investing in 2023

tichtich

To avoid possible confusion... the tax relief on pension contributions does not mean that you avoid paying ANY income tax on those contributions. You will (most likely) have to pay some income tax later instead, when you take the money out of the pension. However, you will pay LESS tax. In my circumstances (the least advantageous) I will only avoid 5% tax. Instead of paying 20% tax now I will pay 15% tax when I take the money out, thanks to the 25% tax free "lump sum". (And that's assuming no future increase in the basic tax rate or abolition of the tax free lump sum.) If you are a higher rate tax payer or retiring early you will likely get significantly more tax benefit. (Retiring early with no other income and living just off your pension fund until pension age means you can set some of your pension withdrawals against your personal tax allowance and pay no tax on them.)

mark_cycling00

People shout "vanguard" a lot. 

If you're unfamiliar, they offer a very simple set of pension "funds" where you pick when you expect to retire, invest in that fund whenever you want to and vanguard do the rest and reduce the risk as you approach retirement age.

So no need to pick lots of individual funds.

Using "top funds" tables can be a bit like investing in tomatoes because they did the best in last year's sun, but this year it rains a lot and tomatoes get blight.

Albermarle

tichtich said:

To avoid possible confusion... the tax relief on pension contributions does not mean that you avoid paying ANY income tax on those contributions. You will (most likely) have to pay some income tax later instead, when you take the money out of the pension. However, you will pay LESS tax. In my circumstances (the least advantageous) I will only avoid 5% tax. Instead of paying 20% tax now I will pay 15% tax when I take the money out, thanks to the 25% tax free "lump sum". (And that's assuming no future increase in the basic tax rate or abolition of the tax free lump sum.) If you are a higher rate tax payer or retiring early you will likely get significantly more tax benefit. (Retiring early with no other income and living just off your pension fund until pension age means you can set some of your pension withdrawals against your personal tax allowance and pay no tax on them.)

The minimum tax advantage is actually 6.25%. For example.

Add £8,000 then £2,000 tax relief added= £10K . Then when you withdraw, £2,500 tax free and £7,500 taxed at 20% = £8,500.
So £500 / £8,000 then times 100 = 6.25%

tichtich

Albermarle said:

tichtich said:

To avoid possible confusion... the tax relief on pension contributions does not mean that you avoid paying ANY income tax on those contributions. You will (most likely) have to pay some income tax later instead, when you take the money out of the pension. However, you will pay LESS tax. In my circumstances (the least advantageous) I will only avoid 5% tax. Instead of paying 20% tax now I will pay 15% tax when I take the money out, thanks to the 25% tax free "lump sum". (And that's assuming no future increase in the basic tax rate or abolition of the tax free lump sum.) If you are a higher rate tax payer or retiring early you will likely get significantly more tax benefit. (Retiring early with no other income and living just off your pension fund until pension age means you can set some of your pension withdrawals against your personal tax allowance and pay no tax on them.)

The minimum tax advantage is actually 6.25%. For example.

Add £8,000 then £2,000 tax relief added= £10K . Then when you withdraw, £2,500 tax free and £7,500 taxed at 20% = £8,500.
So £500 / £8,000 then times 100 = 6.25%

True. I was trying to keep it simple by taking about a reduced tax rate, rather than the gain.

Albermarle

dannybbb said:

@Sarahspangles thanks for the detailed reply.

maybe in future ill have the time to get so into it but i think i would have to go with a managed fund at the start

i feel a bit stupid as ive had a large amount of cash sitting round for so many years. im getting 3-5% now but for many years have been getting nothing. I dread to think the amount of growth i have lost

Be careful with the phrase 'managed fund' An actively managed fund is one where the manager tries to use their skill/instinct to try and time the market/pick winners. These funds have higher fees and often they do not perform any better anyway.

The funds being suggested to you in previous posts are really passively managed, where they mainly just follow markets rather than trying to pick winners etc.

You can tell which is which by the fees. The passive ones will be more in the range of 0.2% to 0.4%, whilst the active ones will be higher , even over 1 %