Three years before retirement. Finalising my DIY Passive plan.

cloud_dog

RichardS said:

Thanks @Albermarle so would you recommend not paying into the ISA at all and putting my maximum available cash into the workplace pension i.e increase that by £600 a month and just leave the ISA to accumulate without contributing any more into it?  If the salary sacrifice benefits are that beneficial then an additional step could be to do the same with the personal pension i.e for the next three years increase my workplace pension contributions by £1000 a month and stop contributing to the ISA and the personal pension all together. 

In your shoes, I would be piling as much as I can in to the pension, as it is under a Salary Sacrifice arrangement, e.g. not the ISA and not the personal pension.  You will benefit from 40% HRT relief plus 2% NIC savings, and even if this drops below your HRT threshold in to the BRT relief band you will still benefit by 32% savings (20% TR and 12% NIC savings), although the NIC savings (in the BRT band) will decrease to 10% from January (see Autumn Statement).

As our plans have firmed up over the years I have switched from utilising the ISA to utilising pensions (primarily mine as I benefit from SS). 

With regards to drawdown, you should at least (in my opinion) draw the maximum you can to utilise your Personal Allowance, so under a UPFLS arrangement £16760pa (personal allowance £12570 (75% taxable component) and  £4190 (25% TFLS component).

RichardS

So it totally understand why I should be fully utilising my earning power during my current accumulation phase and making full use of salary sacrifice to put all I can into the workplace pension.  Thanks for reminding me of that and making me focus on it a bit more. 

What I struggle with is the consolidation of the two pensions now. I’d be moving £203k into the Scottish Windows workplace pension (which looks to me like a 60/40 allocation split approx).  Is this any better than my original plan of moving it onto the ii platform with very low fees and selecting the HSBC Global Strategy funds - maybe half in Dynamic and half in Adventurous?  Would this part of my pot have more chance of growth if I did this rather than consolidate?  (Especially as the ii fixed fees work well if I have my ISA on there as well)

cloud_dog

Hi...my post was primarily focussed on where the new money was going and in ensuring that is utilised as tax efficiently as possible.

I'm not comfortable commenting on proposed funds and allocations, as this is a very personal decision.  What suits me may not suit another 100 people.

With regard to drawing funds, I feel it makes sense to at least ensure you fully utilise your Personal Allowance with taxable monies (funds).

Secret2ndAccount

Consolidating your pensions is not the most critical element of your plan. Some people like to put all their pensions in one place because it's easier to manage, or it lowers costs. Some people move their funds because they are unhappy with the choice of investments available. What you invest in is more important than which pension provider is holding it. You have educated yourself sufficiently to pick a low cost index fund, so your first move should be to get away from the IFA fees. That could be a transfer to your workplace if they will accept it and you are happy with their funds. Otherwise open the ii account and ask them to do a transfer in. Either works.

Yes, you just need an emergency fund outside your pensions. The rest should go into pensions until you retire, then start taking it out again. Make sure you use up your personal allowance each year by drawing out 16,760. Once you do this the first time, you will only be able to contribute 10k into pensions each year, so be sure you are sufficiently retired before you start taking the annual income. If you need a bigger lump of cash you can always use up the 25% tax free withdrawal - that doesn't trigger the 10k MPAA limit.

Earn £100 as a 40% taxpayer. Pay tax & NI. Take home £58. Put £58 into an ISA. One day you have £58 to spend.
Salary Sacrifice £100 into your pension. It receives £100. Draw out 16,760 up to age 67, and you pay not tax. So, one day, you get £100 to spend (instead of £58).  Draw it out as a 20% taxpayer; 1/4 is tax free, and you get to spend £85 (instead of £58)

Audaxer

RichardS said:

My plan would be to transfer the ISA into an ii ISA invested in HSBC Global Strategy Conservative as I am looking at that as a 3-5 year investment as it is probably what I will need to draw on first.  I am going to be paying £600 a month into this until I retire - current value is £26k

If I understand the above correctly, you are planning to use the full accumulated value of this for income of £15k per year between the ages of 60 and 63? If that is the case, I would be wanting to keep most of that in cash rather than have it invested, as I'd be doubtful whether a conservative multi asset fund would get a better return than the current cash savings rates over the next 5 to 6 years.

RichardS

Audaxer said:

RichardS said:

My plan would be to transfer the ISA into an ii ISA invested in HSBC Global Strategy Conservative as I am looking at that as a 3-5 year investment as it is probably what I will need to draw on first.  I am going to be paying £600 a month into this until I retire - current value is £26k

If I understand the above correctly, you are planning to use the full accumulated value of this for income of £15k per year between the ages of 60 and 63? If that is the case, I would be wanting to keep most of that in cash rather than have it invested, as I'd be doubtful whether a conservative multi asset fund would get a better return than the current cash savings rates over the next 5 to 6 years.

That’s a good point as I don’t really know whether I would start drawing my tax free amount (the £16.7k)  from my pension at 60 or whether I would put this off for 2 or 3 years and use up my ISA during that period and only start drawing from the pension when the ISA funds have been depleted.  Which approach is best or would it be a combination of the two?

NoMore

RichardS said:

That’s a good point as I don’t really know whether I would start drawing my tax free amount (the £16.7k)  from my pension at 60 or whether I would put this off for 2 or 3 years and use up my ISA during that period and only start drawing from the pension when the ISA funds have been depleted.  Which approach is best or would it be a combination of the two?

Cloud_dog has already covered this:

cloud_dog said:

With regards to drawdown, you should at least (in my opinion) draw the maximum you can to utilise your Personal Allowance, so under a UPFLS arrangement £16760pa (personal allowance £12570 (75% taxable component) and  £4190 (25% TFLS component).

No point drawing from your ISA's if your leaving Personal Allowance on the table.

RichardS

NoMore said:

RichardS said:

That’s a good point as I don’t really know whether I would start drawing my tax free amount (the £16.7k)  from my pension at 60 or whether I would put this off for 2 or 3 years and use up my ISA during that period and only start drawing from the pension when the ISA funds have been depleted.  Which approach is best or would it be a combination of the two?

Cloud_dog has already covered this:

cloud_dog said:

With regards to drawdown, you should at least (in my opinion) draw the maximum you can to utilise your Personal Allowance, so under a UPFLS arrangement £16760pa (personal allowance £12570 (75% taxable component) and  £4190 (25% TFLS component).

No point drawing from your ISA's if your leaving Personal Allowance on the table.

Ahh I see thank you!

Albermarle

What I struggle with is the consolidation of the two pensions now. I’d be moving £203k into the Scottish Windows workplace pension (which looks to me like a 60/40 allocation split approx).  Is this any better than my original plan of moving it onto the ii platform with very low fees and selecting the HSBC Global Strategy funds

The main point is to salary sacrifice more into your workplace pension whilst you are still working. What you do with your personal pension is less important. I would be tempted to keep it separate and see how you get on with II and SW . You can always consolidate later if you want. 

Peterrr

I agree with the advice previously provided. I am also (hopefully) 3 or 4 years from retirement and in order to maximise the tax benefits, am putting such a high proportion of my salary into the workplace pension that I need to withdraw funds from ISA savings in order to meet the monthly household expenditure. This will deplete my ISA savings over my remaining working life and effectively 'move' retirement savings from the ISA to the pension - while also grossing it up at my marginal tax/NI rate.
If you salary sacrifice an extra (say) £1,000/month  to the pension, you would forfeit £580 net pay (as a higher rate tax payer) or £680 (as a standard rate tax payer). Replace that forfeited net pay with an equivalent £580 or £680 withdrawal from your ISA.
When retired you could (under current tax laws & thresholds) withdraw your stated £15k (or indeed a couple of thousand more) with zero tax to pay.