Pay pension fees from the pot or from my bank account?

dunstonh

granta said:

Just to check...if you use all your pension allowance one year, then presumably it is better to pay the fee from outside the pension to maximise your allowance. Or does it make no difference in the end? I hoping to maximise out my allowance in the next tax year so wondering if I should ensure all fees are paid from my bank account.

You may as well that year.  That assumes it is possible with your provider.  Its not with most.

granta

dunstonh said:

granta said:

Just to check...if you use all your pension allowance one year, then presumably it is better to pay the fee from outside the pension to maximise your allowance. Or does it make no difference in the end? I hoping to maximise out my allowance in the next tax year so wondering if I should ensure all fees are paid from my bank account.

You may as well that year.  That assumes it is possible with your provider.  Its not with most.

Thanks. Yes, it's possible with my own SIPP. I had never quite understood why people were saying it's better to pay from within the pension. But I think I see now that it's an advantage if you're not using your full pension allowance, but not the case if you are.

MX5huggy

Let’s put some numbers on this. 

£60000 pension contribution made up of £48000 paid in and £12000 tax relief added. 5% growth so £63000. 1% Fee so £630 Finish with £62370 in the pension. Let’s say you have £1000 in your current account. Take everything out the pension £15592.50 (25% tax free) plus £37710 after 20% tax so £53302.50 plus the £1000 = £54302.50 after starting with £49000.

Now pay the fee from cash. 

£63000 in pension, £15750 tax free £37800 after tax total £53550. Fees (£630) taken from the £1000 in current account so £370 left in current account. Total £53920 after starting with £49000. 

Paying fees from the pension is £382.50 better. 

Note, obviously tax relief on a £60000 contribution would be more than 20%, and tax on the way out would vary. Do it with a £6000 contribution and it’s a £38.25 saving paying the fees from the pension. 

Scrudgy

Gary1984 said:

Scrudgy said:

I have a SIPP, ISA and GIA with Interactive Investor.

The method of paying fees are:-
Direct Debit
Funds from GIA
Funds from ISA
Debit card

Funds from SIPP is not an option at all and it is not possible to pay this way. I assumed its because it would mess up the values for monitoring FAD/UFPLS/PCLS  etc.

I have a SIPP and only a SIPP with II. As a result my fees come from cash in the SIPP and I keep my ISA with another provider so I don't need to pay SIPP fees out of taxed income.

Yes thats it. Because I have a GIA and and ISA, they won't allow the fees to come from the SIPP

This is how they say it:-

Hold a Trading Account with a linked ISA and/or SIPP account

1. Available cash from your Trading Account
2. Available cash from your ISA
3. Debit Card (if stored online)
4. If we are unable to take the fee by the above methods, your account will stay in a debit position and we will contact you to pay the outstanding amount.

Note: We will not attempt to take the fee from your SIPP account.

FIREDreamer

Scrudgy said:

Gary1984 said:

Scrudgy said:

I have a SIPP, ISA and GIA with Interactive Investor.

The method of paying fees are:-
Direct Debit
Funds from GIA
Funds from ISA
Debit card

Funds from SIPP is not an option at all and it is not possible to pay this way. I assumed its because it would mess up the values for monitoring FAD/UFPLS/PCLS  etc.

I have a SIPP and only a SIPP with II. As a result my fees come from cash in the SIPP and I keep my ISA with another provider so I don't need to pay SIPP fees out of taxed income.

Yes thats it. Because I have a GIA and and ISA, they won't allow the fees to come from the SIPP

This is how they say it:-

Hold a Trading Account with a linked ISA and/or SIPP account

1. Available cash from your Trading Account
2. Available cash from your ISA
3. Debit Card (if stored online)
4. If we are unable to take the fee by the above methods, your account will stay in a debit position and we will contact you to pay the outstanding amount.

Note: We will not attempt to take the fee from your SIPP account.

That’s a very tax inefficient way of doing it. Basically the pension charges are higher than claimed because they aren’t getting tax relief.

Somebody

MX5huggy said:

Let’s put some numbers on this. 

£60000 pension contribution made up of £48000 paid in and £12000 tax relief added. 5% growth so £63000. 1% Fee so £630 Finish with £62370 in the pension. Let’s say you have £1000 in your current account. Take everything out the pension £15592.50 (25% tax free) plus £37710 after 20% tax so £53302.50 plus the £1000 = £54302.50 after starting with £49000.

Now pay the fee from cash. 

£63000 in pension, £15750 tax free £37800 after tax total £53550. Fees (£630) taken from the £1000 in current account so £370 left in current account. Total £53920 after starting with £49000. 

Paying fees from the pension is £382.50 better. 

Note, obviously tax relief on a £60000 contribution would be more than 20%, and tax on the way out would vary. Do it with a £6000 contribution and it’s a £38.25 saving paying the fees from the pension. 

But what if the pot was left to grow for say 10 years before taking it all out?  I bet the compounding effect of the larger pension over the period would be higher when fees are being taken out of the current account?

granta

Somebody said:

MX5huggy said:

Let’s put some numbers on this. 

£60000 pension contribution made up of £48000 paid in and £12000 tax relief added. 5% growth so £63000. 1% Fee so £630 Finish with £62370 in the pension. Let’s say you have £1000 in your current account. Take everything out the pension £15592.50 (25% tax free) plus £37710 after 20% tax so £53302.50 plus the £1000 = £54302.50 after starting with £49000.

Now pay the fee from cash. 

£63000 in pension, £15750 tax free £37800 after tax total £53550. Fees (£630) taken from the £1000 in current account so £370 left in current account. Total £53920 after starting with £49000. 

Paying fees from the pension is £382.50 better. 

Note, obviously tax relief on a £60000 contribution would be more than 20%, and tax on the way out would vary. Do it with a £6000 contribution and it’s a £38.25 saving paying the fees from the pension. 

But what if the pot was left to grow for say 10 years before taking it all out?  I bet the compounding effect of the larger pension over the period would be higher when fees are being taken out of the current account?

Good question! And in my case the platform fees are <0.1% so perhaps there's a tipping point for which scenario is best for different projections

Albermarle

granta said:

Somebody said:

MX5huggy said:

Let’s put some numbers on this. 

£60000 pension contribution made up of £48000 paid in and £12000 tax relief added. 5% growth so £63000. 1% Fee so £630 Finish with £62370 in the pension. Let’s say you have £1000 in your current account. Take everything out the pension £15592.50 (25% tax free) plus £37710 after 20% tax so £53302.50 plus the £1000 = £54302.50 after starting with £49000.

Now pay the fee from cash. 

£63000 in pension, £15750 tax free £37800 after tax total £53550. Fees (£630) taken from the £1000 in current account so £370 left in current account. Total £53920 after starting with £49000. 

Paying fees from the pension is £382.50 better. 

Note, obviously tax relief on a £60000 contribution would be more than 20%, and tax on the way out would vary. Do it with a £6000 contribution and it’s a £38.25 saving paying the fees from the pension. 

But what if the pot was left to grow for say 10 years before taking it all out?  I bet the compounding effect of the larger pension over the period would be higher when fees are being taken out of the current account?

Good question! And in my case the platform fees are <0.1% so perhaps there's a tipping point for which scenario is best for different projections

It must be only marginal whichever way you do it, so not going to make any practical difference to ones life whichever way it is done.

granta

Albermarle said:

granta said:

Somebody said:

MX5huggy said:

Let’s put some numbers on this. 

£60000 pension contribution made up of £48000 paid in and £12000 tax relief added. 5% growth so £63000. 1% Fee so £630 Finish with £62370 in the pension. Let’s say you have £1000 in your current account. Take everything out the pension £15592.50 (25% tax free) plus £37710 after 20% tax so £53302.50 plus the £1000 = £54302.50 after starting with £49000.

Now pay the fee from cash. 

£63000 in pension, £15750 tax free £37800 after tax total £53550. Fees (£630) taken from the £1000 in current account so £370 left in current account. Total £53920 after starting with £49000. 

Paying fees from the pension is £382.50 better. 

Note, obviously tax relief on a £60000 contribution would be more than 20%, and tax on the way out would vary. Do it with a £6000 contribution and it’s a £38.25 saving paying the fees from the pension. 

But what if the pot was left to grow for say 10 years before taking it all out?  I bet the compounding effect of the larger pension over the period would be higher when fees are being taken out of the current account?

Good question! And in my case the platform fees are <0.1% so perhaps there's a tipping point for which scenario is best for different projections

It must be only marginal whichever way you do it, so not going to make any practical difference to ones life whichever way it is done.

Agree! The discussion has been helpful though as I now know that in years when I don't think I will be contributing the full pension amount, having fees paid direct from pension is best.
For now though, I'm happy to have the additional direct debits for fees to meet conditions for some of my current accounts.