Investments or pension?

Diddidi

Apologies in advance if this is a really basic question. I see lots of people on this forum actively investing in various different areas and I think I am missing out! My FA has advised me to put everything I have into my pension to make the most of the tax situation (am 40% tax payer). I am also looking to potentially retire or cut back on work in the next year or so (almost 55). But I am wondering if I should be looking at setting up some kind of active investment now to go alongside my pension? A friend of mine recently retired and lives off the money he makes from his investments and this set me thinking that perhaps I need to diversify a little? Does it make any difference if my investments are in a pension wrapper?

Thank you for your help.

Prism

As long as you are still working and you can afford to live on less than the higher tax limit you should generally put the rest into a pension which effectively gives you that tax back. There are a few ways of doing this which depend on if you are employed, self employed or a director of your own limited company.

You can currently pay in up to £40000 each year into pension but this will reduce to just £4000 if you decide to retire at 55 and take some or all of that pension back out.

ColdIron

Pensions are investments. If you are a higher rate tax payer and close to retirement this is good advice. Which situation would you prefer? a) HMRC get £400 of every £1,000 you earn or b) You keep all of the £1,000. I maxed out my pension contributions for my final 3 years and received tens of thousands of pounds of effectively free money. If you can do this via salary Sacrifice all the better as you get a break on NI contributions. If you are close to retirement it's not a if you have to lock it away for long

AnotherJoe

Why not investments WITHIN your pension ?
You’d be barking to throw away your last year or two of 40% tax relief. Do it inside your pension

cloud_dog

AnotherJoe wrote: »

Why not investments WITHIN your pension ?
You’d be barking to throw away your last year or two of 40% tax relief. Do it inside your pension

Unless that doesn't give you the flexibility (in retirement age) you may be looking for?

EDIT: I'm ignoring setting up a separate SIPP / personal pension.

BananaRepublic

You don’t say what sort of pension you have. Generally a SIPP would make most sense for current investments, whereby you choose the funds to invest in, and pay more modest fees than many personal pensions. The key reason to invest in an ISA would be the ability to take the money out before age 55. You are nearly 55 so the pension makes sense, you get tax relief now, but when you take it, 25% is tax free, the rest is taxed. But of course you have the personal allowance so the first
~£12,000 per year is tax free.

As said, if your employer can make the pension payment, you avoid NI on the contributions. This is especially good for people who run their own company.

In my view the generous pension tax rebates for relatively wealthy people are something the government should remove. But while they are here, make the most of them.

Diddidi

BananaRepublic wrote: »

You don’t say what sort of pension you have. Generally a SIPP would make most sense for current investments, whereby you choose the funds to invest in, and pay more modest fees than many personal pensions.

It's a personal pension....well, two. I have my employer's one so I can take advantage of salary sacrifice and their matching contribution and then I put about a third of my net salary into my main pension pot which is one combined pension pot from all the different personal pensions I have merged over the years.

Thank you everyone for your comments....it sounds like am doing the right thing for now. I just wanted to make sure I hadn't missed something obvious!

atush

Missing a trick using a Sipp over a SS employers pension, can you pay mroe into that one? Will save you and extra 2% in tax. So 100 into a pension will cost you only 58.

Otherwise, are you paying in the annual limit of 40K? Can you afford to save more? that is the money I would use for investments.

Diddidi

atush wrote: »

Missing a trick using a Sipp over a SS employers pension, can you pay mroe into that one? Will save you and extra 2% in tax. So 100 into a pension will cost you only 58.

Otherwise, are you paying in the annual limit of 40K? Can you afford to save more? that is the money I would use for investments.

I hadn't thought about it that way.....of course, it makes sense to do as much via SS as possible although that's a lifestyle fund and my SIPP is actively managed with help from my FA. I shall look into this and see if I can actively manage as well.

Yes, I'll be at my £40k limit by the time the end of the tax year rolls around and good idea to only invest above that amount in something else.

Thanks everyone for the great advice!

yorkiebar

You can invest more than £40K/yr into a pension if you've been a member of a pension scheme for the last 3 years (doesn't have to be the one you want to contribute to this year) and you didn't use the full allowance in any of those previous 3 years.

So if you'd "only" received £20K/yr (includes employers contributions) into your pension for the last 3 years then you have £20K x 3 unused allowance which you could use in this tax year, so could contribute much more than £40K.