IFA fees and starting pension

JoeCrystal

Bear in mind that you won't be paying into a pension pot when you retire. It really depend on how much does your and your partner need to live on an annual basis and work backward from that. You may find that without any mortgage or pension commitment, especially with a paid off home that it doesn't take much to live on. Especially once you take into state pension provision into account. Let say I want to retire at 55 but my state pension doesn't kick in until 68, since I can easily live on state pension income which is £8,546.20, I just need 13 years of gap covered until the state pension kick in, so I just need £111,100 (13 years worth state pension saved up) to draw down until my SPA kick in which is one way of doing it. You may find £150,000 be enough even, especially if you are contributing £750 per month into pension pot. You already got £50,000 invested elsewhere.

As you mentioned that you got a partner, it is certainly worth checking how your partner doing it as well.

steviewander

JoeCrystal wrote: »

Bear in mind that you won't be paying into a pension pot when you retire. It really depend on how much does your and your partner need to live on an annual basis and work backward from that. You may find that without any mortgage or pension commitment, especially with a paid off home that it doesn't take much to live on. Especially once you take into state pension provision into account. Let say I want to retire at 55 but my state pension doesn't kick in until 68, since I can easily live on state pension income which is £8,546.20, I just need 13 years of gap covered until the state pension kick in, so I just need £111,100 (13 years worth state pension saved up) to draw down until my SPA kick in which is one way of doing it. You may find £150,000 be enough even, especially if you are contributing £750 per month into pension pot. You already got £50,000 invested elsewhere.

As you mentioned that you got a partner, it is certainly worth checking how your partner doing it as well.

That all makes sense, thank you.
Yes my partner has a sizeable pension but I have always had it ingrained in me to be self sufficient (hard parenting!). I hear people say "there won't be a state pension when you get to pension age".
My parents and my partner say it for goodness sake - is it all hyperbole or for real?!

LHW99

Don't forget that if you put £750 per month into your pension, the Government adds back the 20% tax relief (and if you are a higher rate taxpayer, you can reclain the additional 20% too).
That's actually £900 per month, and when you take it out as pension 25% of what you have saved is tax free, and if you have no other income, you can take out up to your personal allowance tax free too.

steviewander

LHW99 wrote: »

Don't forget that if you put £750 per month into your pension, the Government adds back the 20% tax relief (and if you are a higher rate taxpayer, you can reclain the additional 20% too).
That's actually £900 per month, and when you take it out as pension 25% of what you have saved is tax free, and if you have no other income, you can take out up to your personal allowance tax free too.

Actually that sounds a lot better. I forgot about the 20% top up and didn't realise you could take out up to your personal allowance free. Thanks for that.

PosterBoy77

I recently turned 40 and had been maxing out my ISA allowances each year for the last 10 years or so, but I did not bother with a pension until the new pension freedoms were announced. I did not like the idea of having to buy an annuity etc. However, now with pension freedoms, pensions are better than ISAs due to the tax relief you receive and the ability to just draw an income down as you see fit. I was also lucky enough to be able to start a Lifetime ISA. It is often said that it is best to start contributing to a pension when you are as young as possible, but that is not always the best. If you expect to earn much more as you get older, it can be worth delaying and paying much more in when you become a higher rate tax payer. However it is never too late, as you get tax relief which you would not otherwise receive! There are so many low cost SIPP providers around and lots of information on funds you can invest in, I would explore the options of doing it yourself first. Many studies have shown that investment decisions made by "non experts" do not generally perform any worse than those made by "professionals". Nobody has a crystal ball.

As you are self employed and have some control over how you are employed, it could be worthwhile to setup your own limited company. If you are in a position to earn well and pay significant sums into a pension, especially in the next three years you could get your own company to make contributions into your own pension without any tax or NI to pay at all. For maximum effect, if you were employed in your own limited company, your company could pay you a salary up to the level of the NI Primary Threshold which is £8424, which would be paid to you before tax from your company and would also be tax free to you. You could then contribute £6739.20 into a pension yourself which would be topped up with 20% tax relief, even though no tax has been paid by you or your company! Your personal contribution would then be topped up to £8428. Your company could then contribute on your behalf up to a further £31572 without paying any corporation tax, NI or you paying any income tax. Contributions made by your employer (in this example your own limited company) are not limited to your PAYE earnings, just limited by the annual contribution allowance.


If there are enough profits, you can also use carry forward rules to use up some of your unused pension contribution allowances from previous years. Using these allowances would be possible even if you just remain as self employed.

PeacefulWaters

LHW99 wrote: »

Don't forget that if you put £750 per month into your pension, the Government adds back the 20% tax relief (and if you are a higher rate taxpayer, you can reclain the additional 20% too).
That's actually £900 per month, and when you take it out as pension 25% of what you have saved is tax free, and if you have no other income, you can take out up to your personal allowance tax free too.

I make it £937.50.

steviewander

mikael wrote: »

As you are self employed and have some control over how you are employed, it could be worthwhile to setup your own limited company. If you are in a position to earn well and pay significant sums into a pension, especially in the next three years you could get your own company to make contributions into your own pension without any tax or NI to pay at all. If there are enough profits, you can also use carry forward rules to use up some of your unused pension contribution allowances from previous years. Using these allowances would be possible even if you just remain as self employed.

Thank you for your thoughts. I'm definitely feeling better about my situation now that I've read some very useful contributions on this thread. I will look into the option of creating a limited company if I can use it increase my pension pot. My accountant did elude to this last year but I didn't follow it up. I will now, so thank you for the reminder!