12k to invest into funds

Mr.Saver

Lama_glama wrote: »

Thank you very much. I solved the pension refund with call to the HMRC today. They are going to refund me for the last year and the year before when I went into the 40% tax bracket. Three years ago I was still in the 20% bracket. This year I have to check, but they say I can call them in the next fiscal year without any problem and ask for a refund.

The call was quite quick. They told me which years I ended up in the 40% tax bracket and asked me the gross amount of my pension contributions during those 2 years. They say I will receive a letter in a couple of weeks time and then I can go to their website and ask them to put the refund money into my bank account.

So that`s one problem sorted. Now I have to check if I will end up paying 40% this year and what to do with my current pension fund. Alexland as you suggested my idea is surely to at least switch to a different type of fund. I got Aegon Scottish Equitable Cautious Lifestyle at the moment and I am willing to risk something more as probably in the long run (I am 33 years old) it will pay off.

Also I would like to start investing some of the money I got into my bank account and cash ISA. I will try to study the papers Aegon gave me when I joined to see if I can move some of the money there into another pension fund with lesser managing fees and which I can trust. Alternatively I see that I got the option from the Aegon website inside my pension scheme to switch the type of fund I got to another fund (I will have to check the funds they got, their fees, and where to move the money which now is in the Cautious Lifestyle fund). This could take a while I will try to study the papers this weekend.

If I do not close the Aegon fund but I move let`s say 10k from this fund to the Vanguard LifeStrategy fund (which I would have to open) do I have to tell something to my manager? Or it does not really matter at the end of the day?
Also if I swap fund internally inside Aegon from their website do I have to tell something to my manager? Or even in this case it does not matter?

I mean if I change fund inside Aegon hopefully my and my employer`s contributions will still reach me I think as the plan number should always be the same I think.
I still got a lot to learn but one thing at the time hopefully I will sort everything out!


Thanks a lot for the help.

Nice.

BTW, you can also call HMRC and tell them about your regular pension contributions, so you can get tax relief via tax code change. This way, you won't need to pay extra tax and then claim back latter any more (which is essentially a interest-free loan to HMRC)

Alistair31

Alexland wrote: »

or it might be possible to partially transfer a lump-sum from your workplace pension depending on the scheme rules. To find out if this is possible you would have to phone your workplace pension provider and ask for partial transfer discharge forms. They would check if your scheme allows this and if you would be giving up any potentially valuable benefits. Once the money is in the new pension you would select a fund such the popular Vanguard LifeStrategy series.

Alex

I recently enquired about doing exactly this with my employer pension that is with Welplan, they said it was a very unusual request and that they didn’t have a specific form of this and I should use the standard (complete) discharge form but mark it up with note to say not to close completely, to only sell and transfer a percentage of units. Seems bizarre and it has put me off doing it in case they shut it completely and I lose future employer contributions.

Alexland

Alistair31 wrote: »

I recently enquired about doing exactly this with my employer pension that is with Welplan, they said it was a very unusual request and that they didn’t have a specific form of this and I should use the standard (complete) discharge form but mark it up with note to say not to close completely, to only sell and transfer a percentage of units. Seems bizarre and it has put me off doing it in case they shut it completely and I lose future employer contributions.

It probably is very unusal but a partial transfer out is allowed within my workplace scheme rules and the provider's discharge paperwork asks what % or £ lump sum value you wish to transfer. My reasons were that I could have a lower cost and a better asset allocation on a fixed fee platform. For the total amount I have transfered (and subsequent growth) it saves me over £1k pa in fees compared to the default strategy. Although even the money I have left (and am still contributing) to the workplace pension is invested at a lower cost than the default strategy.

Alex

Malthusian

Alistair31 wrote: »

Seems bizarre and it has put me off doing it in case they shut it completely and I lose future employer contributions.

Even if they screw it up I can't see how you could lose future employer contributions. You would still be entitled to them under your employment contract. You might lose a contribution or two while they set a new plan up. As the plan is run by an external provider, you should be able to claim any loss from them without risking a fight with your employer.

Lama_glama

First of all a big thank you as I was able to get over £500 in tax refund!



I have called Aegon as I was not able to get clear information at work and I they told me that as I am in a workplace pension I got a dicount on the managing fees of the fund and I am paying 0.72% instead of 1% per year.


Saying that they gave me their bank details and say that if I want to add funds I can do it,I just have to remember to insert the plan/scheme number.



I have run some calculations (though an app on my phone and using my estimate total earning for the year and my tax code) and I found out that I will dgo in the 40% tax bracket this year by roughly £1500 (this year went well I will be making slightly over 43k but I will go into the 40% bracket because of the car benefit essentaly).


My question is: if I keep things simple and I add £1500 though bank transfer into my pension fund I should have -£1500 on my bank account and +£1500 on to my pension scheme. But at this point it means on the £1500 I am putting in I got 0% tax relief unless I call the HMRC, is it correct? If I call the HMRC to get tax relief I will say I put £1500 with bank transfer + let`s say £1600 throgh regular monthly pension contribution from my monthly pay (where I already receive 20% tax relief).



At that point they should make a distinction and give me an extra 20% tax relief for the £1600(monthly pension contribution from my monthly pay) + 40% tax relief on the one off £1500 payment I made, is it correct?



Because when I called I started giving HMRC figures and they say essentially they do not case they just needed the gross amount of money I put into the pension during the two years I ended up the 40% bracket.



What I am afraid is they are just going to give me 20% on the one off £1500 payment I make towards my pension fund, and at that point it would not be worth doing it.


Any help would be really appreciated. Thank you very much.

Alexland

Ok at 0.72% that's pretty normal for a workplace scheme although it can be improved if you were allowed to transfer out a lump sum while still being an active member. If you have accumulated £50k+ the percentage saving starts to become meaningful. The workplace pension schemes have to manage lots of small accounts with low contribution rates which costs money. Still I don't see why I should pay for that problem.

Did you ask Aegon if when making a contribution via bank transfer they would claim the 20% tax relief on your behalf and add 25% more (via pre-funding or later) into your account? That's what would happen if making a direct contribution to a personal pension via bank transfer.

Alex

Mr.Saver

Lama_glama wrote: »

First of all a big thank you as I was able to get over £500 in tax refund!

Congrats!

Lama_glama wrote: »

I have called Aegon as I was not able to get clear information at work and I they told me that as I am in a workplace pension I got a dicount on the managing fees of the fund and I am paying 0.72% instead of 1% per year.

Saying that they gave me their bank details and say that if I want to add funds I can do it,I just have to remember to insert the plan/scheme number.

0.72% is better than 1%, and sounds more reasonable. Although I would not choose to add money into the workplace pension plan. I will look into cheaper SIPPs.

Lama_glama wrote: »

I have run some calculations (though an app on my phone and using my estimate total earning for the year and my tax code) and I found out that I will dgo in the 40% tax bracket this year by roughly £1500 (this year went well I will be making slightly over 43k but I will go into the 40% bracket because of the car benefit essentaly).


My question is: if I keep things simple and I add £1500 though bank transfer into my pension fund I should have -£1500 on my bank account and +£1500 on to my pension scheme. But at this point it means on the £1500 I am putting in I got 0% tax relief unless I call the HMRC, is it correct?

No, it's not correct.

If you transfer £1,500 (net) from your bank account to your pension provider, you will end up with -£1,500 on your bank account and £1,875 (gross) in your pension, this gross amount includes the net amount and 20% tax relief that you'll get automatically.

To make £1,500 gross pension contribution, you will need to do bank transfer of £1,200 (80% of the gross).

To get the full 40% tax relief on the £1,500 (gross), you will have to call HMRC.

Lama_glama wrote: »

If I call the HMRC to get tax relief I will say I put £1500 with bank transfer + let`s say £1600 throgh regular monthly pension contribution from my monthly pay (where I already receive 20% tax relief).

At that point they should make a distinction and give me an extra 20% tax relief for the £1600(monthly pension contribution from my monthly pay) + 40% tax relief on the one off £1500 payment I made, is it correct?

As I wrote above, you get the 20% tax relief on the one off pension contribution via bank transfer too, just like your monthly pension contributions via your employer.

Don't forget that the monthly pension contribution paid by you (not your employer) is also eligible for the higher rate tax relief. If your income in this tax year is going to exceed the HR threshold by £1,500, and you (again, not including your employer's part) are already paying £1,600 gross through the regular monthly pension contribution, then you don't need additional pension contributions to claim the HR tax relief.

Lama_glama wrote: »

Because when I called I started giving HMRC figures and they say essentially they do not case they just needed the gross amount of money I put into the pension during the two years I ended up the 40% bracket.

What I am afraid is they are just going to give me 20% on the one off £1500 payment I make towards my pension fund, and at that point it would not be worth doing it.

Any help would be really appreciated. Thank you very much.

This can't happen, because you get 20% tax relief automatically, doesn't matter it is regular or one off contribution.

Lama_glama

Thank you so much Alexland and Mr.Saver. Now things start to be a little bit clearer.

So let`s imagine I transfer £1500 from my bank account it becomes £1875 gross contribution into my pension fund. When I call the HMRC to get tax refund and they ask me what is the gross amount you contributed into your pension fund I give the £1875 figure (if that is the total pension contribution). Is it correct? (The last thing I want to do is to make a mistake with the HMRC!). And the £1500 should become £1875 into my pension fund immediately after I make the contribution.

I made a miscalculation. I have re-run my calculation with an app "UK Tax" and it turn out £1500 was the money I should be paying into the 40% tax bracket!!! Unfortunately the forum does not allow me yet to posts links otherwise I had prepared a screenshot from my phone showing what the situation is like (it does so probably to avoid potential spam from new users)

The car benefit pushes me into the 40% bracket.

According to the app on my phone (if I gave the correct inputs) in order to avoid the 40% tax I should be making a £3000 bank account transfer to my pension (which would become £3600 and adding it up to the £1600 I have contributed into my pension already I should skip the 40% tax bracket.

I have looked for reviews online regarding Aegon and they look terrible! Alexland at this point I would be tempted to invest the money with another SIPP provider.

I see if you invest less than £7,500 Fidelity charges 0.35% if you have a regular savings plan or £45 if you don't. If I end up paying £45 over £3000 though is 1.5% per year I am not sure what they mean by regular saving plan, like what would it be the minimum monthly contribution I should make in order to qualify? (At least until I hit the £7500 and I am sure I am only paying 0.35% per year). Can I just set it up from my bank account? Or does it have to be though an employer?

The other name you were mentioning is AJ Bell. I presume it is a reliable company. I see they charge 0.25% + other fees for buying stocks etc. Could it be a good alternative? Fidelity looks really good I just have to understand better if I can set up a small monthly payment and avoid the £45 charge or if I just pay it and try to reach the £7500 so they only charge 0.35% + the transactions costs.

As you were saying I would need to act quickly as time is running out unfortunately.
Hopefully it does not take too long to open up an SIPP. The other option is I just pay the money into my Aegon account but as you were saying it might not be the best long term solution, (it might not be as it seems but the Aegon reviews looks quite bad, while the Fidelity UK ones looks quite good). Though once again time is running out.

Any suggestions would be really appreciated. Thanks again for the help.

davidquizer

Hi, its good you are taking an interest in investing, if you choose top class providers and funds its not as risky as people make out , as long as you are prepared to wait through the ups and downs. I've used Hargreaves and Lansdowne to invest my stocks and shares ISA, they provide a great service. In your position I would consider Scottish Mortgage investment trust and Lindsell Global Equity, two top class funds. You won't be tied to one particular country or sector, both funds have fantastic track records are are highly rated. They both done very well for me!
Good luck, David

Alexland

Just be clear with HMRC when you talk with them and it should be fine.

If you are doing a lump sum then AJ Bell at 0.25% and £1.50 per occasional fund trade is good value. If the account value is under £7.5k then Fidelity would want to see a £50 per month regular contribution to avoid the minimum £45 fee. I have used both and they are good providers.

You can just set up a SIPP yourself and pay from your bank account. As you get more confident you might consider transfering a lump sum from your less attractive workplace pension if the scheme rules allow. This can give you economies of scale further reducing your SIPP ongoing costs.

Alex