IFA pension advice, what do you think.

Judwin

dunstonh wrote: »

You mentioned your wife was in the NHS scheme. So, she is likely to use up all her personal allowances and pay basic rate tax.

Hmmm. We don't know that though. Yes we know that shes in an NHS scheme, but the original post said :

peterg1965 wrote: »

wife work p/t (NHS nurse) with small pension pot circa £3.7K pension and £10K lump sum @ 60 (she is 45 now).

If that's the whole story, then her pension is likely to be £5K (State) + £3.7K(NHS?) . That's less than the allowances are likely to be, so she wouldn't be paying any tax.

And she's currently only working part time. We don't know if thats one hour a week, or 167.5 hours a week, so how can we tell what future NHS pension entitlement will be?

So it's got to be worth making sure that the wife is getting at least £10K p/a in retirement, since that'll be 0% taxed from day one. No?

dunstonh wrote: »

example: personal allowance increases by £1000.
Your wife no longer pays 20% on that £1000 saving £200
You no longer pay 40% on that £1000 saving £400

So, income in your wife's name would be £200 higher that year but income in your name would be £400 higher.

I think that's a little - how can I put it - assuming facts that aren't in evedence isn't it? (no offence intended, and tin hat on)

It assumes that any extra pension income in the wifes name would cause her to straddle the zero and basic rate tax band boundary (currently £7545 but going up to 10K soon for pensioners), and that any extra pension in Peter's name would cause him to straddle the Basic and Higher tax band boundary (currently £40Kish). If that's true then yes, I agree.

However, if Peter's gilt edged RAF pension ends up putting him well into the 40% tax band on its own (say £6K state, £1K PR and £40Kp/a RAF) which i think it will, then it'll take years for the increase in the personal allowance to catch up. If that's the case, then the extra pension income will always be taxed at 40%, so there will never be any £400 saving on each £1000 extra in personal allowance.

Example 1 : This new PPP is in PeterG's name.
PeterG's income = £16K new PPP + £6K State + £31.5K RAF = £53.5K
MrsPeterG income = £3.7K PPP + £6K State = £10K (ish)

Assume £10K personal allowance, 20% basic tax and HRT at 40% above £40K .

PeterG's tax = (£10K @ 0%) , (£30K @ 20%) and £13.5K @ 40%) = £11400.
MrsPeterG tax = (£10K @ 0%) = £0
ChateauPeterG Total tax = £11400

Next year the chancellor puts the allowance up to £11K

PeterG's tax = (£11K @ 0%) , (£30K @ 20%) and (£12.5K @ 40%) = £11000.
MrsPeterG tax = (£11K @ 0%) = £0
ChateauPeterG Total tax = £11000

Example 2 : This new PPP is in MrsPeterG's name.
PeterG's income = £6K State + £31.5K RAF = £37.5K
MrsPeterG income = £16K new PPP + £3.7K PPP + £6K State = £26K (ish)

PeterG's tax = (£10K @ 0%) , (27.5K @ 20%) = £5500.
MrsPeterG tax = (£10K @ 0%), (£16K @ 20%) = £3200
ChateauPeterG Total tax = £8700.

Next year the chancellor puts the allowance up to £11K

PeterG's tax = (£11K @ 0%) , (26.5K @ 20%) = £5100.
MrsPeterG tax = (£11K @ 0%), (£15K @ 20%) = £3000
ChateauPeterG Total tax = £8100.

Example 3 : This new PPP is in SqdLdr PeterG's name, higher RAF pension
PeterG's income = £16K new PPP + £6K State + £40K RAF = £62K
MrsPeterG income = £3.7K PPP + £6K State = £10K (ish)

Assume £10K personal allowance, 20% basic tax and HRT at 40% above £40K .

PeterG's tax = (£10K @ 0%) , (30K @ 20%) and (22K @ 40%) = £14800.
MrsPeterG tax = (£10K @ 0%) = £0

Next year the chancellor puts the allowance up to £11K

PeterG's tax = (£11K @ 0%) , (30K @ 20%) and (21K @ 40%) = £14400.
MrsPeterG tax = (£11K @ 0%) = £0

Example 4 : This new PPP is in SqdLdr MrsPeterG's name, higher RAF pension.
PeterG's income = £6K State + £40K RAF = £46K
MrsPeterG income = £16K new PPP + £3.7K PPP + £6K State = £26K (ish)

PeterG's tax = (£10K @ 0%) , (30K @ 20%) and (6K @ 40%) = £8400.
MrsPeterG tax = (£10K @ 0%), (£16K @ 20%) = £3200
ChateauPeterG Total tax = £11600.

Next year the chancellor puts the allowance up to £11K

PeterG's tax = (£11K @ 0%) , (30K @ 20%) and (5K @ 40%) = £8000.
MrsPeterG tax = (£11K @ 0%), (£15K @ 20%) = £3000
ChateauPeterG Total tax = £11000.

Same think applies for Air Vice Marshal PeterG on a £100K+ p/a Crab pension.

So yes, ChateauPeterG always pays £200 p/a less tax if the newPPP is in PeterG's name and allowances go up by £1000 , but, they would be much better off anyway if the new PPP is in MrsPeterG's name paying 20%.

IMHO.
No?

Cheers,
Judwin

dunstonh

HL rebate almost all the commission, so it will be cheaper for the client. That's why I suggest E/O services.

HL get upto 0.75% trail commission on ISAs and pensions and rebate upto 0.25% on ISAs but nothing on pensions. The reason they do rebate some of the commission is that they provide no advice, no servicing and virtually no FOS protection (so have no liability). If that is the service you want, then they cater for it. Peter doesnt want that.

When you appoint an adviser, you are doing so knowing that you are paying for someone to do the work. I have just arranged a decorator to rub down and re-stain my windows. I could save myself a lot of money by doing it myself but I will get a better job with a professional doing it and I dont have to waste my own time doing it.

Of course it would be interesting to hear the explanation for the fund choice made by Peterg's IFA, perhaps there is a rationale for putting half his money in bonds and property at his age and with his aims,and hardly any in UK stocks.

Can't see anything wrong with that. The returns on the bond fund are likely to be low in the short term but the benefit will be with rebalancing and it will be the defensive side to the portfolio. Property has taken a bit of a hit this year but NU are still projecting next year to be around 7-8% p.a. onwards.

My fund spread would be a little different but fund selection is about opinion and with that particular contract I wouldnt vary it much from what you see.

The more examples you see of IFA advice the less it looks like value for money.Of course the clients of the good ones probably don't post here.

I see absolutely nothing wrong with the advice given to Peter based on the limited data we know.

Complaints to the FOS have only 16% relating to IFAs (only 1/3rd upheld), yet IFAs do 60% of the business. Over 80% of advisers authorised today have not had a complaint to the FOS. The stats for IFA advice are good. Not perfect and there is room for improvement but there is no reason to question the advice here.

peterg1965

EdInvestor wrote: »

Do you have any surplus disposable income?

Short answer no! That was a constraint on the plan developed by my IFA.

Judwin - I take great offence at your assumption that I am in the RAF. I actually work for a living - in the Navy!

I see absolutely nothing wrong with the advice given to Peter based on the limited data we know.

Thank you Dunstonh, that has given me a lot of confidence in my IFA, which was what I was seeking.

Judwin, your calculations are very comprehensive. What they do not take into account is the additional money invested into the equity ISA from the HRT rebate if the money goes into my PPP. In my simplistic way of looking at these figures that tax free money, however it is utilised, will more than make up for the increased amount of tax that I pay.

And she's currently only working part time. We don't know if thats one hour a week, or 167.5 hours a week, so how can we tell what future NHS pension entitlement will be?

My wife works 22.5hrs per week (two thirds full time shift) so she accrues two years of NHS pension for every three worked. I expect that her pension and her full state pension will take up all of her zero rated tax band. I also qualify for a full state pension (minus the serps 2SP bit of course).

I will be opting for the commission renumeration option for my Financial advice. This brings with it annual servicing of course.

Judwin

peterg1965 wrote: »

Judwin - I take great offence at your assumption that I am in the RAF. I actually work for a living - in the Navy!.

:eek: I'm about 5 miles south of HMS Heron myself, so I do know what offence that can cause. Apologies.

peterg1965 wrote: »

Judwin, your calculations are very comprehensive. What they do not take into account is the additional money invested into the equity ISA from the HRT rebate if the money goes into my PPP. In my simplistic way of looking at these figures that tax free money, however it is utilised, will more than make up for the increased amount of tax that I pay.

I don't think that's correct thinking. 40% tax relief is only given on personal contributions into your pension plan. Sure the tax man gives you back 18% at the end of the tax year, but he's only giving you back money that you have already 'overpaid'.

It doesn't matter how you fund an ISA - whatever you do you've already paid 40% tax on the money you put into it. If all you are trying to do is reclaim the 40%, then it all needs to go into the PPP, and none into the ISA.

peterg1965 wrote: »

My wife works 22.5hrs per week (two thirds full time shift) so she accrues two years of NHS pension for every three worked. I expect that her pension and her full state pension will take up all of her zero rated tax band.

That changes things a lot. Have you/your IFA has a pension prediction done for your wife. If she's going to be paying basic tax anyway as it is, then decisions get more complex. If her pension income is predicted to exceed about £15K, then IMHO, it's more tax efficient for you to hold any additional PPP's.

Given this new info about your wife, and your aim to repay the mortgage, I'd be lumping as much as I could into the SS ISA's for both you and your wife (up to £14K this year, £14.4K next etc). Investment returns in the ISA should be similar to those for the pension, but, you retain 100% of your money plus the growth, not just the 25% of it that you can take as a lump sum from the pension. Therefore, when you come to retire you'll have up to 4 times as much cash available to pay off the mortgage, if that's what you choose to do.

Given that you're already well pensioned for income in retirement, I think the extra versitility of the ISA makes sense, providing you can trust yourselves not to dip into it. Given your job you might not want a world cruise, but the missus might want a bit more than a trip on the Gosport ferry.

Cheers,
Judwin

EdInvestor

I guess it's time to direct peterg to the ISA v pensions thread but also to reiterate a basic rule about pensions where there is no contribution from the employer. These products are just tax wrappers, and thus they work if they match certain tax-based scenarios:

*They suit higher rate taxpayers who will pay basic rate tax in retirement.

*They suit basic rate taxpayers who will pay no tax in retirement.

*They can be useful for very rich people who will never actually draw an income from them but use them as quasi life cover, paying out a death benefit plus tax relief if they die before they get to 75.

They are not appropriate for people who will pay the same level of taxation in retirement as they do when they are contributing because 75% of the tax relief will be clawed back, and the advantage of the other 25% is comprehensively trashed by the lack of access to and eventual confiscation of the capital and the strict limitations on how much income you can take from it before it is confiscated.

This case falls into the latter category.

dunstonh

Using the information in context to the requirements though, Peter is looking for income. Whatever way you look at things, the highest income provision is given by a pension.

We dont know what Peter's views are on leaving money to children (if there are any). There is no point someone getting paranoid about capital retention if there is no-one to leave money to or there is enough from other sources to satisfy your views and requirements.

peterg1965

dunstonh wrote: »

Using the information in context to the requirements though, Peter is looking for income. Whatever way you look at things, the highest income provision is given by a pension.

We dont know what Peter's views are on leaving money to children (if there are any). There is no point someone getting paranoid about capital retention if there is no-one to leave money to or there is enough from other sources to satisfy your views and requirements.

I agree ref income.

There are three children. Leaving capital/assets to them does not necessarily drive my thinking. Maybe a little selfish but I am not reliant on my parents therefore I suspect that will not be reliant on me (and my wife). Having said that they will be well catered for in terms of inheritance from our property and any residual capital from the estate. (All a bit morbid).

Despite the comments by Ed/Judwin I think I am still going down the route suggested and advised by my IFA. It is certainly a more attractive option than 'do nothing' and will give me lots of options at 55. I fully understand, and am entirely comfortable with the risks and they are entirely acceptable to me. I all honesty I will probably continue working after retirement from the Navy (at 53/55) therefore it should make the situation even better. I want options in my 50's, to retire at my leisure, and I think it is entirely possible with my plan.