Advice on early planning for retirement

GSDog89

Having recently turned 30 I have decided to significantly increase my pension contributions and generally plan for retirement better by making the most of any available ISA and pension allowances. 

I currently have a personal SIPP open with Hargreaves Lansdown (HL) where I have amalgamated my previous pension pots.  As a higher rate tax payer I understand that I am able to reclaim 20% from the HMRC on my contributions to this as well - is this correct?

In addition to my personal SIPP with HL, I also have a pension with Standard Life (SL) through my employer.  I have recently changed the product on this to a GSIPP to give me more investment choice, however this means I am now paying quite hefty fees which I do not want to incur when my pension pot with SL hopefully grows.  

My first query relates to my employer pension with Standard Life (SL) - am I able to transfer the pension funds from my employer pension scheme with SL to another provider every so often, thus avoiding the amount of fees paid on the value of the pension pot?  I'm sort of trapped with SL in order to benefit from my employers contributions but I do not want to be paying high fees forever. 

My second query relates to the tax liabilities should I exceed the £1.1m pension threshold.  When would I start paying tax on the sum over the threshold?  Is the 25% tax free lump sum drawdown still applicable?  How much tax is paid on the other 75%?  I would plan to take 25% at the age of 60 depending on the pension value but I'd like to understand how the tax is calculated on the other 75%?

Being a younger person now paying a significant percentage of my salary into a pension I am slightly concerned that a future government may reduce the tax relief for higher rate tax payers on pension contributions, or they may increase the amount of tax payable at retirement age.  I'd be interested to hear yours thoughts on this in general.  Is it still worth making the most of the tax relief for a higher rate tax payer by paying into a SIPP, or is it best to put it into an share ISA where it is more flexible?  

Paul_Herring

 As a higher rate tax payer I understand that I am able to reclaim 20% from the HMRC on my contributions to this as well - is this correct?

Only to the extent that 40% tax was paid to begin with. Also presumes you're not on salary sacrifice.

e.g. if you earn £60K, you can only reclaim on £10K (i.e. if you contribute £6,667, you'll get 20% relief at source (£6,667*.25=£1,666.75) then another 20% off HMRC to put into your bank.)
Any further contributions over that limit will only attract the basic 20% only.

My first query relates to my employer pension with Standard Life (SL) - am I able to transfer the pension funds from my employer pension scheme with SL to another provider every so often, thus avoiding the amount of fees paid on the value of the pension pot?

Depends on if SL allow partial transfers.
If they do, then yes you can.
If not, then in order to transfer funds out, you will likely have to opt out of your employer's scheme, perform a full transfer, then opt back into your employer's scheme. This may mean you'll miss one or more periods of contributions into that scheme, depending on how fast SL and your employer gets things done.

Have you looked at what funds are actually available, to see if there are any with cheaper fees? Index funds perhaps?

My second query relates to the tax liabilities should I exceed the £1.1m pension threshold.  When would I start paying tax on the sum over the threshold?  Is the 25% tax free lump sum drawdown still applicable?  How much tax is paid on the other 75%?  I would plan to take 25% at the age of 60 depending on the pension value but I'd like to understand how the tax is calculated on the other 75%?

You're taxed before/at withdrawal. 25% PCLS available up to the lifetime allowance. Excess is taxed at 55% if taken as lump sum, 25% by other methods, (which, I believe, will also attract income tax (also in that link.))

 I am slightly concerned that a future government may reduce the tax relief for higher rate tax payers on pension contributions, or they may increase the amount of tax payable at retirement age. 

You're looking at, at least, 28 years before you can touch your pension. A lot can change in that time.

Albermarle

Is it still worth making the most of the tax relief for a higher rate tax payer by paying into a SIPP, or is it best to put it into an share ISA where it is more flexible?  

For a higher rate taxpayer , pension is king , due to the very generous tax relief. As you pointed out yourself , it probably will not last forever .

I would not worry about the LTA issue at this stage . Anything could happen between now and then . Marriage ; kids ; divorce; illness; unemployment ; change of tax regime ; win the lottery etc 

cfw1994

Hard to know what could happen over Governments for the next 30 years....will the 25% TFLS still exist, will it be up/down, will LTA change (beyond inflationary changes we have today) - who knows!
All we know is that, right now, if you get HRT relief going in (ideally through salary sacrifice), pensions are THE most tax-efficient way to save for the long term, and you have time on your side (unlike many of us here!) to take advantage of this!

If you go to S&S ISA, you have already paid tax on that money...although you can get at the money earlier (if not LISA, then whenever you want!), and that makes it flexible.

At your age, I had given very little thought to what would happen in another 30+ years.   I think in your shoes, I would try to put as much into your pension as you easily can, whilst living a bit as well - life is for living, not wishing away!

If you can pop some into an ISA too, I would certainly do that - those funds could be pension money, or could fund future lifestyle things - family/house/car etc....
I would suggest taking a look at this pretty useful flowchart - life isn't all about one thing or another, but a balance!
I should add, well done for thinking about this stuff early in your life 

GSDog89

Thank you for your very helpful responses, it is appreciated.

So the consensus appears to be to make the most of the HRT relief. 

If my investment plans continue and I manage to average the stock market return then my final pension value pot should be significantly over the lifetime allowance, but I assume that the benefits now of compounding with the additional 40% HRT relief will offset most of the tax hit when I hopefully make it to retirement age and begin to drawdown.
 
I will continue paying into my S&S ISA as well for more flexibility, it appears using both alongside each other is a good idea. 
I just hope that a future government does not decide to raid the private pensions in some way, I fear that it may be inevitable with the pension shortfalls. 

Clive_Woody

Sounds sensible. A mix of ISA and pension savings will allow flexibility.

Bear in mind that the LTA is likely to change as £1million in 30 years time is going to be worth a lot less with inflation.

At the very least make sure you max out your employer pension contributions (free money), but if you can afford to pay in more then do so. Don't leave ourself short of cash as you have a lot of living to do before retirement and pension savings are not accessible until a lot later in life.

squirrelpie

GSDog89 said:

In addition to my personal SIPP with HL, I also have a pension with Standard Life (SL) through my employer.  I have recently changed the product on this to a GSIPP to give me more investment choice, however this means I am now paying quite hefty fees which I do not want to incur when my pension pot with SL hopefully grows.

Are you saying that charges would be lower if you had not changed to a GSIPP? In that case I would suggest that another option would be simply to return to whatever the original arrangements was and use whatever investments are available there. I'm sure the range is broad enough to give you a good basic position. Then if you want to make different choices, make them in the HL SIPP. Note that if you want to reduce charges you should limit yourself to stocks and shares (including investment trusts and ETFs etc) in the HL SIPP and not buy any open-ended 'funds'.

Albermarle

What is a 'GSIPP' ? The SL SIPP is not the cheapest but the fees are not 'hefty' - only slightly above HL

GSDog89

The GSIPP is the Group SIPP for employer pension schemes.  
I've just checked the charges sheet and they are £262/year and 0.6% of fund value for the admin charge - obviously with the individual fund management charge on top of this.  The fees reduce at certain value thresholds, and any dealings or transfers etc are FOC. 

You are correct that I moved from a GFRP to a GSIPP thus increasing the fees, however I thought that the possibility of increasing my return will outweight the fee charges.  The standard GFRP pension fund choice was small and didn't seem to have a lot of potential.  I'm investing in more active funds rather than a passive ones. 

Albermarle

The fees reduce at certain value thresholds,

As a private investor I know you can have a standard life Level 2 SIPP , which sounds similar.

The £262 is not charged when you get to £50K , and the 0.6% gradually reduces as your fund grow.

Relatively uncompetitive but as you say no extra charges for anything.