Stocks & Share, better than pension or savings ?

Quandra

I have a mix of several private pensions, which I consolidated into 2 main pots…. Putting these with 2 wealth management companies.

I have not taken the 25% tax free sum.

I have State pension … and 2 final salary pensions which are paying out.

In a recent discussion it was mentioned that it’s far better to put £20k per year in Stocks & shares, rather than leave it in a Pension fund.

Logic being that there is zero tax to spend on the first 20k invested.

Can somone explain what this is and rules, I’m keen to minimise my Tax burden in retirement.

LHW99

Answer is probably - it depends.

Things that could affect it include:

Are you currently working, and would you be on a lower tax rate when you retire (eg 20% rather than 40%)? If so, putting into a pension may be better (no tax on moneys invested in a pension, until it is taken out).

Would you be into IHT territory if you passed on? If so, taking money out and putting it in an ISA could result in less tax for beneficiaries.

Are you likely to be over the LSA? If so, putting more into a pension won't get you any more tax-free cash.

Do you have a need for a lump of money now eg paying off debt or a mortgage? May be worth taking money out of the pension to clear it.

Vitor

If OP is drawing state pension, that suggest they are of an age when shares are usually thought as too volatile to risk.

Baldytyke88

The historical long-term average return on stocks and shares is about 10% per year globally (measured via the US S&P 500) and roughly 6.4% to 7.7% per year locally in the UK. By how much is your pension increasing? Maybe CPI, which is around 3.1%; but that is guaranteed; increases in share prices are volatile.

Albermarle

https://forums.moneysavingexpert.com/discussion/6684625/stocks-share-better-than-pension-or-savings

If you are not in paid employment, you can not add more than £2880 pa to a pension ( to which £720 tax relief will be added ) so you could not add £20K anyway.

Otherwise investing via a S&S ISA, should give you a better return in the long term than a cash savings account. The key phrase is ' long term' . If you think you will need the money in a few years, then better to stay with savings. Investment returns will of course vary depending on what you invest in and how markets develop.

kermchem

https://forums.moneysavingexpert.com/discussion/comment/82149504#Comment_82149504

If OP is drawing state pension then they might need to fund 20 or 30 years in retirement and a different mix of cash and shares might be appropriate from someone younger, but not a share-free portfolio.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82149504#Comment_82149504

Individual shares are too volatile for the majority of investors at any age.

However multi asset funds, or similar, containing thousands of shares are suitable for most pensioners until maybe they get to 75+/80.

For sure it is normally not advised to stop investing once you get to state pension age, with hopefully many years still ahead of you.

dunstonh

Stocks & Share, better than pension or savings ?

That is not a consistent question.

Pension is a tax wrapper. Savings is an asset class as are stocks & shares.

You can put savings and stocks and shares in a pension but you cant put a pension in savings or stocks and shares.

Its a bit like asking which is better, petrol or a car.

In a recent discussion it was mentioned that it’s far better to put £20k per year in Stocks & shares, rather than leave it in a Pension fund.

Logic being that there is zero tax to spend on the first 20k invested.

Pension is the best tax wrapper for most people. Better than S&S ISAs. Logic being that you compare the overall tax benefits and not just the fact it is tax free.

Of course you cannot put £20,000 into a pension unless you have earned income of £20k or a limited company

f OP is drawing state pension, that suggest they are of an age when shares are usually thought as too volatile to risk.

Incorrect measure. Someone in their 60s is nowhere near too old to start investing. Someone in the mid 80s would likely be (although where the money is going to end up needs to be considered).

friolento

there is zero tax to spend on the first 20k invested.

There is no such thing as tax exemption on “the first 20k invested”.

You can put max total £20k per tax year into a cash ISA (savings) and/or into an S&S ISA (investment), with the amounts split to your liking. ISA gains are tax free.

masonic

You could simply change the pension fund to one holding more S&S if it is too low risk for you.

Perhaps with full state pension and two final salary pensions paying out, this is money you don't need?

"Logic being that there is zero tax to spend on the first 20k invested."

I have no idea what that means, but it doesn't seem very logical.

friolento

it’s far better to put £20k per year in Stocks & shares, rather than leave it in a Pension fund

Your £20k in a Pension can be invested in 100% the same instruments as in an S&S ISA or in a General Investment Account. Anything already invested in a Pension can be left in there, unless there is good reason to believe that you can get better returns outside the Pension wrapper. You’d need professional advice to move your funds out of a Pension.

Putting these with 2 wealth management companies

You should get advice from an Independent Financial Advisor (IFA) rather than from wealth management companies as the latter don’t necessarily have access to the whole market and might direct you to their own products only.