Self employed Pension or ISA ..

sidneyyoungblood

A bit of advice please .

Approaching 50 with no pension and getting worried about the lack of one .. 

 I restore antiques to resell online so income can be very sporadic and with the current cost of living crisis its getting worse  .


I have been piling money for the last 10 odd years into my stocks and shares isa rather than pension due to insecurity of work  but not too sure that this is the right option

I know the tax benefits are better in a pension but not too sure if it is worth the risk "tying" it up , I wont  be able to access it till I am 57 ... If I wanted to access all funds at that point would 75% of it be taxed?


Is a pension always the best option ?

 

Dazed_and_C0nfused

sidneyyoungblood said:

A bit of advice please .

Approaching 50 with no pension and getting worried about the lack of one .. 

 I restore antiques to resell online so income can be very sporadic and with the current cost of living crisis its getting worse  .

I have been piling money for the last 10 odd years into my stocks and shares isa rather than pension due to insecurity of work  but not too sure that this is the right option

I know the tax benefits are better in a pension but not too sure if it is worth the risk "tying" it up , I wont  be able to access it till I am 57 ... If I wanted to access all funds at that point would 75% of it be taxed?

Is a pension always the best option ?

No, 75% of it would be taxable income.  The tax payable would depend on how much you took out of the pension (the taxable element) and what other taxable income you had in that tax year.

Pension is usually the best option (because of the tax relief) and nothing you have posted suggests it wouldn't be best for you.

What income will you have that uses your Personal Allowance, say from age 60 to 67 when your State Pension (if you are entitled to something) starts?

sidneyyoungblood

Dazed_and_C0nfused said:

sidneyyoungblood said:

A bit of advice please .

Approaching 50 with no pension and getting worried about the lack of one .. 

 I restore antiques to resell online so income can be very sporadic and with the current cost of living crisis its getting worse  .

I have been piling money for the last 10 odd years into my stocks and shares isa rather than pension due to insecurity of work  but not too sure that this is the right option

I know the tax benefits are better in a pension but not too sure if it is worth the risk "tying" it up , I wont  be able to access it till I am 57 ... If I wanted to access all funds at that point would 75% of it be taxed?

Is a pension always the best option ?

No, 75% of it would be taxable income.  The tax payable would depend on how much you took out of the pension (the taxable element) and what other taxable income you had in that tax year.

Pension is usually the best option (because of the tax relief) and nothing you have posted suggests it wouldn't be best for you.

What income will you have that uses your Personal Allowance, say from age 60 to 67 when your State Pension (if you are entitled to something) starts?

Thanks ,  I thought I was able to access 25% of the pension tax free at 57 .

I thought savings in an ISA is effectively giving you the same tax savings as a SIPP pension. You get tax relief on your pension contributions going in but withdrawals are taxable in a SIPP ,.

 

Albermarle

For the pension you get a minimum 6.25% tax benefit, as you get basic rate relief on the contributions, and only pay basic rate tax on 75% of withdrawals.
If you can withdraw when you are not having any other taxable income, the benefit is obviously much better.

The downside is the age restriction on withdrawals, but if you are saving for retirement, then you will hopefully be drawing from the pension into your 60's; 70's; 80's etc 

Dazed_and_C0nfused

sidneyyoungblood said:

Dazed_and_C0nfused said:

sidneyyoungblood said:

A bit of advice please .

Approaching 50 with no pension and getting worried about the lack of one .. 

 I restore antiques to resell online so income can be very sporadic and with the current cost of living crisis its getting worse  .

I have been piling money for the last 10 odd years into my stocks and shares isa rather than pension due to insecurity of work  but not too sure that this is the right option

I know the tax benefits are better in a pension but not too sure if it is worth the risk "tying" it up , I wont  be able to access it till I am 57 ... If I wanted to access all funds at that point would 75% of it be taxed?

Is a pension always the best option ?

No, 75% of it would be taxable income.  The tax payable would depend on how much you took out of the pension (the taxable element) and what other taxable income you had in that tax year.

Pension is usually the best option (because of the tax relief) and nothing you have posted suggests it wouldn't be best for you.

What income will you have that uses your Personal Allowance, say from age 60 to 67 when your State Pension (if you are entitled to something) starts?

Thanks ,  I thought I was able to access 25% of the pension tax free at 57 .

I thought savings in an ISA is effectively giving you the same tax savings as a SIPP pension. You get tax relief on your pension contributions going in but withdrawals are taxable in a SIPP ,.

 

£100 added to an ISA can then be taken out tax free.  You have £100 back.

£100 added to a pension has £25 added in pension tax relief.  When you take the £125 out 25% is tax free and 75% is taxable income.

If you are basic rate payer that is £18.75 in tax.  So your £100 becomes £125 in the pension and you end up with £106.25 after tax.

6.25% better than the ISA.  More than that if you have spare Personal Allowance which avoids some or all of the 20% tax when money is taken out of the pension.

sidneyyoungblood

Dazed_and_C0nfused said:

sidneyyoungblood said:

Dazed_and_C0nfused said:

sidneyyoungblood said:

A bit of advice please .

Approaching 50 with no pension and getting worried about the lack of one .. 

 I restore antiques to resell online so income can be very sporadic and with the current cost of living crisis its getting worse  .

I have been piling money for the last 10 odd years into my stocks and shares isa rather than pension due to insecurity of work  but not too sure that this is the right option

I know the tax benefits are better in a pension but not too sure if it is worth the risk "tying" it up , I wont  be able to access it till I am 57 ... If I wanted to access all funds at that point would 75% of it be taxed?

Is a pension always the best option ?

No, 75% of it would be taxable income.  The tax payable would depend on how much you took out of the pension (the taxable element) and what other taxable income you had in that tax year.

Pension is usually the best option (because of the tax relief) and nothing you have posted suggests it wouldn't be best for you.

What income will you have that uses your Personal Allowance, say from age 60 to 67 when your State Pension (if you are entitled to something) starts?

Thanks ,  I thought I was able to access 25% of the pension tax free at 57 .

I thought savings in an ISA is effectively giving you the same tax savings as a SIPP pension. You get tax relief on your pension contributions going in but withdrawals are taxable i

 

£100 added to an ISA can then be taken out tax free.  You have £100 back.

£100 added to a pension has £25 added in pension tax relief.  When you take the £125 out 25% is tax free and 75% is taxable income.

If you are basic rate payer that is £18.75 in tax.  So your £100 becomes £125 in the pension and you end up with £106.25 after tax.

6.25% better than the ISA.  More than that if you have spare Personal Allowance which avoids some or all of the 20% tax when money is taken out of the pension.

Thanks , I have just opened a AJ bell sipp  , will start with a 5k lump sum this year just to get the ball rolling ..  Can I add to this years contribution next year when I get a final assessment from my accountant on how much I have earnt ? I do not take a wage and do my accountants a the end of march so not too sure how much I actually earnt , I am a basic tax payer.  Thanks again 

SacredStephan

As a sole trader your SIPP contributions in the current tax year are limited by your profit in the current tax year. Unfortunately you can't make a contribution in Autumn 25 that would be included in the 24-25 tax year.

kempiejon

sidneyyoungblood said:

Approaching 50 with no pension and getting worried about the lack of one .. 
...

Is a pension always the best option ?

 

Not always, often and generally you'll be at least 6% better off, many can do better by manipulations of tax.

When it is not best is if you need your investment income before 55.

Dazed_and_C0nfused

sidneyyoungblood said:

Dazed_and_C0nfused said:

sidneyyoungblood said:

Dazed_and_C0nfused said:

sidneyyoungblood said:

A bit of advice please .

Approaching 50 with no pension and getting worried about the lack of one .. 

 I restore antiques to resell online so income can be very sporadic and with the current cost of living crisis its getting worse  .

I have been piling money for the last 10 odd years into my stocks and shares isa rather than pension due to insecurity of work  but not too sure that this is the right option

I know the tax benefits are better in a pension but not too sure if it is worth the risk "tying" it up , I wont  be able to access it till I am 57 ... If I wanted to access all funds at that point would 75% of it be taxed?

Is a pension always the best option ?

No, 75% of it would be taxable income.  The tax payable would depend on how much you took out of the pension (the taxable element) and what other taxable income you had in that tax year.

Pension is usually the best option (because of the tax relief) and nothing you have posted suggests it wouldn't be best for you.

What income will you have that uses your Personal Allowance, say from age 60 to 67 when your State Pension (if you are entitled to something) starts?

Thanks ,  I thought I was able to access 25% of the pension tax free at 57 .

I thought savings in an ISA is effectively giving you the same tax savings as a SIPP pension. You get tax relief on your pension contributions going in but withdrawals are taxable i

 

£100 added to an ISA can then be taken out tax free.  You have £100 back.

£100 added to a pension has £25 added in pension tax relief.  When you take the £125 out 25% is tax free and 75% is taxable income.

If you are basic rate payer that is £18.75 in tax.  So your £100 becomes £125 in the pension and you end up with £106.25 after tax.

6.25% better than the ISA.  More than that if you have spare Personal Allowance which avoids some or all of the 20% tax when money is taken out of the pension.

Thanks , I have just opened a AJ bell sipp  , will start with a 5k lump sum this year just to get the ball rolling ..  Can I add to this years contribution next year when I get a final assessment from my accountant on how much I have earnt ? I do not take a wage and do my accountants a the end of march so not too sure how much I actually earnt , I am a basic tax payer.  Thanks again 

Yes and no.  

You can add more money in the next tax year but that would always be a contribution for 2025-26, it won't have any relevance to 2024-25.

You will need to estimate your expected profits for 2024-25 to know how much you can contribute in the current tax year.

Remember if you have paid over £5,000 then that is actually a gross contribution of £6,250 once the basic rate tax relief has been added.