Should I start paying into a pension - advice appreciated

Simon_Jay

Would really appreciate your views on pensions. I normally get around 20K dividend on top of 30k salary each year. This year the accountants have said we should take 5K dividend (tax free) and use the rest to make a company payment to pension. I am 52 with 400K house (no mortgage), 170K cash savings, 5K Ratesetter, 38K old Royal London pension (closed to any further payments) and no debts.

I spoke to an IFA who agreed with company payments to pension. He also advised that the cash should be invested. I then spoke to a good friend who believes in BTL rather than pensions. He said that investments are on a high at present and that it would be very risky making lump sum investments to pensions. He also said that IFA’s have no other option but to advise pensions/investment ISA’s.

I am in a real quandary. I like low risk, simple things. I would be grateful to know what people are doing, are pensions the way to go, do they generally grow each year or does the value go up and down, and are there any simple products where you can just make the payments without having to follow the markets, make investment decisions, etc. Or maybe it is better/safer to pay tax at the outset and put money in to stocks and shares ISA.

Thank you very much indeed for your views.

Stubod

Should I start paying into a pension...

Yes....

PeacefulWaters

You have virtually no pension provision.

Get some. Tax relief, range of funds including lower risk. Ability to benefit as both employer and employee. Your IFA is the man. Tax free lump sum on access and a chance to optimise your tax free personal allowance in retirement.

You're also holding a ridiculously high amount in cash. Divert some to pension and perhaps play out the buy to let game with the rest.

Although single asset investing, which buying a house is, can be inflexible and high risk anyway. Especially with increased stamp duties. Do you really want the hassle of tenants in retirement?

Tom99

Maybe only paid enough into the pension to make you a basic rate taxpayer, that way you will get 32.5% tax relief on that part of your dividend you are putting in to the pension.

Simon_Jay

Thanks for the advice. I think this is confirming my own view that I have to do something pension wise.

Could I just ask...are the pension products with the ready made funds like those offered by Aviva ok or do you really need to learn more and make your own fund decisions to benefit. Ideally I would just like to find a product that I can pay into without worrying about funds, etc. Thanks

Terron

Tom99 wrote: »

Maybe only paid enough into the pension to make you a basic rate taxpayer, that way you will get 32.5% tax relief on that part of your dividend you are putting in to the pension.

It sounds like he is being advised to make contributions directly from the company.
Presumably it is hos own company and he is a director.
Such contributions count as an expense so the company does not pay corporation tax on it. Nor would he pay any other tax, so this is tax efficient.

If he takes the money out any other way there would be quite a bit of tax to pay. So I would do that rather than BTL.

Yes investments are at historical highs, they almost always are as the long term trendis upwards. There may be a drop but probably not more than than was gained in tax relief, and in the long term they will almost certainly go up.

I have nothing against BTL. I get almost all my income from it. It isn't particularly high risk. Especially if you go for several properties. But you do need to know your area, or know someone who does. Different areas are suitable for different stratefies. If you can find good letting agents you don't need to deal with tenants - I have and don't. You would need to consider the impact of the new tax that has started to be phased in this year, (known as Section 24 to many landlords).

Maybe consider investing some of your cash in BTL. Or maybe ISAs. But building a decent pension is definitely worth doing.

AlanP_2

Simon_Jay wrote: »

Thanks for the advice. I think this is confirming my own view that I have to do something pension wise.

Could I just ask...are the pension products with the ready made funds like those offered by Aviva ok or do you really need to learn more and make your own fund decisions to benefit. Ideally I would just like to find a product that I can pay into without worrying about funds, etc. Thanks

You have a choice - DIY where you choose provider & funds, for example you could choose a standard Aviva type pension and let them worry about underlying investments, or go "all in" and make all your own decisions.

Alternatively, work with the IFA and agree on objectives, timescales, attituade to risk etc. and they will come up with proposals.

The former will probably be lower cost whilst the latter will be a chargeable service from the IFA.

Which one will perform better in the future is an unknown, but all investments go up and down, historically though they have gone up over sensible time periods.

The biggest issue with a BTL as your "retirment pot" to my mind is you can't sell off half a room to pay for that dream retirment holiday. Sure it can generate an income but difficult to realise a chunk of capital.

EdSwippet

Simon_Jay wrote: »

Ideally I would just like to find a product that I can pay into without worrying about funds, etc.

With a SIPP you could 'build' a fully diversified global stock/bond portfolio using just a single holding in one of the Vanguard LifeStrategy or Target Retirement funds. That is as simple as it can possibly be. All you need to do is to select the appropriate SIPP platform, set up payments, and you're done.

Alternatively, a personal pension with a company like Aviva or Aegon would also fit the bill. Look at going through Cavendish online for the best pricing options. Most life insurance companies' default fund options might be decent enough, though take care over any offerings that provide 'lifestyling' -- a slow transition from equities to bonds as you age. This would be useful if you plan to take an annuity with your pension, but much less so if you expect direct drawdown. Annuity rates are currently low, so drawdown is the more likely route for most people at the moment.

kidmugsy

Simon_Jay wrote: »

I normally get around 20K dividend on top of 30k salary each year.

This is as a director of your own company I assume. But why do it this way? Usually it's thought to be best to take a salary that's just big enough to earn you rights in your State Retirement Pension, while still paying only a small sum in National Insurance Contributions. (That salary is somewhere just above £8k p.a. I understand: google for more info.) Then you'd perhaps take enough dividends to take your income up to the higher rate threshold (£45k or £43k in Scotland).

If that leaves you spare cash in the company then have the company make pension contributions for you - that saves corporation tax, and income tax on the dividends that would otherwise be paid out. Or you might choose to take less in dividends and have the company contribute more to your pension.

If you want to take the company into the BTL game, then you need to know about stuff that I know nothing about.

Simon_Jay

kidmugsy wrote: »

This is as a director of your own company I assume. But why do it this way? Usually it's thought to be best to take a salary that's just big enough to earn you rights in your State Retirement Pension, while still paying only a small sum in National Insurance Contributions. (That salary is somewhere just above £8k p.a. I understand: google for more info.) Then you'd perhaps take enough dividends to take your income up to the higher rate threshold (£45k or £43k in Scotland).

If that leaves you spare cash in the company then have the company make pension contributions for you - that saves corporation tax, and income tax on the dividends that would otherwise be paid out. Or you might choose to take less in dividends and have the company contribute more to your pension.

If you want to take the company into the BTL game, then you need to know about stuff that I know nothing about.

Hi thanks for coming back. You are correct that a lower base salary would make more sense but unfortunately I joined a company where this is the policy and thus I had to go with it. Thanks again for the info.

Terron

AlanP wrote: »

The biggest issue with a BTL as your "retirment pot" to my mind is you can't sell off half a room to pay for that dream retirment holiday. Sure it can generate an income but difficult to realise a chunk of capital.

You could just sell a property, assuming you bought where prices are reasonable. Better though not to have BTL as your only retirement option.