Pension and planning for future for a 31-year-old

Terron

greenglide wrote: »

For the avoidance of doubt, if you trade via your own limited company you are not self employed.

You can be, if you also do work other than for the company. I am both self-employed and employed, at least in HMRC's eyes.

jhy

greenglide wrote: »

You are working as a "contractor".


Are you an agency worker, self employed or do you trade via your own limited company?


Without this information it is difficult to suggest anything.


For the avoidance of doubt, if you trade via your own limited company you are not self employed.

Sorry, I should have clarified this, I'm a director of my own limited company. I'm aware I'm not self employed.

AnotherJoe wrote: »

I think you should take a look at your rental properties. The yield is less than 3% from what I can see, and any voids, bad tenants etc will only make that worse. So really you are only barely ticking along keeping pace with inflation on the third of a million you have invested. Maybe of course you've gained from house price inflation (though you will have tax to pay when you sell them) but its hard to envisage much HPI over the next 5-10 years. Maybe if you did gain, now is a good time to get out?



If you do want to run a landlord business, which is not IMNSHO a good place to be these days and getting worse, perhaps you could do with tweaking your properties / rent to substantially raise your income. If you decided to get out of that business, then over time you could put that money into investments within a pension and ISA.



For investment / pension advice, you could start with some background reading.

The Monevator website, some FIRE blogs like The Escape Artist and perhaps Mr Money Mustache (hes at the extreme end of FIRE) - FIRE = Financial Independence Retire Early.


Dont just jump into investing spend some time reading. You dont need to use a SIPP but its probably a good place to start and if you get it right the costs can be very low.



Note also that though you get good tax treatment in a SIPP (or other pension) it is locked away until a certain age. Currently 55 but likely to rise. So even witha good pension, if you want to retire earlier than mid to late 50's, you need soemthing to bridge the gap and your properties arent going to do that at £10k a year. One bad tenant could easily wipe out a years income.

Thanks for the info, I'll have a look.

Albermarle wrote: »

Just as general info ,if you start a personal pension with Standard Life ( or similar with Aviva, Scottish widows etc) you get a few options .
An 'easy' option - you get the choice of a handful of 'lifestyle' funds. Then just pay your money in and they do the rest. Then a DIY option , where you have the choice of a couple of hundred funds with different risk/reward profiles. If you feel you need even more flexibility they also offer a so called low cost SIPP, as do a lot of other companies. These will have access to more funds again + the possibility of owning individual shares in the SIPP.

If you are not sure what you are doing then either -1) go for the easy option- 2) go to an IFA for a full review of your finances ( at a cost ) 3) keep researching on here or many other websites before doing anything

Yep, the 'Easy option' and 'DIY option' was what I was referring to in my post.

jhy

dunstonh wrote: »

Standard Life offer no such service. There is a direct to consumer arm but its self select investments (you pick and manage).



The Telegraph also recommend St James place which is one of the most expensive distribution channels in the country. Its a commercial recommendation and not an independent one (i.e. they share the income.).
Newspaper fund recommendations tend to be fashion investing in niche areas.


Advice you get from adviser. Everyone else offers opinion or marketing.

There is enough info to see that you have potential issues or options which could vary the advice. i.e. we don't have enough to go on to say what you should do because there is not enough known.

I may have worded my post badly, but as other have mentioned, they have an 'Easy option' pension where they essentially manage it for you.

bostonerimus wrote: »

I'm not sanguine about having so much on your money in a single asset class ie property and you are missing out on big tax advantages by not having a SIPP or an ISA. So I would make sure you have a solid cash emergency fund (6 months to a year) and then open a SIPP and an ISA with someone like H&L or maybe Vanguard when the start a SIPP. As you are young you might consider starting with a simple multi-asset fund with a high equity percentage.

I opened an equity ISA a few years ago using the and placed about £15,000 into it. It's invested into a range of funds.

Terron wrote: »

IME the landlord business is an excellent place to be, but I got 8% net yields and 6% capital growth last year (10% equity increase). It does of course depend on where your properties are. My one southern property (a former home) returned less than 2% of each,



Paying off your mortgages will reduce your returns, but with the tax changes may bell be worth doing in the next couple of years. I plan to pay off the mortgages in my own names as I will probably become a HRT payer next year. Presumably with such low yields the plan is to hang on to them and hope for capital growth.


There is a case for going with what you know as you are likely to maje more that way. But when you are retured you probably want a more stable income you don't have to work at. So I would suggext that you diverisfy into a pension as you seem to be considering. If you do see an amazing opportunity in property then consider using a company to purchase it. If you pay the profits into a pension it could be very tax efficient.


Do you have an emergency fund? Do you have savings you could use as a deposit on a home for yourself?


Speak to an IFA. Get a pension started soon.. If it isn't exactly right you can transfer later, but you can't get back the time for growth to compound.

I'm making overpayments on the mortgage so only have about £34,000 left. Can overpay by £5000 each year which I've been doing. I've got access to about £25,000 at the moment, which I;m adding to every month so that's my emergency fund/deposit.

xylophone

https://www.pensionbee.com/pensions-explained/pension-contributions/contributing-to-your-pension-from-your-limited-company?ast=Wtd5le

jhy

A few people have mentioned the rental yield. I may have skewed the figures slightly by using the rent I receive after letting agent fees (which are 7% per month). If we say the approx £34,000 mortgage is paid off I'll be receiving £1425 per month in rent on property worth around £385000, so that's about a 4.44% yield by my reckoning. I feel I have made some decent capital gains on the properties.

I do take on board people's opinions about diversifying my portfolio to not rely so much on property and to consider the risks of renting property though. It's something I've considered.

Terron

My 8% average net yield are after paying my letting agents. ROI might be a better term but there are many alternatives. Goss tields are only good for an inital consideration of a property or HutH. Your initial number made more sense.


From my PoV your yields are low, but we are at different stages of our lifes in differing circumstances so lower yield higher growth may well be right for you, where I am more focussed on the income.


Paying off the mortgage reduces the effect of levergage so will reduce your potential gains and losses, but as I wrote the reduction in mortgage interest relief might make that a goof idea for a HRT payer. I intend to pay down many of mine next year as I expect to become such a tax payer again. Also being pretty much retired reducig my exposure to the risk of rising interest rates seems good to me.


You have a reserve so the next steps are too work out how much you would need in retirement and how early you can retire and get that.The NUMBER thread might help, but £2k per month might be a good start. Less will do if you are frugal.


Working in todays values, and assuming you will continue making NIC payments at least until you reach the maximum state pension, between that and your rents you would have ~£19k pa at SRP - 68?.
I could live on that but I would prefer a bit more. Using the number I gave an extra £5k would be needed., which roughly would require a pension fund of £150k.


You want to retire earlier, which would require more, but the £150k is probably a good initial target.


As a company director you can have your company pay into a pension for you. You would pay no tax on such contributions and your company could claim them against corporation tax. Add the tax savings to the potential growth of the fund and considering how low mortgage rates are your return may be better doing that than paying down the mortgage, but you should work out the numbers, or get an IFA to help you.

fiisch

I am in a similar-ish boat, and it depends on your future plans. Currently, you can take salary/dividends and pay a relative lower rate of tax. If you were to move into a permanent role in the future on higher tax, then might be the time to make serious pension contributions.

Personally, I'm waiting for Vanguard to release their SIPP product, but as I'm also 31 and may want to return to perm work in the future, I'll be balancing SIPP contributions with S&S ISAs to give me flexibility in the future.

Property is a wise move as a contractor - presuming you've set up a second property company/group holding and loaned the money from your IT company - but something I want to look at once I've built up comfortable reserves in the company.

If you haven't already, Aldermore have an easy access saver for you to save company funds (paltry interest rate but every little helps!).

greenglide

You are the director of your limited company. Under these circumstances the tax advantages of making employer pension contributions is virtually impossible to beat.


Avoids corporation tax, income tax, dividend tax. It really is a no brainer!

Terron

greenglide wrote: »

You are the director of your limited company. Under these circumstances the tax advantages of making employer pension contributions is virtually impossible to beat.


Avoids corporation tax, income tax, dividend tax. It really is a no brainer!

Not quite, if you are considering retiring before 55, but before you can do that you need to make sure you are OK from 55 onwards and it is the best way to do that. My rough calculation assuming that the OPs target is a retirement income of about £24kpa is that he will need £150k pension pot on top of his current property and the maximum state pension. to cover him from state retirement age, Another rough calculation points to him needing as much again to cover him from 55 to that age, (Everything in today's values.)



My suggestion is that he saves as much as he can into a pension using his company until he reaches £150k (increased by inflation).



Then he should review. If done quickly enough there might be time for the pot to double in real terms before 55. If not he might was to continuing paying for a while. Once he has enough to be confident of having £300k in today's values by the time he is 55, then he could look at ways of providing for the years before 55, maybe ISAs, maybe more property, but that can be sorted out when the time comes.