tax efficient savings for 'top up' pension

wayoflife

Ill try and avoid the life story! but heres a quick explination of where I'm at:

I currently have 2 jobs. One with a final salary pension and one with a local government pension. No ISA at present, as I chop and change my money around (I am only young therefore I need my money at hand!)
Majority of savings in instant access esavings and regular savings accounts. I am good with my money, and planning for us both to retire at 50.

My partner has not got a pension yet (again only young, and starting to earn ok money) will look into pension for her within the next 2 years.

The help I need is this;

I would like to set up a fund that will act as a 'top up' for our pensions. This will run alongside current pensions and will be as suggested a top up to suppliment our pensions. I was thinking of a figure of £100.00 a month each.

I have worked out that, assuming 5% gross interest over the period (until we are 50) will equate to just over £68,000 each. The interest on this as a top up (assuming 5%) will be £235.00 a month.

Now what I would like advice on is which is the best type of savings to utilise? the first thing to come to mind would be ISA however I would like to keep this 'seperate' as such. as I may need to use an isa in the future I want something where I can just put the money in and forget about it

any thoughts?

Cheers

jem16

Planning for retirement with savings accounts will not get you very far.

The 5% gross that you mention will only be about 0% in real terms by the time you factor in inflation and tax. With £100pm the best thing for you would be to use the equity ISA part of your ISA allowance.

You have a maximum of £7000 that you can utilise each year in ISAs. From next year that will be £7200 with £3600 being available for a cash ISA. That means you can put £3600 in an equity ISA and still have a cash ISA.

You will achieve far better growth with the S&S ISA than you ever will with a savings account.

Perhaps have a read through this thread for some info on S&S ISAs
http://forums.moneysavingexpert.com/showthread.html?t=416337

wayoflife

jem16 wrote: »

Planning for retirement with savings accounts will not get you very far.

Thanks for your help Jen, and I agree with that. Thats why this will be an addition to go alongside my 2 existing pensions

The 5% gross that you mention will only be about 0% in real terms by the time you factor in inflation and tax. With £100pm the best thing for you would be to use the equity ISA part of your ISA allowance.

What I was going to do is increase my panyments with inflaition?

You have a maximum of £7000 that you can utilise each year in ISAs. From next year that will be £7200 with £3600 being available for a cash ISA. That means you can put £3600 in an equity ISA and still have a cash ISA.

You will achieve far better growth with the S&S ISA than you ever will with a savings account.

Perhaps have a read through this thread for some info on S&S ISAs
http://forums.moneysavingexpert.com/showthread.html?t=416337

Thanks I'll read this, I did think about the maxi ISA (being £3,000 savings and £4,000 shares) but Ill look into this equity ISA, Do you have to have this in the same place, or can you seperate your equity ISA with savings ISA?

Thanks

jem16

wayoflife wrote: »

Thanks I'll read this, I did think about the maxi ISA (being £3,000 savings and £4,000 shares) but Ill look into this equity ISA, Do you have to have this in the same place, or can you seperate your equity ISA with savings ISA?

Thanks

I realise that you plan to have this alongside your 2 exisiting pensions but cash still isn't the way to go about it even allowing for an increase for inflation.

The Maxi ISA is really only for stocks and shares. Any cash within it tends to only be there temporarily and can be taxed. What I am describing is called Mini ISAs at the moment. You can have a Mini Cash ISA (£3k)and a Mini S&S ISA ( also called equity ISA)((£4k). The Mini S&S ISA can hold shares or funds.

You don't need to have them at the same place and most wouldn't as it's best to avoid bank's products for investments.

wayoflife

Thanks for clearing that up...

I will have a look at an S&S ISA, I didnt know about this so thanks for the advice!

I will probably look at opening up 2 S&S ISA's and running them seperately, and then I can still utilise cash ISA benefits in the short term

dunstonh

Retirement planning for a couple should be reviewed as a couple. In retirement, you will have almost £20k of tax free earnings between the two of you but only if your provision is split to utilise your £10k allowance each.

If you have a retirement income of say £25,000 and your partner has a retirement income of £5,000, then you will use up your £10,000 tax free allowance as well as paying a tax penalty for earning over £20,900 (reduction in age allowance). Your partner get £5000 tax free but will not be utilising the rest of her £5k personal allowance and that means you will pay around £1600 more in tax a year than had you had the same income split equally betwen you.

(figures using todays money and known increases in personal allowance with a bit of rounding to keep figures simple).

wayoflife

Thats a good point dunston

however I have to consider that I am only 21 she is 22, there is a chance that we wont be together forever!

Also the two pensions I currently have are exclusive to me, they are LGPS and FBPS therefore I cant do much about the equality of pension payments between me and her.

I suppose the S&S ISA counts as income, aswell as any other interest payments?

Hopefully by that time I iwll be one of those rich guys who uses the non domestile status loophole anyway! lol

jem16

wayoflife wrote: »

I suppose the S&S ISA counts as income, aswell as any other interest payments?l

The S&S ISA does not count towards your taxable income. Interest from savings accounts does.

wayoflife

This is interesting, so is it only the S&S ISA or the cash ISA aswell that counts towards the 10k allowance mentioned by Dunston

Sorry for earlier, said Jen when I meant Jem!!!

jem16

wayoflife wrote: »

This is interesting, so is it only the S&S ISA or the cash ISA aswell that counts towards the 10k allowance mentioned by Dunston

Sorry for earlier, said Jen when I meant Jem!!!

Neither the S&S ISA nor the cash ISA count towards your taxable income.

What does count is income from pensions, interest from savings, didvidends from shares or funds outside the ISA and earned income from jobs.

That is why the ISA (in any form) is good to use for retirement income - it does not count as part of the £10k allowance that Dunstonh mentions. Although in saying that the potential return from S&S ISA will be greater than the cash ISA, although it has to be for at least 5 years, preferably more.

bcfcjwb1

Retirement planning for a couple should be reviewed as a couple. In retirement, you will have almost £20k of tax free earnings between the two of you but only if your provision is split to utilise your £10k allowance each

dunstonh, are the figures you quote definitely correct?

I was under the impression that tax free earnings were...

Up to 64 = £5,225
65-74 = £7,550
75 & Over = £7,690

I'm not doubting you, I just want to understand!