Where should I save money next??

kidmugsy

OP, suppose you stop work at the end of the tax year when you turn 55. Suppose you start drawdown of a SIPP at the start of the new tax year. Assume for convenience that the Personal Allowance then is £12k: you'll be able to drawdown £16k per annum without having to pay any income tax. You'll have trouble contributing enough to a SIPP in the next few years to accumulate that much money in it but you might as well get as much in as you are comfortable with. To help you bridge the gap until 60 you could consider either (a) taking the age-67 career average pension early, and just take the actuarial reduction on the chin, or (b) transferring the CETV to a SIPP and using that to supplement your income.

This would still leave you with a 7 year gap until you get your state retirement pension. You might find it counter-intuitive, but one way to make all this easier might be to take out a mortgage on your house while you still have a job. Borrowing is cheap and is the obvious way to help fill the gaps until your various pensions kick in. Does that mean that you were unwise to overpay your mortgage? Very possibly but it's spilt milk now.

Shabbycat

:beer:

kidmugsy wrote: »

OP, suppose you stop work at the end of the tax year when you turn 55. Suppose you start drawdown of a SIPP at the start of the new tax year. Assume for convenience that the Personal Allowance then is £12k: you'll be able to drawdown £16k per annum without having to pay any income tax. You'll have trouble contributing enough to a SIPP in the next few years to accumulate that much money in it but you might as well get as much in as you are comfortable with. To help you bridge the gap until 60 you could consider either (a) taking the age-67 career average pension early, and just take the actuarial reduction on the chin, or (b) transferring the CETV to a SIPP and using that to supplement your income.

This would still leave you with a 7 year gap until you get your state retirement pension. You might find it counter-intuitive, but one way to make all this easier might be to take out a mortgage on your house while you still have a job. Borrowing is cheap and is the obvious way to help fill the gaps until your various pensions kick in. Does that mean that you were unwise to overpay your mortgage? Very possibly but it's spilt milk now.

I was thinking along the same lines when I dwelling on it last night. One question though,why would I be able to drawdown £16,000 per annum instead of £11,500???
If I want to drawdown £16,000 per annum for 4 years (age 56 to 60) I would need to invest £12,600 per annum (from 52 to 56 when I resign) Would it be better to use that money to earn interest and pay in lump sums tk a SIPP in the last two tax years that I'm earning???
It's always been my intention to take my full classic pension at 60 and take a reduced Alpha pension at the same time. The reason I overpaid my mortgage was there was a real risk of redundancy, unfortunately I bit too early for me otherwise I would have biten their arm off for it!!!
The plan had also been to sell my house near London and move somewhere less expensive to release some equity which I willl do in the future.

Thank you very much for your reply.

atush

I would open a DC pension (either a SIPP or PP) and invest into that. Keep the cash you have already as cash.

You can afford to invest, as you wont be taking the pension all in one year. So maybe half in cash, and the other half invested in a multi asset fund. that would mean the LS and second year could be paid out of the cash fund, leaving the equity assets to grow (or recover from a correction).

Shabbycat

atush wrote: »

I would open a DC pension (either a SIPP or PP) and invest into that. Keep the cash you have already as cash.

You can afford to invest, as you wont be taking the pension all in one year. So maybe half in cash, and the other half invested in a multi asset fund. that would mean the LS and second year could be paid out of the cash fund, leaving the equity assets to grow (or recover from a correction).

I really don't have sufficient knowledge to invest on my own behalf, would you suggest a managed fund??

Shabbycat

atush wrote: »

I would open a DC pension (either a SIPP or PP) and invest into that. Keep the cash you have already as cash.

You can afford to invest, as you wont be taking the pension all in one year. So maybe half in cash, and the other half invested in a multi asset fund. that would mean the LS and second year could be paid out of the cash fund, leaving the equity assets to grow (or recover from a correction).

Would it make sense to invest £12,000 per anum in year 1 and 2 and then cash in years 3 and 4. Then when I resign drawdown cash in year 1 and 2 and then cash in the investments in years 3 and 4??

MallyGirl

Shabbycat wrote: »

:beer:

I was thinking along the same lines when I dwelling on it last night. One question though,why would I be able to drawdown £16,000 per annum instead of £11,500???

using the £12k annual allowance for simpler maths:
if you drawdown £16k (and haven't taken a tax free lump sum) then 25% of it is tax free - £4k. The remaining £12k is taxable but at the zero rate tax (assuming you have no other income) so you pay no tax on that either. Result is £16k out with no tax to pay

Shabbycat

MallyGirl wrote: »

using the £12k annual allowance for simpler maths:
if you drawdown £16k (and haven't taken a tax free lump sum) then 25% of it is tax free - £4k. The remaining £12k is taxable but at the zero rate tax (assuming you have no other income) so you pay no tax on that either. Result is £16k out with no tax to pay

Of course, thank you.

Shabbycat

Shabbycat wrote: »

Of course, thank you.

Another question:-
Until now I have been earning just over £50,000 per annum so have been a 40% tax payer. In October I reduced my hours slightly (work/life balance) and anticipate my earnings to be £48,000 at the end of this tax year and in future be between £43,000 and £45,000 so will be paying basic rate tax.
Is there a tax advantage to invest in a SIPP before the end of this tax year??

ColdIron

Yes. Assuming no other income, if you put £3,000 into your SIPP/pension you can claim the higher rate back from HMRC effectively making yourself a basic rate taxpayer this tax year

Shabbycat

ColdIron wrote: »

Yes. Assuming no other income, if you put £3,000 into your SIPP/pension you can claim the higher rate back from HMRC effectively making yourself a basic rate taxpayer this tax year

How do I do that???
Any suggestions as to who I should go to invest in a SIPP, I was thinking of Hargreaves Lansdown?? Are they best for a novice like myself??