Pension advice for Sole Trader

Cazza

A few years ago I asked for some advice on here about retirement planning for DH and I... those plans fell by the wayside as we then discovered I was pregnant. Fast forward 3.5 years and I'm pregnant with No2 but have had another look at our outgoings and feel we are now in a position to look at our retirement plans again. I'd appreciate your thoughts, please. So, a little background...

• DH and I are both 36.
• I am a member of the LGPS. About to go on Maternity Leave but will return to work. Currently FT with a salary of just over £38,000. Plans are that I will return to work FT after No2 and although I expect to become a HR taxpayer at some point in the future that is not imminent and would depend on applying for vacancies / promotions as they become available.
• DH is a Sole Trader. Income via self assessment is c£12-18,000. Unlikely that he will become a HR taxpayer. He won't be converting to a Ltd Co in the foreseeable future.
• DH does not and has never had any form of pension savings.
• We have a joint mortgage with 24 years remaining, c50% LTV.
• We have savings to cover 6-9 months of day to day living expenses, plus an emergency fund and separate savings to cover the next 12 months of annual one offs, such as car insurance (which is topped up on a monthly basis so we're always 12 months ahead)
• No interest bearing debts, c£8,000 on 0% credit cards but we have further savings to clear those if / when we need to.
• We have saved enough to cover the drop in income from my Maternity Leave (and to make up the shortfall in my LGPS contributions for the unpaid part of ML too).

We expect to be able to make contributions towards a pension for DH in the region of £100-150 per month. I'd rather avoid a SIPP because we do not feel we have the time or knowledge for that type of product at the moment.


I think that leaves us with a S&S ISA or a Stakeholder pension? What factors do I need to think about when deciding between the two? I've done a fair bit of research but am still sitting on the fence and I don't think the amount of money we're able to contribute each month makes it worthwhile getting advice from an IFA (and the local ones all seem to want a significantly larger investment portfolio before they'll bother). If Stakeholder is the best option, where do I go to find the "best" one? I have read the main guides on this website and on other websites but feel a little lost about where to go next.

xylophone

https://www.cavendishonline.co.uk/pensions/stakeholder-pensions/

https://www.legalandgeneral.com/pensions-retirement/stakeholder-pensions/

https://www.standardlife.co.uk/c1/accounts-and-services/pensions/stakeholder-pension-features.page

http://www.scottishwidows.co.uk/retirement/pensions-annuities/stakeholder-pension/


or have a look through here to see if anything might suit?

https://www.money.co.uk/pensions.htm?track=843687&creative=199260971752&network=s&placement=&adpos=1o2&gclid=EAIaIQobChMIytDPx-_o1gIVj5kbCh2pfwRCEAMYAiAAEgIo9vD_BwE

Cazza

Thank you, so do you think that a Stakeholder is more appropriate than a S&S ISA? That was my gut instinct but I can't say I'm sure I know why that is the better option of the two, aside from the fact that the flexibility to withdraw funds from the ISA isn't something that we feel is a need for DH.

xylophone

Has your husband obtained a state pension statement?

He will get tax relief in a pension.

He might look at LISA.

https://www.moneysavingexpert.com/savings/lifetime-ISAs

LHW99

Any pension type investment would be topped up by tax relief from HMG. ISA's are not, but there is no tax payable on withdrawals whereas with pensions only 25% of the final (DC) pot is tax free.
Have you looked at a LISA?

Cazza

He hasn't asked for a state pension statement, he's 36 currently so state pension age will be 68. To date he has 16 full years of NI contributions so the 30 years contributions to qualify for the full State Pension should, all things being equal, achievable. I hadn't planned to ask for a state pension statement because of the number of factors which could change over the next 32 years, I didn't feel that the information it gave us would add any particular value to the decisions? Happy for someone to advise me otherwise if I've misunderstood the purpose of this though.


I've read Martin's guide to LISAs. The FTB benefits don't apply so it would purely be for retirement savings. Clearly we're happy for the funds to be locked away for the long term, so we're happy that the ability to withdraw funds from a LISA, with a penalty, is neither here nor there in our decision.


In terms of the other differences, many of the other factors are six of one and half a dozen of the other between a Pension and a LISA, for us. I think the factors which put me off were...

• there are very few providers, so little choice in the market (albeit that this is what's confusing and delaying me decision with the alternatives)
• a pension can be accessed from 55; DH is a tradesman with a physical job and I feel the ability to access a pension 5 years earlier is a factor which may affect our decision.
• The fact that the LISA could affect entitlement to state benefits or be taken into account in the event of bankruptcy are remote but are factors that I feel are influencing my decision.

I think the only factor which could balance things out for us is that DH could make a loss in some financial years and still be eligible for the 25% bonus on a LISA, whereas with a Stakeholder pension presumably he will only get tax relief if he's actually got taxable income on his tax return? Don't expect this to happen often but he has had a loss in recent years and another year of income being below the taxable threshold, due to taking a significant amount of time out to work on our own property. It's not impossible that could happen again in future years if we move up the ladder and to another project property.


I'm assuming you would suggest a S&S LISA, not a Cash one, because this is retirement planning, not for a house deposit?

xylophone

It is not necessary to have actually paid tax in order to get tax relief.

A person with no relevant earnings could make a contribution of £2880 to a stakeholder/personal pension/SIPP and receive tax relief of £720.

A person whose only income was relevant earnings of £11,000 ( so within Personal Allowance and paying no income tax) could pay £8800 into a stakeholder/personal pension/SIPP and receive tax relief of £2,200.

fcandmp

Xylophone, could you expand upon your example so I fully understand? Is it that a standard rate taxpayer could contribute up to 80% of their gross pay ?

What then if they had any taxable income above the 20% tax band could they say contribute up to 60% of the excess in addition. I am thinking of an example where someone is trying to max out their contributions by say living from savings?

Many thanks

xylophone

Taxable income is not necessarily "relevant earnings".

Have a look at this

http://www.pruadviser.co.uk/content/knowledge/technical-centre/tax_relief_members_contributions/