Higher Pension contributions V's S&S ISA

Audaxer

lg13mza said:

I'm looking to retire in 10-15 years.  I've got a reasonable pension pot and making a good level of contributions between myself and my employer (circa £25-30k per year).  In a pension review a few weeks ago it was suggested I should look at putting some money into S&S ISA as well.  The reason being that when it comes to retirement I could split my income requirements between pension and ISA's.  Then reduce, or eliminate completely, any tax contributions (in today's money I reckon I would only need to draw £2k per month).

Do you mean taking £1k from the pension and £1k from the S&S ISA per month so that the pension drawdown is within your personal tax allowance? If so I can understand you wanting to pay no tax on your retirement income, but I think you would have more of a net gain with it all going into the pension and paying some tax on the way out.

Pat38493

lg13mza said:

ader42 said:

The pension Tax Relief uplift means your investments get a step up immediately so you end up a bigger pot.

Investing £25k a year for 15 years, getting a 9.5% return (such as historical return from S&P500 Index) will result in a pot of £1million. Putting the same into an ISA (no Tax Relief) with the same return will give you about £830k.

So you do need to be of mind of the LTA and that will be why the suggestion of an ISA also.

Making sure you invest in the right places irrespective of wrapper (pension or isa) is most important of course.

So the LTA is not the contributions made, but the total value of the pot (including growth)?

Yes, although in reality it's a bit more complicated as you only use a % of your LTA allowance each time you take money out (or when you reach age 75).

The other point here though is that does it really make sense to be making decisions like that if you are not retiring for 10-15 years.  Your IFA should specify for example if their comment is based on an assumption that the LTA will not change in the meantime (either up or down).

dunstonh

Is there actually an IFA giving advice on this?  (I can't see any reference to an IFA in the OPs post).

Pat38493

dunstonh said:

Is there actually an IFA giving advice on this?  (I can't see any reference to an IFA in the OPs post).

Not clear but OP refers to a pension review and suggestions being made….

Dazed_and_C0nfused

I suspect whoever did the pension review didn't have all the salient facts as there's nothing in this thread to suggest an ISA is a better (or equal) option to the pension alternative that's on the table.

Albermarle

Dazed_and_C0nfused said:

I suspect whoever did the pension review didn't have all the salient facts as there's nothing in this thread to suggest an ISA is a better (or equal) option to the pension alternative that's on the table.

Could be some of the posters on this thread/forum, know more about pensions than some pensions reviewer 

lg13mza

The assumptions were almost correct in that it was a FA rather than IFA.

I probably should ask them to clarify why they made the suggestion. But I am now questioning if it was the LTA as my pension pot is already around £340k.

The savings i spoke about is around £60k doing 3 or 4%.

dunstonh

Albermarle said:

Dazed_and_C0nfused said:

I suspect whoever did the pension review didn't have all the salient facts as there's nothing in this thread to suggest an ISA is a better (or equal) option to the pension alternative that's on the table.

Could be some of the posters on this thread/forum, know more about pensions than some pensions reviewer 

It happens.  There are some business models, like some robo services, that provide guidence rather than advice or use lower level staff to maintain contact but refer it to an adviser if there is proper advice needed.

Cornish_mum

Hi I think the FA may be advising you about your long term risk of breaching the LTA. do you have any DB pensions at all or is it just the DC pot of 340k? Is the FA aware that you are planning early retirement?

We are contributing similar amounts per year and my husband is definitely at risk of breaching (because of a larger pot than me) , assuming even modest growth and early retirement of ~60.

Alternatively they might just be giving you poor advice. 

lg13mza

Cornish_mum said:

Hi I think the FA may be advising you about your long term risk of breaching the LTA. do you have any DB pensions at all or is it just the DC pot of 340k? Is the FA aware that you are planning early retirement?

We are contributing similar amounts per year and my husband is definitely at risk of breaching (because of a larger pot than me) , assuming even modest growth and early retirement of ~60.

Alternatively they might just be giving you poor advice. 

Hi, it's all in DC pension.