Keeping retirement and savings separate when ISAs are involved

BananaRepublic

borborygmous wrote: »

Thanks - a great point and I do understand that. My question stands, though: once one has identified the investments and tax wrappers one considers appropriate (I have, more or less), there's still the problem of whether / how to keep different savings separate.

I'm not sure I understand the issue. If you open an account with NiceInvest.co.uk, other good companies are available, you will have an ISA account, and a SIPP account. They are quite separate, and can be viewed individually, as well as together if you want to see the total you have. The platform will ensure that you follow the legal rules e.g. not moving funds out of your SIPP before age 55.

For what it is worth I have funds with Fidelity and YouInvest. I have no problem recommending both platforms.

Maybe part of your question relates to taking out ISA funds to splash on a new car, boat or whatever. Well, if that is the issue, I'm afraid you are responsible for yourself. But, my long term funds have gone up 3-7 times, so if you think about the huge amount of jam to come, you might refrain having a small amount of jam today. One of my first investments has gone from £6,000 to £40,000. So refraining from a new Nissan Micra means I could have a brand new Jaguar, and still have lots of money left over!!! (Or I'll die young and the money will go to some ungrateful beggars, but that's another issue .... )

BananaRepublic

borborygmous wrote: »

Of course. But psychology and government both come into it too. Government: "ah, I see you ran into unexpected hardship, we'll relieve you of those savings, thankyou very much" - not making a moral or ethical point here, just one about how things sometimes work. Many "behavioural economists" recommend "tying oneself to the mast" as a useful MO (not to the nth degree, but to some extent - there is a big element of judgement of course!).

Yes, Her Maj's finest may well decide that we are not fit to look after all that money we have built up, and change the tax rules on ISA and pension savings. But I suspect there is a limit to how retrospective it can be without creating an uprising, or at least a flood of strongly worded letters which is the British equivalent.

BananaRepublic

borborygmous wrote: »

This would mean you need to record the values of investments before each contribution is added, right? Unless no holding (fund/whatever) is part of both portfolios? Do you do that by hand?

The calculations don't bother me as much as getting hold of the data. It seems few providers have any public API.

I record my investments and keep them separate. Thus one year I buy £15,000 of Fat Pig Investments UK Soaraway Fund. Then the next year I buy £15,000 of Stinking Rich Manager's European Get Rich Quick fund. That way I know which was bought when. If I were to buy more of the Fat Pig, the two purchases would be lumped together, making it hard to keep track. So as long as you buy different funds you are okay. Alternatively use a couple of platforms, and duplicate funds can be kept separate.

Linton

borborygmous wrote: »

This would mean you need to record the values of investments before each contribution is added, right? Unless no holding (fund/whatever) is part of both portfolios? Do you do that by hand?

The calculations don't bother me as much as getting hold of the data. It seems few providers have any public API.

Not the values, just the number of units/shares. Various software packages or online portfolio managers can update the prices automatically. Or if you want to brew your own system the FT website can export the prices of the constituents of a portfolio as a CSV file which can be read by Excel/Open Office etc. You will need to register to set up your own portfolios but the service is free.

racing_blue

It's a fascinating topic but what are the nuances here?

The comments in post #9 makes me wonder if there is another angle- maybe to do with keeping pension savings legally separate.

If this is about keeping different savings pots separate "in the mind" - then isn't it precisely about psychology and behaviour, as suggested in the opening post?

IMHO there are all sorts of variables such as:
- how you define retirement
- age at which you hope to retire
- how much income you'll need in retirement
- how much income you want in retirement
- what % of this will be met by a defined pension
- what sort of margin of safety helps you sleep at night

Perhaps the better these can be defined, the better a formula can be constructed to check that savings are on target. For me, this is enough.

Example: say I have an occupational pension of £20K per year which will kick in aged 55. But I want to retire at 50. I reckon on wanting at least £30k per year in retirement. To fully fund the first 5 years, and working on a withdrawal rate of 3% for the rest of my life, I'll need an additional pot of £150K+around £350K = £500K. Clearly at least £150K of this needs to be accessible before age 55, so will be in an ISA. The rest will be split between ISA & SIPP. It could be split 50:50 or 80:20 or 20:80 and I'd be equally relaxed. It's all one pot to me. My tax situation will probably define the split.

Still not sure I have grasped the nettle of this thread though- OP could you give an example of the sort of decisions you face?

AnotherJoe

BananaRepublic wrote: »

I'm not sure I understand the issue. If you open an account with NiceInvest.co.uk, other good companies are available, you will have an ISA account, and a SIPP account. They are quite separate, and can be viewed individually, as well as together if you want to see the total you have. The platform will ensure that you follow the legal rules e.g. not moving funds out of your SIPP before age 55.

But the OP isn't planning to have a SIPP , or maybe he has a SIPP as well but thats separate to what he's asking. He wants a "savings" ISA and a "pension ISA" that he treats separately.

(Though even with deep distrust of government, if he doesn't intend to have a SIPP but have an ISA instead that he's "earmarked" for a pension, its like burning money in the street and makes a mockery of saving at all since rules could equally well change on ISAs )

If the OP is somewhat detailed about keeping meticulous records it does get involved if he keeps different earmarked funds in the same ISA since dividends get put into one cash pot.

I'd favour SIPP, followed by savings ISA, followed by a "pension" ISA in that order, and in any one tax year either contribute into the pension ISA or the savings ISA (once he's done putting into SIPP). Any money he wants to put into the other ISA, park in high interest savings until the new tax year.

darkidoe

Why do you have to keep them separate? Short term cash expenditure 2-3 years can be kept in high interest savings accounts, I think if you have an other half, you can keep up to close to a £100 k earning 3%+ interest. I would think that would be enough for any short term savings.

The rest can go into pensions/S&S ISA for retirement. S&S ISA allowance should be used fully if possible if you are wanting to retire early for flexibility and tax advantages.

bowlhead99

darkidoe wrote: »

Why do you have to keep them separate? Short term cash expenditure 2-3 years can be kept in high interest savings accounts, I think if you have an other half, you can keep up to close to a £100 k earning 3%+ interest. I would think that would be enough for any short term savings.

The rest can go into pensions/S&S ISA for retirement. S&S ISA allowance should be used fully if possible if you are wanting to retire early for flexibility and tax advantages.

I'm not sure why some people haven't understood the question which seems pretty clear.

As mentioned in the first post and reiterated in post #7, the OP is not struggling with trying to split between two things, (1) 'short term 2-3yr cash expenditure' and (2) 'pensions/S&S ISA for retirement.'

OP has already done his split between 'short term 2-3yr' and 'other'. He is looking at the 'other' and is using pensions and ISA. The pension is not a problem because it gets locked away and can't be touched and is clearly all for retirement. The trickier piece is the ISA saving/investment piece that he is contributing to each year, which likely contains shares and bonds and funds and cash and whatnot - people build broad mixed-asset portfolios for their goals.

But the ISA piece has two distinct goals: (a) retirement which might be a long time away and (b) more shorter term objectives which might be 5 to 10 years away - like a house move, or a new car, or a child's education, or whatever else people plan to do in a decade's time which they don't want to keep in cash for that time and thereby lose 30% to inflation.

The OP's problem is that he can only contribute money to one ISA during a particular year, and yet some of that money is destined for a 5-10 year goal and some of it is destined for a retirement goal, and tracking multiple goals in one pot can require fiddly recordkeeping, so his question is how people practically manage that or what psychological tricks they use to ensure that one doesn't encroach on the other.

My suggestions were either to have the current-year ISA annually used to feed two separate perpetual prior-year ISAs, one destined for retirement and one for the goals which are 5-10 years away. Or just contribute to those two separate pots on alternate years. Or just to have one big pot which has a spreadsheet saying what 'belongs' to one pot, which might be individual assets designated for individual goals or some sort of proportionate share of each asset.

Others like Malthusian have suggested that however you try to split or label it, the reality is that it's all one pot because if you under-budget for that boiler or car replacement or step up the housing ladder, you will practically dip into the retirement part of it because you are not going to do without heating or a car or a home.

But none of the OP's problem is addressed by stating the obvious 'put 2-3yr spending needs into high interest bank accounts and the rest into pensions and ISAs', or 'identify how much income you need in retirement'. The OP has already done his split as he explained in post #1 and #7, so presumably isn't looking for advice on how much to put in his short term cash pot, or where to put that, or how much income he should have for retirement. The questions are about how to split the funding of medium to long term goals once the type of wrapper (S&S ISA) has been identified and only lets you have one of those wrappers being actively funded in a particular tax year.

darkidoe

bowlhead99 wrote: »

I'm not sure why some people haven't understood the question which seems pretty clear.

As mentioned in the first post and reiterated in post #7, the OP is not struggling with trying to split between two things, (1) 'short term 2-3yr cash expenditure' and (2) 'pensions/S&S ISA for retirement.'

OP has already done his split between 'short term 2-3yr' and 'other'. He is looking at the 'other' and is using pensions and ISA. The pension is not a problem because it gets locked away and can't be touched and is clearly all for retirement. The trickier piece is the ISA saving/investment piece that he is contributing to each year, which likely contains shares and bonds and funds and cash and whatnot - people build broad mixed-asset portfolios for their goals.

But the ISA piece has two distinct goals: (a) retirement which might be a long time away and (b) more shorter term objectives which might be 5 to 10 years away - like a house move, or a new car, or a child's education, or whatever else people plan to do in a decade's time which they don't want to keep in cash for that time and thereby lose 30% to inflation.

The OP's problem is that he can only contribute money to one ISA during a particular year, and yet some of that money is destined for a 5-10 year goal and some of it is destined for a retirement goal, and tracking multiple goals in one pot can require fiddly recordkeeping, so his question is how people practically manage that or what psychological tricks they use to ensure that one doesn't encroach on the other.

My suggestions were either to have the current-year ISA annually used to feed two separate perpetual prior-year ISAs, one destined for retirement and one for the goals which are 5-10 years away. Or just contribute to those two separate pots on alternate years. Or just to have one big pot which has a spreadsheet saying what 'belongs' to one pot, which might be individual assets designated for individual goals or some sort of proportionate share of each asset.

Others like Malthusian have suggested that however you try to split or label it, the reality is that it's all one pot because if you under-budget for that boiler or car replacement or step up the housing ladder, you will practically dip into the retirement part of it because you are not going to do without heating or a car or a home.

But none of the OP's problem is addressed by stating the obvious 'put 2-3yr spending needs into high interest bank accounts and the rest into pensions and ISAs', or 'identify how much income you need in retirement'. The OP has already done his split as he explained in post #1 and #7, so presumably isn't looking for advice on how much to put in his short term cash pot, or where to put that, or how much income he should have for retirement. The questions are about how to split the funding of medium to long term goals once the type of wrapper (S&S ISA) has been identified and only lets you have one of those wrappers being actively funded in a particular tax year.

I think with good planning, he can avoid having that dilemma, building up a large enough cash pile that will be able to sustain his short to medium term goals. At least for me, ISA and pensions are different pots with similar goal of retirement (>10years). Now assuming he is still generating an income, the key to meeting his short-medium term goal would be to plan ahead 2-3 years in advance and control his investment rate into his ISA/pension and allocate the right proportion for his short-medium term goals as he earns. Now if the level of short-medium goals fund required is massive over the limit of the high interest accounts can take, that might require more deliberation. I believe somewhere in the region of ~£100 000 might be enough for most short-medium goals, including a deposit for a mortgage.

However I believe the most distinct advantage of the ISA is the tax free status and the best way to utilise it is a source of potentially large sum of tax free income generating funds. Using it as a shorter term goal would be a pity and not the best way to utilise it. Of course this is just my opinion for a simple solution. Allocating ISAs into short/medium/long term is just too complicated for me I think.