Withdraw a small pension pot and invest it into an ISA?

Spint

Hi,

This may be a vague question and I'm not sure why my mother has asked this (I don't know much about pensions and investing myself) but I'm hoping you can help me, even with asking for more details from her.

My brother who is a bit autistic and works in a minimum wage job has always paid into a pension for years but it's been very little (maybe the charges eat up a lot of the gains?) and hasn't changed. He is 56 now.

She sent me a message: "In view of the tax cuts coming do you think he should withdraw his private pension pot of £26000 and put it into ISAs?"

He currently doesn't have anything or very little in his ISA account but is there a sound reason why my mother has asked this question.

Would it actually be better for him to reinvest that amount? Do you need to know more information to give better advice.

Thanks very much and hope you can help.

Dazed_and_C0nfused

"In view of the tax cuts coming do you think he should withdraw his private pension pot of £26000 and put it into ISAs?"


What tax cuts?  The Budget hasn't happened yet.

Maybe reviewing his investment choices would be a better starting point?

dunstonh

My brother who is a bit autistic and works in a minimum wage job has always paid into a pension for years but it's been very little (maybe the charges eat up a lot of the gains?) and hasn't changed. He is 56 now.

Charges don't eat up a lot of the gains.    If he is on a minimum wage job, then the contributions will be low.    The returns will be based on his investment choices.   If he has been in cash, returns would have been low.  If he was in gilts or bonds, then they are not far off where they were 7 years ago.   If he has been in equities, then they are more than double what they were 7 years ago.

She sent me a message: "In view of the tax cuts coming do you think he should withdraw his private pension pot of £26000 and put it into ISAs?"

Tax cuts are not expected at the next budget.   Tax rises are expected.     Pensions and ISAs can share the same investments and charges.  So, there is no logical reason to draw money out of the pension, suffer tax and then put the remainder in an ISA.

but is there a sound reason why my mother has asked this question.

No.  She sounds confused.

Would it actually be better for him to reinvest that amount?

Insufficient to say but probably not.

Albermarle

The money is invested in the pension already.
Tell your Mum to stop reading speculation about what might be coming in the budget , as it is all guesswork.
in any case if pensions are affected in some way it is very unlikely a relatively small pot like this would be affected.

xylophone

OP, is this pension your brother's workplace pension at  his current employment?

Or a personal pension in addition to his workplace pension?

What does his state pension forecast show?

https://www.gov.uk/check-state-pension

Spint

Thanks for all your advice, most helpful.

After speaking to my mother, I believe when she stated tax cuts, she was referring to folks who were already withdrawing their pension and that they might be taxed more. Her source, was my aunt whom often says "I read it in the Daily Mail"

Nevertheless, this little journey has prompted me to look into his pension to see what type it is, hopefully he can create online access to it so that I can check it out. It's with Assure.

He's been regularly saving (I stuck his savings in the highest interest account I could find as his ISA wasn't as lucrative including taking into account the tax-free side) as he doesn't spend much at all, so I'm now wondering if he should up his contribution. It's not a company one unfortunately so no one else will contribute to it.

That's pretty much the extent of my understanding at the moment.

In fact, putting morals aside, I wonder if all this saving will be a waste of time? He lives in a housing association flat. When he reaches retirement age and his state pension isn't enough to pay the rent, bills and food, what happens?

Will he simply have to use all his savings, when some who has not saved will get credits/benefits?

Thanks again.

Dazed_and_C0nfused

In your op you said this,

My brother who is a bit autistic and works in a minimum wage job has always paid into a pension for years but it's been very little (maybe the charges eat up a lot of the gains?) and hasn't changed. He is 56 now.

And have now said this,

It's not a company one unfortunately so no one else will contribute to it.

Unless he works very part time his employer is obliged to offer a pension.  And contribute to it if your brother joins.  They can pay the bare minimum percentage and use the "earnings threshold" to limit how much of his earnings qualify for a contribution but it's not clear really why he doesn't have a pension with his employer?

Spint

Thanks, that's interesting.

He had this pension scheme before he started to work for his current employer and I think he's been with them for maybe over 15 years.

I wonder if he's paying a minimum amount into a company pension as well. I'll try to get hold of his monthly payslip.

Is it possible that he can transfer his private pension pot into a company one? Would it be worth if he could? Surely a company one is better as the employer has to contribute too? I might be wrong but I think his pension is taken out by direct debit each month, but could that mean he's been missing out on tax relief?

At 56, I wonder if he should start tinkering with his pension or create a new one, or invest it in a savings account that pays the highest interest, then again he wouldn't be saving on tax...arggh...I really want to help him but don't know the best course.

Is it worth seeking an independent financial/pension adviser? If so, how much would they roughly charge?

Thanks again.

Dazed_and_C0nfused

I doubt an IFA would be interested, purely due to the relatively small amounts involved.

I think you are making a lot of assumptions.  If he is contributing to his pension via direct debit then it is almost certainly a relief at source (RAS) scheme where the pension provider will be adding basic rate tax relief (25% of his net contribution).

So for every £80 he pays he will end up with £100 in the pension.

Maybe slow down and check the full facts before going any further.

Then post back here with the full story.  There are plenty of knowledgeable people willing to chip in with useful suggestions.

MallyGirl

I suspect that the numbers involved would mean that no IFA would be interested in the work.

He might be able to transfer a personal pension in to the company one which would keep things simple with it all in one place. If he does have one it would be worth asking the question.

lookbook

It order to help you we need solid facts.