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Getting money out of pension
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Or perhaps it is the governments fault that I am in the unenviable position that I am currently in.
I have not overcomitted or overborrowed. I have been subject to a new tax law which has widely been criticiised as being unnecessarily punative. This tax law was also made retroactive so I owed money that I did not even know I owed.
And when this tax law led to a shortage of skilled workers in my field, the government then made concessions for overseas workers to solve the problem rather than help out it's indigeneous workers it had/has roundly screwed.
I was sailing along quite nicely until this bunch of incompetents and liars got into power and stayed there.0 -
I have never heard of a tax change being introduced retrospectively. Do you mind giving some details? (Not pensions related obviously, but of interest anyway as someone who deals with a lot of taxation issues and changes).0
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Take a look at IR350
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I am in the exact same situation as you Mark. I only have £3k in pensions but could really do with the money now. My financial situation came about when I was made redundant (second time in 3 years!) at a very bad time for my sector, so found it extremely hard to get back into work. Thanfully a job offer came about and I am now a self-employed contractor.
I was paying well into my pension, had savings, etc. But you cannot plan for being out of work for 10 months. :-(
I am considering paying into a savings account of some kind (when I have some spare money) instead of paying into my pension again. But at the end of the day is a pension still better?
I have received a letter this week regarding my pension and it saying that my investment gain is only 0.5%, so would I like to transfer, hmmm, I'll give you 3 guesses. ;-)
K0 -
I am considering paying into a savings account of some kind (when I have some spare money) instead of paying into my pension again. But at the end of the day is a pension still better?
Pensions have tax relief on contributions. Savings accounts do not.I have received a letter this week regarding my pension and it saying that my investment gain is only 0.5%, so would I like to transfer, hmmm, I'll give you 3 guesses. ;-)
The pension havent grown by 0.5%. The fund you are invested in has grown by 0.5%. If you are not happy with the volatility of your investment fund then change it. Do not confuse the performance of the fund with the pension wrapper though.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
Hi there,
I asked my IFA if I should move my pension into a SIPP and this is what she said:
"It depends what you plan to do with your pension long term – if you want to self invest the funds immediately then yes a SIPP is suitable, however due to the size of your current pension fund it would be uneconomical as there are higher charges associated with a SIPP. A deferred SIPP might be more appropriate – this is a normal personal pension which can be self invested in the future."
Then advised me she would have to charge me £500 for sending recommendations. :-(
K0 -
Mark
Outside chance that you might be able to borrow against the pension: in particular the tax free cash (25% of whatever it's projected to be worth then), which would become available at age 50 - although that's about to go up to age 55, which might affect you (another retrospective rule change ;( ). Check with your bank if you are really strapped.
With a fund of that size worth transferring it to a SIPP IMHO and investing it to maximise its eventual value.
I'm a very satisfied customer of https://www.sippdeal.co.uk
If you look at their site you can see exactly how much it will cost you to set up there and invest the money.After that there's no charge if you don't trade ( apart from 15 quid a year for a set of uselss but compulsory government projections).
IFAs are unfortunately talking a lot of rubbish about SIPPs it seems - for people with smaller pension funds and no interest in the property angle, the cheap online Sipps are almost certain to be the way to go.They're ideal for getting a number of small pension funds from old jobs together in one spot and invested properly.Trying to keep it simple...0 -
dunstonh wrote:Pensions have tax relief on contributions. Savings accounts do not.
Here's the tax position:
With a pension, you get the tax relief up front - so your contributions are topped up by the Government as you put them in. When you come to retirement, you are allowed to take 25% of the total fund tax free but you pay income tax on the other 75% of the pension at whatever is your current rate.
With an ISA, you save out of money you have already paid tax on, but when you come to take the money out, you pay no tax on any of it at all.It is tax free and it is all yours to take whenever you like.
So for a tax free perk on 25% of your savings, with a pension you have to
a) lock up your savings until aged 50 min, soon to be 55
b)take 75% of the fund in the form of taxed income with the strict annual limits on how much you can take
c)at the moment, give up 75% of the total capital to buy a compulsory annuity (guaranteed income for life) which pays you a (taxable) income of about 6-8%, not much above what you'd get in a high interest rate account.
It's not at all surprising that many people think this is not a very good idea. IMHO a pension with no employers' contribution can only be of interest to a high rate taxpayer who will pay basic rate tax at retirement. And even then it's pretty marginal.
I'd go for ISAs every time.Trying to keep it simple...0 -
You forget the effect of having 22% tax relief on the investment performance. The pension fund will always be higher than the ISA due to the tax relief when assuming the same investment fund(s).
Also, annuity rates are currently higher than savings rates (assuming age 65 here).
You also have to remember you are currently allowed to earn £7090 tax free at 65 and then have a further £2090 you can earn at 10% tax.
So, there is the potential to pay more tax than that on an ISA (which has no guarantee that it will exist in 10 years let alone 30 years). However, the income payable is likely to be higher even with tax paid.
I'm not saying ISAs shouldnt be used as a combination makes sense but using ISA alone means you could be wasting tax free allowances in retirement. There are pros and cons with any savings vehicle.
Ideally a couple should plan their retirement together as between them they can earn £14,180 p.a. tax free. When that is done, the ISA doesn't look that attractive any more compared with the pension.Then advised me she would have to charge me £500 for sending recommendations. :-(
Fair enough. The advisor/firm now has a lifetime liability on that advice and £500 seems fair to cover the time, service and liability.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
Hi there,
Thanks for your replies, I'm 28 now (and have had this pension since I was 19) so 55 is a long way off for me and will probably increase by the time I'm 55 anyway.
Pensions seem so overly complicated, I hope one day they are simplified. I do read that ISA's might be scrapped soon but for the moment they sound a good idea. Perhaps when ISA's are thrown out the Government (at the time) might introduce something else?
So you are saying ignore my IFA, don't use them at all and set-up a SIPP pension myself?
Is there such a thing as an ISA pension (if that makes sense anyway), how would you best use a combination of an ISA and pension?
K0
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