ISAs v Pensions: The Official Retirement Debate

Paul_Herring

EternallyGrateful wrote: »

I expect we're all intrigued to know why you don't have to pay tax.

Might be working so few hours they don't earn enough to bring them up the the lower 20% income tax threshold.

May be starting a business and not taking a wage.

Seriously, people, there are legitimate reasons for someone working to be a non-tax payer, unusual though it may be.

boney752

I don't have to pay tax because I'm in the Merchant Navy and qualify for something called Seafarers Earning Deduction. There are a number of conditions you have to meet but basically because I'm out of the UK for more than 183 days I don't have to pay Income Tax. I'm still classed as a UK resident.

fairleads

dunstonh wrote: »

You have assumed annuity but increasingly that is becoming a less popular option with investors. The unsecured option is more flexible and gives you the same investment options as the other tax wrappers (mainly ISA).

You also disregard the personal allowance on income which means not all of the pension will be taxable. Plus, 25% of it is tax free to do as you wish. There are also the better death benefits and IHT avoidance.

Hi Dunstonh
But unsecured drawdown is a fairly recent amendment? and only available for pensioners with more than 20K income or there abouts? And as others here have said, legislation can change. However, have included all facets of current allowances etc and, as a 67 yr old married man, spouse 63, who both retired 10 yrs ago thank heaven - on a daily basis- that we kept well away from any pension provision. We own 100% of capital. Receive a tax free / tax efficient livable income and both still have a portion of our personal allowance available, should we need it. Regards

dunstonh

But unsecured drawdown is a fairly recent amendment?

don't know the date but something like 20 years now.

and only available for pensioners with more than 20K income or there abouts?

No. you are thinking of flexible drawdown. You dont need that amount to do capped drawdown (what used to be referred to just as drawdown previously)

However, have included all facets of current allowances etc and, as a 67 yr old married man, spouse 63, who both retired 10 yrs ago thank heaven - on a daily basis- that we kept well away from any pension provision. We own 100% of capital. Receive a tax free / tax efficient livable income and both still have a portion of our personal allowance available, should we need it. Regards

Why? Income is higher than ISA even after tax and you have some personal allowance free.

Capital retention is a benefit of the ISA but then as you are getting less income, you will have to draw on the ISA more and potentially suffer capital erosion there (either now or later).

Death benefits on the pension would still allow a capital payout if you wanted it.

fairleads

dunstonh wrote: »

don't know the date but something like 20 years now.



No. you are thinking of flexible drawdown. You dont need that amount to do capped drawdown (what used to be referred to just as drawdown previously)

But what is the limit of the cap? Perhaps if you included facts rather than hypotheses we'ed all be better informed
Regards

dunstonh

But what is the limit of the cap? Perhaps if you included facts rather than hypotheses we'ed all be better informed

Cap is effectively 100% of GAD rate which effectively is your annuity rate.

Perhaps you should have made it clear your opinion was not on the basis of fact and knowledge when you took your negative stance against pensions. I must admit I thought you had an informed opinion. I was clearly wrong and I apologise for that.

fairleads

dunstonh wrote: »

Cap is effectively 100% of GAD rate which effectively is your annuity rate.

Perhaps you should have made it clear your opinion was not on the basis of fact and knowledge when you took your negative stance against pensions. I must admit I thought you had an informed opinion. I was clearly wrong and I apologise for that.

Oh dear, But to repeat, please give us the facts. What is the current GAD rate and does it change if for example in the following years my fund value keeps falling.
Regards

EternallyGrateful

fairleads wrote: »

Oh dear, But to repeat, please give us the facts. What is the current GAD rate and does it change if for example in the following years my fund value keeps falling.
Regards

My understanding is that GAD rate depends on age and sex. There are a number of web sites which provide a drawdown calculator so you can specifically check yours.

The last time I spoke with my IFA the income was fixed for 5 years and then reviewed. Obviously during that 5 year period legislation could change.

Louise_Walker

Dear Dunstonh,

Excellent advice. I've just come on to this site to comment on something else entirely, but as, for personal reasons, pensions and the like are a pet hate, I found myself drawn here.

A great thread. Thank you.

I think I'm going to enjoy it here.

Best,

Louise

fairleads

EternallyGrateful wrote: »

My understanding is that GAD rate depends on age and sex. There are a number of web sites which provide a drawdown calculator so you can specifically check yours.

The last time I spoke with my IFA the income was fixed for 5 years and then reviewed. Obviously during that 5 year period legislation could change.

Yes EG it does and suffice it to say that the average GAD derived cap appears to be around 6.4%. Which means that annual income drawdown is limited to 6.4% of pension capital. Which in turn debunks the oft touted theory that SIPPS provide more income than that provided by discretionary capital - regardless of whether Isa-ed or not. And not to forget that pension income whether under drawdown or unsecured is subject to income tax whereas div income is'nt. Further, although cap gain in the SIPP is tax free, the gain remains in the SIPP, and although it increases the capital sum and thus the allowed drawdown, that extra income is taxable. Whereas me and the missus can realise 20K + gains taxfree each and every year -provided of course that our capital grows. According to my understanding if the SIPP capital takes a knock for one or two years then we can only draw a max of 6.4% of the now reduced capital. And again although we've seen our capital take a knock or two since retiring our div stream hasn't - in fact it increased slightly.