Investment portfolios

Onestepcloser

Albermarle said:

You do not mention you ( or your partners ) pension situation ? For most people this is  more important than investing outside a pension due to the tax benefits. 

My pension isn't the greatest, my company only matches my 4% my wife has a good pension, don't know the exact figures but believe it's substantially more than mine.

grumiofoundation

Onestepcloser said:

Albermarle said:

You do not mention you ( or your partners ) pension situation ? For most people this is  more important than investing outside a pension due to the tax benefits. 

My pension isn't the greatest, my company only matches my 4% my wife has a good pension, don't know the exact figures but believe it's substantially more than mine.

But you will still get tax relief on additional contributions - whether to workplace of private pension (and possibly national insurance relief if you pay by salary sacrifice). 

Onestepcloser

I'm not too clued up on the whole pension thing, the little I know is my company matches my contributions that's about it.  I really need to read up on it but struggle with a lot of things as I'm dyslexic. Any books or articles that explain things in the simplest ways.

OldMusicGuy

Try this: "DIY Pensions: A Simple Guide to Pensions, SIPPs & Retirement Planning" by John Edwards.

AnotherJoe

Onestepcloser said:

I'm not too clued up on the whole pension thing, the little I know is my company matches my contributions that's about it.  I really need to read up on it but struggle with a lot of things as I'm dyslexic. Any books or articles that explain things in the simplest ways.

Simple version. Jargon free.  
A pension is simply (ha ha) a savings scheme with tax benefits.
You don't pay tax on the money that goes into it. 

That's done either by not charging tax in the first place or by adding money back if you did,  eg if you paid £1,000 into a pension outside your employers scheme it will have £250 added to it. 

The downside is, that money is locked away until you are 55 (current figure may change).
When you take the money out, it is taxed BUT you still come out better off because (simplified version again) only 75% is taxed. And you may not pay tax on all of that. 

You end up with a guaranteed 6.25% gain compared to just putting money in say an ISA. And if you are a high rate tax payer the sums are, usually far better than that. 

Onestepcloser

AnotherJoe said:

Onestepcloser said:

I'm not too clued up on the whole pension thing, the little I know is my company matches my contributions that's about it.  I really need to read up on it but struggle with a lot of things as I'm dyslexic. Any books or articles that explain things in the simplest ways.

Simple version. Jargon free.  
A pension is simply (ha ha) a savings scheme with tax benefits.
You don't pay tax on the money that goes into it. 

That's done either by not charging tax in the first place or by adding money back if you did,  eg if you paid £1,000 into a pension outside your employers scheme it will have £250 added to it. 

The downside is, that money is locked away until you are 55 (current figure may change).
When you take the money out, it is taxed BUT you still come out better off because (simplified version again) only 75% is taxed. And you may not pay tax on all of that. 

You end up with a guaranteed 6.25% gain compared to just putting money in say an ISA. And if you are a high rate tax payer the sums are, usually far better than that. 

Whilst it may seem simple to a lot of people I will need to get the wife to break that down for me, lol embarrassing that a 40 odd year old struggles with simple math

noClue

AnotherJoe said:

Onestepcloser said:

I'm not too clued up on the whole pension thing, the little I know is my company matches my contributions that's about it.  I really need to read up on it but struggle with a lot of things as I'm dyslexic. Any books or articles that explain things in the simplest ways.

You end up with a guaranteed 6.25% gain 

Where does this 6.25% come from?

Onestepcloser

Regarding my workplace pension could I transfer that into a vanguard sipp?

grumiofoundation

noClue said:

AnotherJoe said:

Onestepcloser said:

I'm not too clued up on the whole pension thing, the little I know is my company matches my contributions that's about it.  I really need to read up on it but struggle with a lot of things as I'm dyslexic. Any books or articles that explain things in the simplest ways.

You end up with a guaranteed 6.25% gain 

Where does this 6.25% come from?

£800 into S and S ISA - no more tax to pay.

800 into pension - bumped up to 1000 with tax relief.
Retirement comes - 25% of 1000 = £250.
750 A 20% tax = 600
Total = £850

£50 = 6.25% of 800.

bowlhead99

noClue said:

AnotherJoe said:

Onestepcloser said:

I'm not too clued up on the whole pension thing, the little I know is my company matches my contributions that's about it.  I really need to read up on it but struggle with a lot of things as I'm dyslexic. Any books or articles that explain things in the simplest ways.

You end up with a guaranteed 6.25% gain 

Where does this 6.25% come from?

If you take £100 of income and pay 20% tax on it you are left with £80 for yourself.

If you put that money in a pension instead you will have the full £100 in the pension.

In retirement, you are allowed to take out 25% tax free (£25 in your pocket) and the other 75% would be taxable because you have never paid tax on the money (or if you paid tax, you got it back through tax relief).  However if only £75 is taxable, the tax at 20% is only £15, so you will be able to keep £60.  So you will have £60 after income tax, plus the £25 tax free, for a total of £85 in your pocket.

By using a pension then: instead of £80 in your pocket, you have £85 in your pocket, a 6.25% benefit.   Obviously over the years you expect to get investment gains too, but the principle is the same - if you double or quadruple the £80 by putting it in investment funds in an ISA, it will be £160 or £320, but the money that went into the pension and came out again via the tax system would also double or quadruple to £170 or £340.

So pensions can be very useful, as the minimum extra gain for someone who is basic rate now and will still be basic rate in retirement is 6.25% (assuming basic rate stays at 20%).  However there is extra potential value in the fact that the 75% of taxable money coming out of the pension is only going to be taxed at your marginal rate, and many people in retirement when they do not have a job will have a marginal rate of 0% (annual personal allowance) before they start paying tax each year, especially if they are not old enough for the state pension to have kicked in yet.  So the £100 in your pension might all be able to come out of the pension at 0% tax with the full £100 in your hand, even though you only gave up £80 today to make the pension contribution.