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Any advice on which investment app to choose?
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I wouldn’t use an app or your phone for personal finances. Just use a laptop at home and make sure you have a secure password and 2FA or a passkey.
And so we beat on, boats against the current, borne back ceaselessly into the past.1 -
They are easy to use, have a wide selection of products to invest in, and no platform costs. Their app is easy to use but you can use online if you prefer (I prefer the app myself). I have recently moved my S&S ISA to them and was impressed by the speed and professionalism of the transfer.
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In which case why not just add more to your pension instead and get the tax benefit? Caveat to that could be if you were likely to be a 40% taxpayer in retirement.
Most pensions will have the option of an equity tracker investment.
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Actually that’s a good shout, I don’t tend to use my phone for finance, other than current account. I’ll stick to using laptop.
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I have thought about that as an option but part of me doesn’t like the idea of tying up more money in a pension, as it feels a bit more restricted getting it back out, whereas in an ISA I can get at it when I want and still have the tax benefits.
I doubt the figure invested will be above £20000 a year, if it was much more than that then yes maybe putting it in my pension would makes sense for me.0 -
If you are a 20% taxpayer today and will be in retirement then the calculation is as follows ( assuming no investment growth to keep it simple):
Put £20K in an ISA - when you withdraw it - you have £20K
Put £20K in a pension - receive £5K basic rate tax relief, so you have £25K . When you withdraw it 25% is tax free and 75% taxed at 20% - Total - £21, 250
Your workplace pension may handle contributions in a different way ( by taking them out before tax or by salary sacrifice) but the end result is always a minimum 6.25% gain.
If you are currently a 40% taxpayer the gain can be a lot more.
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Mmm okay that’s got me thinking.
I’m currently a 40% tax payer so the numbers above would improve yes?
In the example above when you say 5k basic tax relief, that’s 5k just against that 20k? So if I was to put more than 20k in then the basic tax relief would be more than 5k?
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Pension is usually the best option for most people.
A lot of this equation depends on what tax bracket you are expecting to be in retirement. The game is to try and be in a lower tax bracket at retirement than you were while you were working.
What type of pension scheme are you in? Yes as a 40% tax payer the numbers would likely improve (though this depends how far into the 40% bracket you are, if you're just tipping over the edge, you wouldn't be able to get higher rate relief on all of your contributions as you didn't pay higher rates of tax on all your contributions).
Assuming you are in a relief at source pension, where you have to claim the higher rate relief yourself (countless people miss this), in @Albermarle's scenario above, this would mean an additional refund of £4k in your pocket (or towards reducing your tax bill) in higher rate tax relief.
And yes, the amount of basic rate tax relief is based on the contribution.
Think of it like this - money that goes into a pension should be free of tax, as it is taxed in retirement.
The problem is, in a relief at source pension, you are taxed on the pension contribution before it goes into your pot:
So if you are a basic rate tax payer and you contribute £100 into your pension, you'd pay £20 in tax on that chunk on your payslip and £80 would be added to your pension pot. The provider would then automatically claim basic rate tax relief, to make it back to £100.
If you are a higher rate payer and you contribute to your £100 into your pension, you'd pay £40 in tax on that chunk on your payslip and £80 would be added to your pension pot. You'd get the £20 automatically from tax relief but it's always claimed at the basic rate. To get the rest of the tax back you paid, you'd need to fill out a self assessment (or you can write a letter).
Or easier still, if you're in a salary sacrifice arrangement, you don't need to claim anything back as the tax isn't deducted.
If this is to turn into a discussion about intricacies of pensions I wonder if it would be better to create a new thread or move to the pension board.
Know what you don't1 -
Yes of course the more you add the more tax relief you get.
IF you are paying 40% tax now and will pay 20% in retirement it is a no brainer to add to your pension rather than an ISA. Especially as you are 55, you can withdraw it from when you want. Of course you can not get more 40% tax relief than 40% tax you are actually paying, and you are already making some workplace contributions, so there is a limit.
Can you say how you make contributions to your workplace pension, as there are three methods employers can use?
Salary sacrifice
Net pay - confusingly means contributions are taken out before tax
Relief at source - payments are taken out after tax
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So my company pension scheme is salary sacrifice although I can also see ‘salary exchange’ quoted as the arrangement for pension contributions, is this the same thing?
It’s a defined contribution scheme, I contribute 6% of my salary every month and the company contribute an additional 10% per month.
My salary is just over 80k so I’ve got room to contribute more.
I fairly sure I will only be a 20% tax payer in retirement as I don’t see me taking more than 40k a year in drawdown and I will have no other income other than some savings interest which won’t be much.
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