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  • FIRST POST
    • Seasidegal58
    • By Seasidegal58 8th Apr 18, 11:25 AM
    • 2,133Posts
    • 13,216Thanks
    Seasidegal58
    Funding A Retirement Account
    • #1
    • 8th Apr 18, 11:25 AM
    Funding A Retirement Account 8th Apr 18 at 11:25 AM
    I am planning to retire in three years when I am 66 and my State Pension pays out. As well as that I will have income from a final salary pension and I also have my workplace pension when at that time I will have to decide whether to put this in a SIPP and draw an income or take an annuity (this choice isnt not exactly calling out to me at the moment).

    When I do retire I want to have c.£20,000 cash in place in order to cover any ad hoc retirement expenses as I wish to move at that time and would like a 'cushion' so to speak. I do already have a comfortable emergency fund put in place.

    So my query is should I keep my new savings fund in a savings/cash ISA account or use the monthly cash payment to fund extra into my workplace pension (topping up the monthly payment of 6% from my salary)and then take out the cash from there on retirement as part of my 25% tax free cash allowance. The workplace pension is currently very conservatively invested in mostly gilts, bonds and cash so the total value at the time of retirement shouldn't waiver too much.

    Any comments would be greatly appreciated.
    Finally Debt Free! - July 2016
    Finished Emergency Fund- £10,000 April 2017

    Next Scrimpy Goal - Ad Hoc Savings - 19/09/2018: £1168.59
    MONTHS TO RETIREMENT: 32!
    My diary: “Paid off the £31,0000! BUT- still scrimping!”
Page 1
    • Dox
    • By Dox 8th Apr 18, 11:29 AM
    • 937 Posts
    • 719 Thanks
    Dox
    • #2
    • 8th Apr 18, 11:29 AM
    • #2
    • 8th Apr 18, 11:29 AM
    Depends which route will give you the best return and the most favourable tax treatment - not enough info to comment on either, so more info would help.
    • Seasidegal58
    • By Seasidegal58 8th Apr 18, 11:50 AM
    • 2,133 Posts
    • 13,216 Thanks
    Seasidegal58
    • #3
    • 8th Apr 18, 11:50 AM
    • #3
    • 8th Apr 18, 11:50 AM
    Thanks for your reply.

    I'm in the higher tax bracket. As I've only three years to retirement I don't want to take much risk with the cash. The cash would be safe in a savings / ISA account - I could fix it for three years to get a better rate (though interest rates look like they will be rising). Or if I put it in my pension, though it wouldnt grow that much what with my conservative investment stance, i would be getting the tax break because I'm using untaxed funds here? Is that right.
    Finally Debt Free! - July 2016
    Finished Emergency Fund- £10,000 April 2017

    Next Scrimpy Goal - Ad Hoc Savings - 19/09/2018: £1168.59
    MONTHS TO RETIREMENT: 32!
    My diary: “Paid off the £31,0000! BUT- still scrimping!”
    • cloud_dog
    • By cloud_dog 8th Apr 18, 11:51 AM
    • 3,844 Posts
    • 2,284 Thanks
    cloud_dog
    • #4
    • 8th Apr 18, 11:51 AM
    • #4
    • 8th Apr 18, 11:51 AM
    I am planning to retire in three years when I am 66 and my State Pension pays out. As well as that I will have income from a final salary pension and I also have my workplace pension when at that time I will have to decide whether to put this in a SIPP and draw an income or take an annuity (this choice isnt not exactly calling out to me at the moment).

    When I do retire I want to have c.£20,000 cash in place in order to cover any ad hoc retirement expenses as I wish to move at that time and would like a 'cushion' so to speak. I do already have a comfortable emergency fund put in place.

    So my query is should I keep my new savings fund in a savings/cash ISA account or use the monthly cash payment to fund extra into my workplace pension (topping up the monthly payment of 6% from my salary)and then take out the cash from there on retirement as part of my 25% tax free cash allowance. The workplace pension is currently very conservatively invested in mostly gilts, bonds and cash so the total value at the time of retirement shouldn't waiver too much.

    Any comments would be greatly appreciated.
    Originally posted by Seasidegal58
    As we all know savings rates are low at the moment and investing money for 3 years is really too high a risk prospect, especially when you have definitive plans for the cash.

    One option might be to use your additional contributions and put them in to a SIPP. This way you would gain the 25% uplift (tax relief) on your contribution. If you were to open the SIPP with HL and then hold your contributions in cash there would be little risk to the cash (other than inflation risk over the 3 years), and no platform charges.

    So, you would gain by the 25% uplift and not place the contribution at the risk of market / stock volatility.

    You obviously would need to take in to consideration income tax when drawing the money from this SIPP but it may offer another option to achieve what you are looking for.

    EDIT: Just read that you are a 40% tax payer so you would benefit by a reduction in tax via PAYE as well. Also, will you be a LRT payer when you retire?
    Last edited by cloud_dog; 08-04-2018 at 11:54 AM.
    Personal Responsibility - Sad but True

    Sometimes.... I am like a dog with a bone
    • Seasidegal58
    • By Seasidegal58 8th Apr 18, 12:10 PM
    • 2,133 Posts
    • 13,216 Thanks
    Seasidegal58
    • #5
    • 8th Apr 18, 12:10 PM
    • #5
    • 8th Apr 18, 12:10 PM
    Thank you cloud dog. That is an excellent and helpful answer - a method I never thought of! I will be a LRT once retired.
    Finally Debt Free! - July 2016
    Finished Emergency Fund- £10,000 April 2017

    Next Scrimpy Goal - Ad Hoc Savings - 19/09/2018: £1168.59
    MONTHS TO RETIREMENT: 32!
    My diary: “Paid off the £31,0000! BUT- still scrimping!”
    • kidmugsy
    • By kidmugsy 8th Apr 18, 12:23 PM
    • 11,598 Posts
    • 8,120 Thanks
    kidmugsy
    • #6
    • 8th Apr 18, 12:23 PM
    • #6
    • 8th Apr 18, 12:23 PM
    I'm in the higher tax bracket. As I've only three years to retirement I don't want to take much risk with the cash. ... Or if I put it in my pension, though it wouldnt grow that much what with my conservative investment stance, i would be getting the tax break because I'm using untaxed funds here?
    Originally posted by Seasidegal58
    If you pay HRT it's bound to be a better bet to use a pension contribution to avoid that 40%. If you can contribute at work through salary sacrifice (sometimes called "smart") you'd also avoid 2% National Insurance Contribution. In fact, if you can use sal sac you could go further and also avoid part of the 20% band and 12% NIC.

    But if work doesn't do sal sac, and if you've already "harvested" the maximum employer contribution, then cloud_dog's route would be a good bet - a SIPP at, for example, HL.
    Free the dunston one next time too.
    • Seasidegal58
    • By Seasidegal58 8th Apr 18, 12:33 PM
    • 2,133 Posts
    • 13,216 Thanks
    Seasidegal58
    • #7
    • 8th Apr 18, 12:33 PM
    • #7
    • 8th Apr 18, 12:33 PM
    Thanks very much kidsmugsy - more food for thought here. My firm has started offering salary sacrifice. This sounds like it may be the route to take.
    Finally Debt Free! - July 2016
    Finished Emergency Fund- £10,000 April 2017

    Next Scrimpy Goal - Ad Hoc Savings - 19/09/2018: £1168.59
    MONTHS TO RETIREMENT: 32!
    My diary: “Paid off the £31,0000! BUT- still scrimping!”
    • dunstonh
    • By dunstonh 8th Apr 18, 12:39 PM
    • 94,525 Posts
    • 62,470 Thanks
    dunstonh
    • #8
    • 8th Apr 18, 12:39 PM
    • #8
    • 8th Apr 18, 12:39 PM
    I'm in the higher tax bracket. As I've only three years to retirement I don't want to take much risk with the cash.
    So, you plan on spending all the money in 3 years time?

    Higher rate certainly makes pensions look attractive.

    The cash would be safe in a savings / ISA account - I could fix it for three years to get a better rate (though interest rates look like they will be rising).
    Not that safe. Obviously, if you are spending the lot in 3 years time, then cash makes sense. However, the money you pay into the savings has been subject to 40% tax. So, you have lost 40% already. The pension gets 40% relief.

    So, if your starting point was £1000, you would be paying £600 into the ISA and losing £400 in tax. Whereas the pension would get £1000 paid into it. yes it may be subject to 10% loss potential but you are starting with a higher value.

    Are you really going to spend everything you put aside over the next 3 years in 3 years time?
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • MallyGirl
    • By MallyGirl 8th Apr 18, 12:46 PM
    • 2,957 Posts
    • 7,958 Thanks
    MallyGirl
    • #9
    • 8th Apr 18, 12:46 PM
    • #9
    • 8th Apr 18, 12:46 PM
    Since you only have 3 years I would max out the sal sac. You can!!!8217;t take yourself below minimum wage with sal sac but other than that it is a matter of how much income do you need to live off. Then sal sac the rest for 42% (40% tax plus 2% NI) above the HRT band and 32% (20% tax plus 12% NI) below it (approx). If you have a flexible system you can save even more NI by focusing the sal sac in a few months rather than equally across the year but not everyone has that option. My husband!!!8217;s company also put the employer NI in his pension but mine doesn!!!8217;t.
    • cloud_dog
    • By cloud_dog 8th Apr 18, 1:06 PM
    • 3,844 Posts
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    cloud_dog
    The thing to find out OP is if the work pension scheme that you could utilise provides the ability to place contributions, or a percentage thereof, in to a deposit / cash fund.

    If they do then this is also an option, and if they offer salary sacrifice you would be able to benefit from additional savings (NI). The only thing to look in the works pension scheme is if the pension provider will still levy a AMC on the cash/deposit. My experience (works scheme with Prudential) is that within these scheme offerings even if they offer a cash/deposit fund it is still a 'fund' and still has a AMC associated with it (I think the Prudential Cash fund was 0.5% AMC).

    EDIT: All of my thinking is focussed on a no/low-risk associated solution (ignoring inflation).

    EDIT: EDIT: If you confirm your company utilises salary sacrifice then as kidmugsy and other have said you would be better off going via your company pension scheme. Even if the company pension scheme charges 0.5% AMC/OCF for the cash fund then you would still be 1.5% better off as you would gain by 2% reduction in NI.
    Last edited by cloud_dog; 08-04-2018 at 1:47 PM.
    Personal Responsibility - Sad but True

    Sometimes.... I am like a dog with a bone
    • Seasidegal58
    • By Seasidegal58 8th Apr 18, 2:26 PM
    • 2,133 Posts
    • 13,216 Thanks
    Seasidegal58
    Thanks everyone for your comments.

    I think maxing out the salary sacrifice may be the route here. You are right cloud dog about the cash fund option in the pension - I'm currently in a very low risk, coming up to retirement lifestyle fund - I think more of the fund will be moving to the cash part of it over the next three years but I will check to make absolutely sure.

    It wasn't my intention to spend the whole £20,000 as soon as I retire - I just want to make sure I have enough to cover all the costs when I move (which on current plans will be the year following retirement) and in case I need to outlay anything for the new property. I'm hoping I'll have some left over!
    Finally Debt Free! - July 2016
    Finished Emergency Fund- £10,000 April 2017

    Next Scrimpy Goal - Ad Hoc Savings - 19/09/2018: £1168.59
    MONTHS TO RETIREMENT: 32!
    My diary: “Paid off the £31,0000! BUT- still scrimping!”
    • dunstonh
    • By dunstonh 8th Apr 18, 2:32 PM
    • 94,525 Posts
    • 62,470 Thanks
    dunstonh
    If you are not going to spend the money in three years time then it will be there for longer than three years. So, you need to consider the whole period. Not just the period you are still working.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • Seasidegal58
    • By Seasidegal58 8th Apr 18, 2:41 PM
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    • 13,216 Thanks
    Seasidegal58
    Sorry I should have said I'll probably need some funds for bringing my own place up to scratch as well which will be in the few months after retirement.

    Thinking about it do you have to take the tax free sum all in one go or can you draw it out say in two or three tranches?
    Finally Debt Free! - July 2016
    Finished Emergency Fund- £10,000 April 2017

    Next Scrimpy Goal - Ad Hoc Savings - 19/09/2018: £1168.59
    MONTHS TO RETIREMENT: 32!
    My diary: “Paid off the £31,0000! BUT- still scrimping!”
    • dunstonh
    • By dunstonh 8th Apr 18, 3:01 PM
    • 94,525 Posts
    • 62,470 Thanks
    dunstonh
    You can draw the pension as you like. ad-hoc, regular, annual, whatever
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • Seasidegal58
    • By Seasidegal58 8th Apr 18, 3:06 PM
    • 2,133 Posts
    • 13,216 Thanks
    Seasidegal58
    But is that the tax free 25% bit?
    Finally Debt Free! - July 2016
    Finished Emergency Fund- £10,000 April 2017

    Next Scrimpy Goal - Ad Hoc Savings - 19/09/2018: £1168.59
    MONTHS TO RETIREMENT: 32!
    My diary: “Paid off the £31,0000! BUT- still scrimping!”
    • LHW99
    • By LHW99 8th Apr 18, 3:49 PM
    • 1,444 Posts
    • 1,321 Thanks
    LHW99
    As I understand it you can either take all the tax free 25% in one go, or you can take UFPLS.
    25% of the UFPLS is tax-free, but the remainder is taxed at your normal rate.

    I don't think you can take (say) 12.5% tax free one year and the other 12.5% tax free in the next.
    • dunstonh
    • By dunstonh 8th Apr 18, 3:55 PM
    • 94,525 Posts
    • 62,470 Thanks
    dunstonh
    You can take the 25% in stages as well. So, you can do 12.5% one year and 12.5% the next (done by a 50% crystallisation with nil income and 25% lump sum in both years).
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • kidmugsy
    • By kidmugsy 8th Apr 18, 4:29 PM
    • 11,598 Posts
    • 8,120 Thanks
    kidmugsy
    My husband's company also put the employer NI in his pension but mine doesn't.
    Originally posted by MallyGirl
    Lucky old husband. In two senses, no doubt.
    Free the dunston one next time too.
    • Seasidegal58
    • By Seasidegal58 8th Apr 18, 8:02 PM
    • 2,133 Posts
    • 13,216 Thanks
    Seasidegal58
    Thanks very much for clarifying.

    I'm off to sort out my salary sacrifice tomorrow when I get into work!

    Great advice from everyone!
    Finally Debt Free! - July 2016
    Finished Emergency Fund- £10,000 April 2017

    Next Scrimpy Goal - Ad Hoc Savings - 19/09/2018: £1168.59
    MONTHS TO RETIREMENT: 32!
    My diary: “Paid off the £31,0000! BUT- still scrimping!”
    • PoundsShillingsAndPence
    • By PoundsShillingsAndPence 8th Apr 18, 8:12 PM
    • 16 Posts
    • 2 Thanks
    PoundsShillingsAndPence
    'If you have a flexible system you can save even more NI by focusing the sal sac in a few months rather than equally across the year '

    how does this work?

    For example - say you were already salary sacrificing enough to get your max employers contributions and had decided to sacrifice a further ie £6000 (gross) this financial year (2018/2019) and you are a 20% tax payer with standard personal allowance - i don't understand why paying it over a few months would be better than over the whole year (ie extra 500 each month)?

    Thanks
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