Contribute more to company pension or SIPP for my wife?

jamesd

Use salary sacrifice to do it. That also makes the calculation easy, you sacrifice the amount you need to get to your target income and it's all automatic after that with no claims needed.

I have reservations about whether it's worth doing it, though that would depend on just how many children there are. The problem is that I compare the potential gain to the potential gain of VCT buying and ongoing VCT income and the VCTs win hands down. Here's an example with the 52k:

Say you buy an even split of two VCTs, Albion Venture Capital Trust and Albion managed Crown Place. The first is expected to pay 10.02% tax free dividend indefinitely. The second, 11.16%. Both of those after allowing for the effect of the tax relief on the purchase price. HMRC will provide you with 30% income tax relief on the £52k via your tax code, giving you £15,600 of tax relief. Not like the pension relief taxable income that'll be collected later (barring the tax free lump sum and difference in your income tax rate).

The expected income on the reduced purchase prices of £23,400 of each VCT is £2,386.80 plus £2,611.44. A total of £4,998.24 income a year, tax free.

After the initial fees for the purchase you'd start out with something like 90% of the £52k in share value for the VCTs. I'm expecting that this will rise to 100% or more by the time the five years are up but it's not guaranteed and if it doesn't happen it'd eat into some of the gain from the tax relief and income.

That seems more valuable than the potential Child Benefit, particularly given that the income is ongoing, not just for the one year that you might be able to afford to cut your income that much.

It doesn't start out as high as the pension tax relief but unlike the pension relief, you can do this repeatedly to get another 30% every five to eight years. You also get a much shorter five year lock in that can help with early retirement planning, since you can potentially use the money to help fund living costs before age 55.

I've mentioned two VCTs that I think are a good deal but at a minimum in future years you should diversify into others. Those will typically pay less, but still worthwhile income levels. Don't neglect the pension investing either, a mixture is good.

Note that I'm comparing the fixed income from the VCT with the potential equity and other investment growth from the pension investing and think that the expected returns for the VCTs exceed the historic returns of the UK stock market.

arbster

jamesd wrote: »

I have reservations about whether it's worth doing it, though that would depend on just how many children there are.

There are 3 children, giving a further "gain" of £2,280, to add to the £22,550 of tax relief. I understand that the pension income will be taxable, but feel that my overall pot is somewhat underfunded, which needs to be addressed.

I'm also somewhat nervous of VCTs, despite your very compelling posts on the subject. I will look at investing some of the money destined for my S&S ISAs in VCTs instead, and in future years also consider those instead of further AVCs, but don't feel bold enough to commit such a significant sum in VCTs. This is probably a one off opportunity to contribute enough to get the child benefit back, as well as growing my pension pot using only c. £30k of my available cash.

jamesd wrote: »

The expected income on the reduced purchase prices of £23,400 of each VCT is £2,386.80 plus £2,611.44. A total of £4,998.24 income a year, tax free.

After the initial fees for the purchase you'd start out with something like 90% of the £52k in share value for the VCTs. I'm expecting that this will rise to 100% or more by the time the five years are up but it's not guaranteed and if it doesn't happen it'd eat into some of the gain from the tax relief and income.

That seems more valuable than the potential Child Benefit, particularly given that the income is ongoing, not just for the one year that you might be able to afford to cut your income that much.

It doesn't start out as high as the pension tax relief but unlike the pension relief, you can do this repeatedly to get another 30% every five to eight years. You also get a much shorter five year lock in that can help with early retirement planning, since you can potentially use the money to help fund living costs before age 55.

Yes, that really is quite compelling, especially the ability to rinse and repeat at least twice more during my working life, assuming of course that future governments don't pull the rug from under us.

jamesd wrote: »

I've mentioned two VCTs that I think are a good deal but at a minimum in future years you should diversify into others. Those will typically pay less, but still worthwhile income levels. Don't neglect the pension investing either, a mixture is good.

Note that I'm comparing the fixed income from the VCT with the potential equity and other investment growth from the pension investing and think that the expected returns for the VCTs exceed the historic returns of the UK stock market.

I think I'll look at doing both - probably the planned major top-up of the pension, continued contributions to my S&S ISA and a foray into VCTs, the proportions of which I shall mull over some more.

jamesd

Yes, both is good. One thing I regret not doing sooner is learning more about VCTs and switching money from ISA investing to VCT investing sooner. You still need to keep a balanced set of investments, though.

arbster

jamesd wrote: »

Yes, both is good. One thing I regret not doing sooner is learning more about VCTs and switching money from ISA investing to VCT investing sooner. You still need to keep a balanced set of investments, though.

Yes, I've become aware of the importance of balance recently. I'll possibly reduce the risk profile of my S&S investments slightly and add some VCTs. They should be relatively safe from legislative change for the next 5 years, hopefully.

arbster

On the subject of a SIPP for my wife, who is a non-earner, I have come down to a shortlist of Cavendish Online or BestInvest thanks to comparefundplatforms.com. However, nowhere on the Cavendish does it seem to say "SIPP", explicitly, choosing to refer to their offer as a "FundSupermarket Pension". Same thing?

My concern with BestInvest is the significant transfer out charges, but I'm struggling to find confirmation on the Cavendish website of the £zero costs that comparefundplatforms.com quote. Anyone have any experience of a SIPP with Cavendish? TIA.

kidmugsy

Does Cavendish do SIPPs? I had thought it offered Personal Pensions and Stakeholders. Either of which might be fine for your wife.

jem16

arbster wrote: »

However, nowhere on the Cavendish does it seem to say "SIPP", explicitly, choosing to refer to their offer as a "FundSupermarket Pension". Same thing?

It's basically the same thing in this case. The platform used is Fidelity.

arbster

kidmugsy wrote: »

Does Cavendish do SIPPs? I had thought it offered Personal Pensions and Stakeholders. Either of which might be fine for your wife.

Apparently they do these:

• NEW Fund Supermarket Pension
• Stakeholder pensions
• Personal pensions

The Fund Supermarket Pension seems to have much lower fees.

jem16

arbster wrote: »

The Fund Supermarket Pension seems to have much lower fees.

Lower than other SIPPs or lower than Cavendish's PP option?

arbster

jem16 wrote: »

It's basically the same thing in this case. The platform used is Fidelity.

Thanks - very interesting that the charges are lower through Cavendish than direct with Fidelity.

Despite the offer of £80 cashback for BestInvest, the transfer charges are very off-putting, so will probably go with Cavendish.