Pension figures

berbatov10

Thanks again all this has really got my grey matter going. So I have decided that in line with advice given I will invest the £8000 difference (£42000 40% tax to the £50 I will earn this year) into a pension and see if anything changes in the election, if it goes to 30% flat then I gain if it stays the same I just continue. I am also going to invest a further £200 - £300 a month from next year into said pension. I would like to invest it where it is likely to make some reasonable gains without me picking funds and monitoring it on a regular basis. I referred to a SIPP because that is what came up when I started researching, though I was already aware of a stakeholder pension. What would you guys say?

kidmugsy

I have a SIPP with HL. I find their service excellent and their charges bearable. If I had heaps of money in the SIPP (more than roughly £20k - £40k, say) I suppose I might move it to get lower charges. I like the SIPP because I can hold assets that a typical Stakeholder or Personal pension wouldn't allow. I am considering, though, the possibility of putting new contributions to a Fidelity Personal Pension invested in some of their tracker funds, or perhaps the same trick at L&G. That's "considering" in the idle sense of not having done any homework yet.

berbatov10

Kidmugsy do you 'actively' manage your HL SIPP? I have looked around and its been suggested a VLS fund I could just fund and leave alone?

TH1878

jamesd wrote: »

Right, I put into the calculator the base pay of 42k, ot total earnings of £50k. For £50k the net pension contribution for £40k into the pension would be £30,373 after all tax relief, with £32,000 the initial payment into the pension and £1,627 the higher rate tax relief portion.

Yes, but you said that the maximum pension contribution he could make (and get tax relief on) was £42k when it's clearly £50k.

Obviously you know what you're on about so it's just an oversight on your part. Just didn't want the OP to get the idea that tax relief was limited to basic salary which is the way it read to me.

kidmugsy

berbatov10 wrote: »

Kidmugsy do you 'actively' manage your HL SIPP? I have looked around and its been suggested a VLS fund I could just fund and leave alone?

Yes, though perhaps in rather a footling way. It's small, but also only a small part of our total "portfolio", and I use it for specialist purposes. I think that if I were much younger and still accumulating money, I would probably invest in tracker funds, at least to cover large companies and developed markets.

Two things that have occurred to me lately are:

(i) I imagine that mixed equity/bond funds, even in a SIPP, are not tax-efficient, since the bond income may reach the fund as a dividend. So at the risk of earning the Labour Party's hypocritical wrath, I'd incline to hold bonds and equities separately. In fact, if I wanted to hold gilts, I'd hold them as-is, not in a fund at all.

(ii) I assume that holding foreign equities in trackers, or funds, or even investment trusts, isn't tax-efficient either, since you'll be indirectly paying withholding tax, even though as a SIPP owner you're entitled to avoid or reduce it. So one of my "specialist" investments in my SIPP will be, I think, foreign shares held directly, if my SIPP provider can promise to avoid/reclaim withholding tax on my behalf, and if their charges are low enough. That's if I ever get round to it.

Thrugelmir

kidmugsy wrote: »

So one of my "specialist" investments in my SIPP will be, I think, foreign shares held directly, if my SIPP provider can promise to avoid/reclaim withholding tax on my behalf, and if their charges are low enough. That's if I ever get round to it.

The delights of the Internal Revenue Service and form W-8 Ben (has to be renewed every 3 years). Some investments are better held in funds.

kidmugsy

Thrugelmir wrote: »

The delights of the Internal Revenue Service and form W-8 Ben (has to be renewed every 3 years). Some investments are better held in funds.

I can see the point of funds for e.g. corporate bonds. But why hold a share in funds if it means paying 15% extra tax on its dividends?

Can I avoid W-8 Ben by sticking to shares in companies in Canada, Japan, Switzerland etc? As for the US I had wondered about Berkshire Hathaway, viewed as being rather like a fund itself, but one that pays no dividends and therefore isn't subject to withholding tax. The money in my SIPP needn't generate income.

berbatov10

Good Morning. Can I start by saying thanks for all the information and help given here. Kidmugsy I believed that monies earnt inside a pension would be tax free. Would it only be in an ISA where dividends are untaxed?

jem16

berbatov10 wrote: »

Kidmugsy I believed that monies earnt inside a pension would be tax free. Would it only be in an ISA where dividends are untaxed?

UK dividends are always subject to 10% tax with a tax credit no matter whether they are in an ISA, Pension or not. If within an ISA or Pension they are not subject to the higher rate dividend tax.

berbatov10

Thanks Jem16. The input you and others have given has steered me which Iam grateful for. I just now need to decide what platform to use for a VLS 60/40 fund held in a pension