Increase pension or start investment or blend?

Niv

I currently pay in the max my employer matches in the company pension scheme which is 7%.


I have some cash savings above my emergency fund and wish to put it away for the long term, essentially until retirement.


Do I increase my pension contributions via AVC's (which will not be matched by employer), or do I invest the money in an ISA wrapper? Or is there something else I should be thinking about?


If investment, I notice that Lloyds do investment and stocks & shares options which can be opened as an ISA - is that a good place to go? Or is there a better place to invest it?


I only want a passive investment, I do not want to be the one actively managing it but am happy for it to be 'high' risk as this is for the long term so I have time to recover.


I am in my early 40's if that makes a difference.

SonOf

Do I increase my pension contributions via AVC's (which will not be matched by employer)

AVCs are largely obsolete nowadays. Most employers stopped offering them. Partly due to rule changes in 2006 and partly due to that fact most employers have moved to money purchase pensions and dont need to run an AVC as the main scheme can take any extra contribution you wish to pay.

Are you sure the employer operates an AVC? If so, how does that compare to a stakeholder pension, personal pension or SIPP?

As for tax wrapper, you should pick the one that best meets the objectives in the most tax efficient way.

f investment, I notice that Lloyds do investment and stocks & shares options which can be opened as an ISA - is that a good place to go? Or is there a better place to invest it?

Banks rarely have decent investment products or investment options.

MaxiRobriguez

An AVC or a SIPP is likely, albeit not guaranteed, to be better.

With both, you get tax relief upon the initial contribution, so your money can grow faster whilst it's invested.

With an ISA you get tax relief upon the withdrawal.

The only reason in this scenario an ISA would be better is if you're combination of DB/AVC/SIPP is going to see you as a higher rate tax payer in retirement. If that isn't the case, probably better to go down the SIPP route.

Meester_W

Vanguard Stocks & Shares ISA, maybe?

Niv

Will have to check out the AVC thing now, I know they used to offer it once a year but now not sure!


I do not think i would be a higher rate tax payer in retirement so it sounds like a SIPP would be better than an ISA then.


Will take a look at Vanguard. Do people tend to apply via their site or use third parties to get a better rate etc?

Niv

MaxiRobriguez wrote: »

An AVC or a SIPP is likely, albeit not guaranteed, to be better.

With both, you get tax relief upon the initial contribution, so your money can grow faster whilst it's invested.

With an ISA you get tax relief upon the withdrawal.

The only reason in this scenario an ISA would be better is if you're combination of DB/AVC/SIPP is going to see you as a higher rate tax payer in retirement. If that isn't the case, probably better to go down the SIPP route.

So would I be right in saying the core difference between getting a stock and shares ISA over a stocks and shares SIPP is that the money I put in with an ISA is post tax and with a SIPP it is post tax with relief? i.e if I put in £80 I get £20 relief?


It looks like vanguard do not do sipps, any thoughts on a decent supplier?

Albermarle

So would I be right in saying the core difference between getting a stock and shares ISA over a stocks and shares SIPP is that the money I put in with an ISA is post tax and with a SIPP it is post tax with relief? i.e if I put in £80 I get £20 relief?

Yes you are right , except you have to take into account that when you withdraw money from the ISA you pay no tax but income taken from the pension is taxable at normal rates . It would be a zero sum game , except that you can take 25% of the pension tax free. So for a basic rate taxpayer in employment and retirement , the pensions wins by 6.25% , although you can take the pension money until 55 at the earliest . If you are a higher rate taxpayer in employment and a basic rate in retirement the advantage of the pension is much higher .
There are a number of well known SIPP providers . They all have different charging structures which suit different peoples circumstances.
Have a look at this comparison
https://monevator.com/compare-uk-cheapest-online-brokers/
If you only want something simple then you should also look at stakeholder and personal pensions .
https://www.cavendishonline.co.uk/stakeholder-pension
https://www.standardlife.co.uk/c1/index.page

MaxiRobriguez

Niv wrote: »

So would I be right in saying the core difference between getting a stock and shares ISA over a stocks and shares SIPP is that the money I put in with an ISA is post tax and with a SIPP it is post tax with relief? i.e if I put in £80 I get £20 relief?

Yes.

Think of it like this, if you contribute £400 a month to a SIPP, your tax relief means the money going in at source is £500. You accumulate just under £600,000 doing this for 30 years with 5% growth. Your ISA meanwhile ends up being worth £480k.

Your SIPP is due to be taxed, but crucially, you can take 25% tax free, which means if you paid normal tax rate on the remainder, you'd be net benefit £30k or so better off with the SIPP. However, with the SIPP you could also drawdown this amount rather than take it all in one go (say for example using it as retirement income) at which point if you have no other income then you get personal allowance factored in.

So financially, the SIPP is going to be superior unless you accumulate so much you end up in higher rate tax brackets when drawing on the income when you come to need it.

The disadvantage of the SIPP is you can't access the money until, currently, 57 years of age. I suspect in the relatively near future that will end up being aligned with the retirement age. If you're over 50 the changes would unlikely impact, but if you're under 40 any extension of accessible age will likely impact.

You can of course hedge your bets and build up both, if you wanted to retire early and needed your ISA to keep you going until you could access SIPP money.

cloud_dog

Niv wrote: »

I currently pay in the max my employer matches in the company pension scheme which is 7%.

I have some cash savings above my emergency fund and wish to put it away for the long term, essentially until retirement.

Do I increase my pension contributions via AVC's (which will not be matched by employer), or do I invest the money in an ISA wrapper? Or is there something else I should be thinking about?

Hi

I would suggest that before you get in to the weeds of where to put money you take a step back and consider what you are planning or hoping to be able to achieve.

So....

1. What is your (your partner's???) pension situation?
2. Do you have any guaranteed pensions (DB / CARE / NHS etc) pension schemes?
3. What investments do you have? Any?
4. What are you planning to do with retirement, retire early or state pension age?

Niv

cloud_dog wrote: »

Hi

I would suggest that before you get in to the weeds of where to put money you take a step back and consider what you are planning or hoping to be able to achieve.

So....

1. What is your (your partner's???) pension situation?
2. Do you have any guaranteed pensions (DB / CARE / NHS etc) pension schemes?
3. What investments do you have? Any?
4. What are you planning to do with retirement, retire early or state pension age?

Thanks Cloud_Dog and everyone else that has contributed.


To answer the questions:
1, small pension, almost certainly at retirement would be under the tax threshold (even after state pension factored in)
2,Yes I do, I have a small MOD pension, too small to worry about but on terms not worth moving.
3, I hold some shares that I wish to sell, they are not in any kind of tax free wrapper at present. This is the main source for the money I wish to invest.
4, I plan to retie early or at least semi retire early. I very much do not intend to be working full time until 68. Intend to wind down by 60, earlier would be a bonus.


I have more than enough in emergency fund, so likely will reduce this slightly too. Also need to put it somewhere 'better' I think as currently just in a Lloyds current account - I think it can work harder.

cloud_dog

1. Does your employer pay you via 'salary sacrifice' / 'salary exchange'? If they do it would likely be termed the same/similar in your pay slip.
   
2. Do you have a partner, if so, are they under 40 years of age?
   
3. Just to double check... Is your current company pension a defined benefits (DB) / final salary scheme, or is it a defined contributions (pot of money) scheme?
   
4. If it is a DC scheme, whilst your company may have matched your contributions to the maximum, usually (although not always) they will allow you to simply contribute more (without matching the additional amount).