A few small pensions

SwitchWitch

prowla said:

I'd check whether they are performing; if they are small amounts then the running costs can eat into the value.

I would like to be able to do that. How many years should I look at? The average over 10? What would be a good return? 

SwitchWitch

Sarahspangles said:

SwitchWitch said:

For the 'small pots' rule is it possible to take the 25% leaving the 75% still invested? And could he do the same with a couple of SIPPS?

With small pots it’s ’all the pot’ you have to take.

For awareness any time you take the 25% tax free and leave 75% invested, you crystallise that 75% so it will all be taxed, including any investment growth, when you take it. So if you left it invested for a long time you could actually pay more tax overall.

If your OH is close enough to R day it could be worthwhile modelling each tax year. For a long time I had a mental model which assumed that as soon as I stopped working, all the income I required to live on had to come from pensions. Literally one month I would have a salary going in to the account and the next a pension. There may be a bigger picture.

I’m actually bridging until my main pensions start with a mix of SIPP and savings. My income from my SIPP will be UFPLS - you can take up to £16,760 tax free if you have no other earned income, by using your personal allowance +25% tax free. People like to point out that you shouldn’t let the tax tail wag the dog, but saving £2,514 tax certainly wags my tail. For the rest I’m drawing from my savings with the lowest return after tax on interest.

I'm really interested in your stategy. 


He has been part time for the last 2 years and we were planning semi retirement going forward but he has landed a well paid full time position so I really need to make the most of the next few years then he can retire completely if he wants/needs to. His Dad died at 64.

How did you decide how much to put in to savings and how much to put into your pension? 

Marcon

SwitchWitch said:

prowla said:

I'd check whether they are performing; if they are small amounts then the running costs can eat into the value.

I would like to be able to do that. How many years should I look at? The average over 10? What would be a good return? 

Depends on the type of funds in which he's invested - and, crucially, his attitude to risk. If he's risk averse, then putting everything into a fund which has the possibility of a really high return means taking a high level of risk, which may be uncomfortable (and therefore not the best strategy).

dunstonh

SwitchWitch said:

prowla said:

I'd check whether they are performing; if they are small amounts then the running costs can eat into the value.

I would like to be able to do that. How many years should I look at? The average over 10? What would be a good return? 

About 20-25 years should be a good guide. 1998 to date includes both the global cycle and the US cycle and would average out the two.   If you look at 2012 onwards, then you are only including the US cycle and some of the post credit crunch cycle for bonds (2008-2023 that played out)

Past performance data needs you to know and understand why a fund may have underperformed or over performed in a particular period.    If you don't know that then past performance comparisons are largely pointless.   Risk differences also need to be considered. 

Sarahspangles

SwitchWitch said:

Sarahspangles said:

SwitchWitch said:

For the 'small pots' rule is it possible to take the 25% leaving the 75% still invested? And could he do the same with a couple of SIPPS?

With small pots it’s ’all the pot’ you have to take.

For awareness any time you take the 25% tax free and leave 75% invested, you crystallise that 75% so it will all be taxed, including any investment growth, when you take it. So if you left it invested for a long time you could actually pay more tax overall.

If your OH is close enough to R day it could be worthwhile modelling each tax year. For a long time I had a mental model which assumed that as soon as I stopped working, all the income I required to live on had to come from pensions. Literally one month I would have a salary going in to the account and the next a pension. There may be a bigger picture.

I’m actually bridging until my main pensions start with a mix of SIPP and savings. My income from my SIPP will be UFPLS - you can take up to £16,760 tax free if you have no other earned income, by using your personal allowance +25% tax free. People like to point out that you shouldn’t let the tax tail wag the dog, but saving £2,514 tax certainly wags my tail. For the rest I’m drawing from my savings with the lowest return after tax on interest.

I'm really interested in your strategy. 

He has been part time for the last 2 years and we were planning semi retirement going forward but he has landed a well paid full time position so I really need to make the most of the next few years then he can retire completely if he wants/needs to. His Dad died at 64.

How did you decide how much to put in to savings and how much to put into your pension? 

The pandemic had a similar impact on our plans.

There’s a 6.25% one time gain on money into a SIPP if you are a 20% tax payer who withdraws at 20% - assuming neutral investment gains after charges. As I’d already turned 55 I knew I could withdraw from my SIPP as soon as I hung up my boots. I have personal allowance available to use until the tax year after I turn 60. So the minimum I wanted to build up in my SIPP was an amount that would use up personal allowance, plus 25% tax free, before that point. This also had the effect of increasing my 20% band so I didn’t pay higher rate tax while employed.

The limit I could pay into my SIPP while working was my relevant earnings, and I had to use annual allowance carry forward to cover the separate limit on tax relief. We obviously knew we needed to avoid having so much pension income post 67 that we would eventually pay higher rate tax.

I actually paid more into my SIPP than the first paragraph implies, because inheritance (sadly) meant that between us we had significant savings outside tax wrappers ie premium bonds and ISAs, and we were paying tax on the interest. Again, people will point out that avoiding tax shouldn’t override other considerations, but it made sense for us. For a couple of years, now that I’m retired, I’ll limit my SIPP income to £12,570 (plus 25%) so that I can use the starter savings rate to avoid tax on £5k of the interest. After that point, more of our savings will be in tax wrappers. I can then draw more from my SIPP, even if I don’t want to spend it, with the pace determined by availability of tax wrappers.

Our savings are in a mix of easy access and regular savers and any spending not covered by income at this point comes from the one with the lowest interest.

There’s a whole issue/strategy about safe withdrawal rates in retirement but we don’t need to analyse that as we have defined benefit pensions covering our needs by the time the youngest of us is 61.