Invest Pension or Isa

ianjean

I'm 58 years no debts and a Prudential with profits pension of £120000 still contributing £100 a month was thinking about retiring around 64 or 63


Iv got another £200 to spare each month should I invest it all in the pension making £350 month or put some/all in a Isa ..Ive got a bit put by for a rainy day.


(when I retire was thinking I might not take any of the 25% tax free allowance) maybe use it all for flexi drawdown ... that's another query would I be better of to stay at Pru or transfer for better deal with a more generous company?

atush

I would say it isn't either or it is both. I'd do half and half

But I would not invest more in a WP fund, i'd switch into a lifestyle fund in your case. So all new monies are invested outside of WP. ASk them which ones they have, given your current WP fund, you would look for maybe 60% equities.

ianjean

Forgive me Atush
whats a lifestyle fund?

dunstonh

When it comes to with profits, Pru us largely an exception as they do tend to turn in decent returns time and again.

AlanP_2

ianjean wrote: »

Forgive me Atush
whats a lifestyle fund?

Something like a Vanguard LifeStrategyxx, where xx = the the percentage held as equities with the remainder in bonds. Similar funds are available from L&G and BlackRock amongst others although they all vary slightly.

Underpinning them are investments in individual funds covering all major markets e.g. US, UK, Asia, Japan and Emerging Markets and sometimes with some specialist funds (Property, Small Cap Companies and the like) as well.

Aimed at the inexperienced investor looking to get a broad spread of investments at a relatively low cost with minimal hands-on effort essentially although can be used as part of a broader, more actively managed DIY portfolio.

Lots of threads on this forum and also see the monevator.com website for useful articles and information.

kidmugsy

ianjean wrote: »

I'm 58 years no debts and a Prudential with profits pension of £120000 still contributing £100 a month was thinking about retiring around 64 or 63

Iv got another £200 to spare each month should I invest it all in the pension making £350 month or put some/all in a Isa ..Ive got a bit put by for a rainy day.

You're old enough to access your pension cash whenever you want, though perhaps you'll have to transfer to another provider first, depending on how agile the Pru turns out to be in accommodating the new flexibility. Anyway, that makes pensions preferable if either (i) you are avoiding 40% tax by making the contribution, or (ii) you are contributing by Salary Sacrifice, or (iii) you expect to drawdown from the pension so that you can exploit your Personal Allowance (versus income tax) before you start drawing your State Pension.

If none of those is true, in your shoes I might opt for an ISA, partly to avoid having too many eggs in the one basket.

Other things being equal, for a 20% tax payer the pension has an advantage of 6.25% over an ISA, so over 6 years that's about 1% p.a. But then things are rarely equal.

purdyoaten

With respect to the original question and, taking into account the new rules, I have opened a SIPP on behalf of my wife who is a non-taxpayer. £2880 was invested last Friday and an additional £2880 yesterday. Both remain in cash to be invested 'later'. We await the tax relief.

I can see no downside to this at all. She is 55 years old and obviously can withdraw a) 25% lump sum b) up to the remainder of her tax free band each year, after taking into account her occupational pension, without tax. The immediate 25% return is hugely more attractive than what she currently receives.

Are there any pitfalls at all?

kidmugsy

purdyoaten wrote: »

I have opened a SIPP on behalf of my wife who is a non-taxpayer. £2880 was invested last Friday and an additional £2880 yesterday. Both remain in cash to be invested 'later'. We await the tax relief.

I can see no downside to this at all. She is 55 years old and obviously can withdraw a) 25% lump sum b) up to the remainder of her tax free band each year, after taking into account her occupational pension, without tax. The immediate 25% return is hugely more attractive than what she currently receives.

Are there any pitfalls at all?

No pitfalls for you, unless your provider whacks you with extra charges for emptying the pension so soon. Oh, and she'll probably have to reclaim overpaid tax.

But I inferred (perhaps wrongly?) that the OP was still earning and that therefore might not have any personal allowance unused. Hence "(iii) ... you expect to drawdown from the pension so that you can exploit your Personal Allowance (versus income tax) before you start drawing your State Pension."

jamesd

No pitfalls other than the chance of a change of rules in the future and the potential charge, with many places making no charge. So it's mostly just a good thing to be doing. Just tell your friends and make sure that they also know how to get free money out of HMRC.

purdyoaten

kidmugsy wrote: »

No pitfalls for you, unless your provider whacks you with extra charges for emptying the pension so soon. Oh, and she'll probably have to reclaim overpaid tax.

But I inferred (perhaps wrongly?) that the OP was still earning and that therefore might not have any personal allowance unused. Hence "(iii) ... you expect to drawdown from the pension so that you can exploit your Personal Allowance (versus income tax) before you start drawing your State Pension."

I think that as a former tax advisor I will cope with the tax problem. Many thanks!

kidmugsy

jamesd wrote: »

Just tell your friends and make sure that they also know how to get free money out of HMRC.

Oh you are a tease - you know perfectly well that the money comes from the other taxpayers, not HMRC.