lansdown's Vantage SIPP. They are helpful and easy to work with even though she won't want to use all of the SIPP features. Not the cheapest but OK for the amounts and timescale here when ease of use is most important.

Karinia

Thanks JamesD. Kidsmugy also said Hargreaves Lansdown so I will tell her to do that.

Just one more question please. Should she tell them what she is doing and it will only be in for a short time, or not divulge anything?

Sorry just remembered - when we were reading the sticky it said about putting £6,000 in more than one account. I couldn't understand what that meant. We do understand she cannot have more than £18,000 in total to use triviality rules (she has no other pension at all only some state pension)

Thanks:)

jamesd

No need for her to tell them, nor anything for her to gain by doing it.

Which sticky? I'm not aware of any £6,000 limit that would make it beneficial to use more than one account. It would be a good idea to use more than one investment fund within a single account, though.

Karinia

Arithmetic of delaying: assume that his Personal Allowance against income tax will be about £10k per year. Subtract the State Pension of (say) £5.5k per year: therefore further income that will still be available tax-free = £10k - £5.5k = £4.5k per year. Compare that to: taxable part of pension = 0.75 x (say) £6000 = £4.5k. Bingo! He gets the 25% lump sum tax-free AND the taxable bit tax-free too. If the two of you feel you could afford it there's another thing you could consider. He could open a second pension now and start saving into it with a view to accumulating up to another £6000 before he finally stops work. Then he could cash that in under "triviality" in the tax year AFTER he does the first "triviality" cash-in. He has to be careful to do the two cash-ins within twelve months of each other. As long as he does that, he'll avoid the tax on this second bit of saving too. You could always try this extra pension saving and if it proves too tight financially, just stop it. His savings would still be there in his pension awaiting his instructions.

Above is from the sticky.

Do you save £6,000 in one and then open another or open them with so much each and add to them till you have the £6,000.

Thanks:)

gadgetmind

jamesd wrote: »

she might consider using Hargreaves Lansdown's Vantage SIPP.

They are certainly easy to work with but it might be worth checking that they are 100% happy to pay out under triviality.

As for what to hold in the SIPP, gilts are as risk free as you can get, but HL charge 0.5% pa to hold these in a SIPP.

Karinia

gadgetmind wrote: »

They are certainly easy to work with but it might be worth checking that they are 100% happy to pay out under triviality.

As for what to hold in the SIPP, gilts are as risk free as you can get, but HL charge 0.5% pa to hold these in a SIPP.

Have looked at their website and yes they do triviality - they charge £150. +VAT to draw it out.

This is the scarey bit knowing which area to ask for the money to go in! If Marion asks them would they be honest and say which is safe?

Thanks for help everyone

Karinia

Are my maths right please.

This year Marion's personal allowance is 9940 (as she will be 65 shortly)

Her state pension is 3192. so she could earn 6748 this year with no tax.
If she put that in to the pension for 2 years that's 13496 + 20% from the govt making 16195. But have it split in to 2 accounts so 8097 each.

Then to draw out she takes 25% tax free that's 2024 leaving 6073. So she would not want to earn more than 674 or she would pay tax on it.
Then does the same with the other account within 1 year but two seperate tax years.

Please tell me if this is all correct or if I have gone wrong anywhere.

TIA

gadgetmind

Karinia wrote: »

This is the scarey bit knowing which area to ask for the money to go in! If Marion asks them would they be honest and say which is safe?

No, absolutely no way will they do that. Maybe you need to start a separate thread regards what HL funds/etc. to invest in with very low risk. HL do have some cash funds and I'm sure that anyone in drawdown with HL knows which are best.

If she put that in to the pension for 2 years that's 13496 + 20% from the govt making 16195. But have it split in to 2 accounts so 8097 each.

Unless she has taxable earned income, she can only put in £2880 per year, which HMG make up to £3600. Notice the way that's a multiplier of 1.25 because of the way the tax works.

So, she could put 2x £2880 into one pension, and this would be worth £7200 after two years with HMG's contribution. She could then do the same with a second pension to get a total of £14400. She'd then get £3600 out as 25% tax free leaving £10800. This could come out across two tax years with no tax to pay.

If she wanted, she could do this in year 5 too, and split the payment between the two pensions. However, that £18k for triviality is a strict cut-off - £1 over and it's game over, so it's best not to get too clever.

The total benefit to her is £720 a year, minus annual fees and minus costs to exercise triviality. The downside is that she'll have to pay out £2880 a year and not see it again for 4-5 years.

After doing all of this, she could still put £2880 a year into a pension, then immediately vest it and get £900 back tax free. The remained would then buy an annuity. At current rates, it would take about 11 years to break even assuming zero tax.

jamesd

The normal Hargreaves Lansdown people are prohibited by their regulatory license from giving specific investment advice and could not say what looked safe without breaking those rules and becoming liable for significant penalties.

Hargreaves Lansdown does offer an advice service that starts out with a £400 minimum charge.

Safe has lots of possible meanings. One is simply protected from fraud and just about anything she could get inside a pension has that protection.

The more normal meaning in investing is the amount of variation in capital value that happens in the regular investment cycles. Those variations range from zero for cash savings accounts that can be held inside a pension (not available within the Hargreaves Lansdown one) to money market funds that are almost as safe but don't have the FSCS capital value protection. Both of those don't grow much. Beyond those come corporate (company) bond funds that pay more but have capital value variation in the 10-20% range, more for some relatively uncommon types. Above those in capital value variation come commercial property funds then equity (share) funds of various types.

Normally someone would pick a mixture of those for long term investing.

If her objective is short term just to gain the tax benefit then she could use mainly money market funds.