@@dennisshea9540 The date you can draw is decided by the govt, that is true. But what do you mean by poor rate of return ? A pension should be the highest returning asset you own. If it’s not, then it’s not invested correctly.
Hi there James, I need some serious help with my final salary pension which I can start taking now or transfer out to maybe a flexible draw down pension. Kind regards, John Mitchell.
I've found you just at the right time! or possibly too late you might say..... I'm 58 and husband is soon to be 60 with pensions not available until we are 65 (penalty to take early)
Great video James. I wish I had seen it before I started my drawdown this year! But that said I retired at 55 basing my calculations on the 3% rule rather than the 4% much talked about by some, so I am still in a reasonably good position. It is just galling to know I missed out on all that extra tax free cash!
A very valid comment was made about retiring when knowingly (or not) you have contributed enough to fund you alternative income from salary to pension. As Jame's implies this is a difficult decision to make as you switch from a salary to pension.
This has proven very useful, thank you. My problem is that I have a UK based private pension but no longer a tax resident, but obviously was when I took the pension out. Through various reason I will opt for the 25% Lump sum and considering draw down for the remainder over the next few years to go directly into my KiwiSaver here .
Hi, could you do an advice video for expats with a uk pension? There are hundreds of thousands of us who get bombarded with advice or sales pictches about transferring our pensions over.
I hear what you’re saying however I’d much prefer to take my 25% and enjoy the money while I can.. life is far too short to be holding out for a later date and not being able to enjoy your money properly when your 60/65 when u could be a lot more frail and house bound does not seem appealing to me.
Question not covered. Assuming you were to retire at 55 with a £300k pot. If you had no other income between 55 and 65 (till other pensions start) wouldn't it make sense to at least withdraw my personal tax allowance of £12500 per year, and not draw anything tax free from the pension (of course that would reduce the tax free allowance i could get as the total left would only be £175k which woild then be left untouched unless needed). This assumes I don't actually need that 12500 for living during the 55-65 but we would re-invest it. Hope that makes sense
I get the impression most people thinking of doing a flexible draw down are not aware of the limitations they are putting themselves into. Pension companies should do more to warn people.
Absolute quality content. I must admit that I too planned on using my lump sum to pay off my mortgage and put the extra in my ISA. I will definitely rethink my strategy!
Currently my wife and mine projections show we will have potentially 2-3 years of mortgage still to pay at £800 a month on retiring but will have £20K in state pension coming in, plus private pensions so its not an issue but will not be using large lump sums to clear the mortgage , that can be a buffer for us/travel fund with my son in USA and hopefully grandkids to be visiting as well.
@James, I've came across your channel few weeks ago and I really like the mix of knowledge and my type of sense of humour in the mix. Well presented too! I've been thinking about transferring my old pension (below 10k) to my current one, with employer contribution in 3%+6% model. Is it a clever thing to do? Or would keeping these separate (the old pot is not being contributed to) is a better move? I appreciate your help!
@James please explain again… pensions & inheritance tax … I take it this applies on,y to drawdown pensions & not final salary pensions (these are lost at death, unless passed to spouse)
It depends the pension scheme and at what age they would allow to draw out. In NHS scheme, the old scheme would allow to draw at age of 60 whereas the new scheme would allow to draw at state pension age. So, I have drawn one scheme of pension at age of 60 and the other scheme drawn at age 66.
Well I have other forms of income , but I will be taking my pension in February at 55 , I am already retired and intend enjoying my retirement to the full, my pension will be worth a lot when I am 75, but definitely not , waiting , going to enjoy my money why I am in good health , helping supporting my children 👍
Hi I have 6 pensions nothing major I’m 50 years of age and I really feel I probably won’t live until I’m 65 should I cash all in at 55 and enjoy the money
Hello James, new viewer here, I stumbled across your channel from a random refresh of the UA-cam homepage - enjoyed the video so much I've subscribed and clicked the bell icon for more! I'm so glad to have found you and really looking forward to watching your channel grow.
@@JamesShack I wonder whether you can share some knowledge on the pitfalls or benefits of accepting enhanced CETV’s as some pension funds look to de-risk. I recently declined an offer of +25% enhancement because I’m still under 55 and have a deferred DB pension which is guaranteed a minimum 3% or maximum 5% growth each April. Leaving it where it is with other death benefits included felt the right thing to do…for me.
Hi I contacted out for a short time at my workplace because that was the thing to do I did search and found it a while ago and found a small pension but I checked again on the gov portal and its no where to be found? I'm 60 and I'm only just starting to worry
Hi James wonderful video great insights Have you any positive testimony I am currently out of work I am 55 I have paid in to a defined pension for 24 years I can better my future and enrich my pension by becoming more wealthy can you talk about other pensions like ssas and Siipp Working till I'm 70 no thanks now the government has increased the age because we live longer I would like to renovate small commercial properties and build a small portfolio
Get everything you say about the benefits of keeping money in pensions for inheritance etc but if you have already taken the tax free sum (for good reasons) and think you may want access to a large sum in the future then taking money out of your pension up to the 40% tax band and sticking it in ISAs is a better plan than the 40% or higher tax rate of a taxable lump sum withdrawal in the future.
Yes that may be the case, especially if you have years with no income tax and can just use your personal allowance. Of course you need to be very sure that this future expense will actually happen before you die!
Hi James, what are your thoughts on equity release on property? Is it worth factoring into plans or better to keep it as a contingency option in worst case scenarios? What are the drawbacks to using it?
Perviously equity release products have been extremely expensive relative to a normal mortgage. Recently, several new products have come to the market that are much more competitive but then again interest rates have risen which puts many people off. Either way, equity release can be very effective in the right situations.
I think the biggest mistake people make with their pensions is not to have a pension at all and instead rely on the State pension! I'm constantly amazed how many people fall into this bracket.
Preaching to the converted here, seeing as I work for a certain, government created body, which gives information to people about their DC pensions. Getting this job was the best thing I ever did.
What are the pro's and con's of taking the 25% tax free lump sum from a DC scheme and does it make a difference between the considerations for a DB if you go down the SIP or Crystallised route?
Good video, thanks. One thing I don’t understand is the 20% government top up. This implies the government pays an additional 20% into your pension pot as well as any income tax relief you get. So in the example given, £80 becomes £100. I’ve looked at my pension pot which shows my salary sacrifice contributions (including my employer’s) but I can’t see any government contributions. Am I missing something?
They HMRC are not going to top up by 20% on your pension contribution thay you haven't paid any tax on. The top up only applies to additional pension contributions that have already been taxed.
Hi James, you mentioned that if you died over 75years of age there is no IHT but the beneficiary would need to pay tax on the lump sum at their marginal rate "...just as you would have been." what if there were still funds that for me would have been part of my 25% tax free portion? Is that taxable for a beneficiary if I die over 75?
James agree with everything you have said ..... however when the government looks round to where it can scoop up some extra revenue ... its going to look at the tax free lumps sum at some time. Then the calculations/strategy needs to change.
It will, for sure. But if we spent our time trying to guess what the govt may or may not do, we'll end up standing still and get nothing done. Play the game by the rules as they are.
Taking my pension at 55 was the best thing I’ve ever done. I went from having £280 a month to £1000 with £20,000 lump sum tax free. Iam a full time carer for my wife.
There's something I'm missing here so if someone could help, that'd be great. At 3:20 James is talking about putting in £80 and getting the £20 top up as tax relief, then taking £25 out tax free and £80 out as taxable to arrive at £85 withdrawn. I don't see how the math adds up and I'm probably missing something, but if we take £25 out tax free, there's only £75 left to draw down? Can someone explain the number to me in 'Mistake Number 1'?
@@JamesShack I have the same concern with the maths at 3:20. There is a contribution of £100. You mention £25 is taken out tax free & the remaining £80 is subject to tax. That doesn't seem right to me - £80 plus £25 is £105. I'd be grateful if you could please clarify.
@@JamesShack many thanks indeed. I"m in agreement with the maths there and can see how arrive at £85. What I found misleading was the statement at 3:20 "you can immediately take £25 tax free and the other £80 is taxable....". There is only £75 remaining after taking £25 from £100.
Hello, anyone help?. When hmrc consider if you have significantly increased pension contributions, for the purpose of recycling is the assessment against the total of all contributions ( employer +personal) over all pensions(DC and dB) for each of the 5 years (2 before, the tax year possible pcls invested and 2 years after)?
Was intresting, thou as some one super lucky to be in DB scheme, i dont think taking cash out is an option, thou i would be stupid to try as my DB can not be beat, i am more hoping to be made redundant over the age 53 trigring the clause that lets me start claiming my pension at at 53 i would be far to old to start a new job... Is there any thing people in local gov DB schemes can do, should do, or should be awar of?
I'm 55 next year, Is your your advice on using the 25% to pay of the mortgage is still good considering the BOE interest rates atm 5.0% 24/06/2023, I'm going to hit 55 and come out of a 5 year fixed rate mortgage deal at a similar time, my mortgage will then start costing me around £200 a month more (and no sign of the BOE reducing rates any time soon) seems like a no brainer to reduce my mortgage debt, or am I missing something?
I an only 33. I took out loads of my savings and put into my pension. I used to think ISA locked in fixed was ideal. Then I understood tax free benefit, paying less tax the other end when drawing out plus growth. 33 to 55 gives me 22 years for it to grow. I would rather invest now and be "broke" (accessible money) than be broke at 55. I've changed my lifestyle to account for this. If you've got savings at 33, put them in your pension and do cheaper holidays. You don't compare to others. They'll see when you retire at 55 and they're still working.
Good video. When is the 25% that you can take out tax free calculated from? ( When I reach 55, or when I first start using it, or something else?) Also, has your advice changed about paying off a mortgage now that interest rates have risen?
My pension pot was raided by the company so after years of paying in it's worth diddly squat. With hindsight, unless you are in a public sector final salary scheme, I'd say invest your money in property. You keep control of the capital and the income stream.
Really sorry to hear this. I also work for a large company and this has bothered me a lot that they may appear to be able to raid the pension fund whenever they like. I remember Robert Maxwell doing this to daily mirror employee's
@James Shack a silly question for you. How would approaching the lifetime allowance of £1,073,100 before the age of 55 affect the strategy of contributing to a DC pension? Would you stop contributing to it? And then once you have reached the age of 55 and have retired, what is the most tax efficient way of dealing with your pensions if it is over the LTA?
@@JamesShack ah so it wasn't a too silly of a question (I hope) then! Thank you for responding as always and I will be eagerly waiting for the next video to come out!
Example person turning 55 this month has 5 pensions in different amounts. The first one is the large one with a County Council around 28 years or there about. This one pension it seems has a step layer affect in terms of change to the pension with the County Council from Pension changes in 2008 and so on. The lump sum is guaranteed up till 2008 and after that the 25% kicks in from then with the portion taken from earnings from 2008 period. The 4 other pensions it seems are from different providers while changing jobs it seems. Now the advice I gave was along these lines keep the main pension as the large sum before 2008 figure and after that just take it annually. He got the pension 12 years before he would retire when 67 and the amount taken when 67 equals to 81 years of age before the it even out before from the age of 55 years. So in reality he would have the pension 12 years early even with a deduction. The other pension I suggested to take a 25% lump sum from the second largest leaving the rest. With this and combining the 3 other small pensions he created another pension pot but with benefits and up to 4,000 yearly as a top up. By the time he reached 67 years of age he would have a second pension as well as state pension. Whilst having an early access to county council pension. Reality with state pension and the one taken at 55 years and the second pension created and draw down when 67 would led to a very comfortable retirement. Some Advice explain the Pension changes from 1997 onwards would help. Upcoming change for people 2027 you have to be 57 before you can access your pension early if you wanted. Each pension pot you can take 25% tax free. The amount for investment if a pension is taken out is 4,000 per year if you wanted to start another pension after and so on.
Can I use drawdown from a private pension to help boost my declare able income for the year ie I earn 15k a year I withdraw 3k does that make my income 18k ? I have my reason for "artificially" raising it.
Only if you draw down the taxable part. But you will trigger the MPAA which means you can only ever put £10,000 per year back into a pension in the future.
How would your advice change if near/over the LTA. as taking the lump sum and investing that may be better than leaving it in pension fuelling more growth and tax liability. That would be a good video
Unfortunately between government and advisers most of us don't stand a chance. Thankfully I ditched my 25 year endowment mortgage in the 90s. My mis selling claim was rejected remember this before Internet so you relied on 1 person pretty much. Then I kept my Midland Bank personal pension where the forecast is normally pretty close to my actual investment despite years of compounding and best 25 years performance in history? Never mind buying some super speculative crypto currency made those problems go away. Joking apart knowing how these things work and getting advice is always helpful. Not to mention my top tip - spend less. Retirement used to be financially viable when we spent less in retirement now clever marketing has targeted the purse of everyone in retirement.
very good video. how do you feel but the idea of using ISA money to top up pensions ( not me but a mate asked me about the idea ) to use some of their unused pension allowance. - based on them not needing the money for a while. I think their logic was getting the tax relief on the way in and then that money growing over years / paying tax on way out ( except the 25% ) may be better than simply leaving in the ISA - all I presume assume same / similar portfolio and costs. I have to say I wasn't sure and I'd be interested in your general thoughts thank you
This can be a good idea. Pensions have more tax advantages than ISAs. The only downside is that you can't access it until you're 55. But if you're already past this point, or close to it then it's not a problem.
Just a question. If you have more than one DC pension say because you have had 3 employers by 55. If you access one pot say an old one for the 25% free tax sum, does this then mean going forward your current pot for your current employer will fall fowl of the £4k limit or is the limit just on the pot you accessed? I am guessing it will apply across all the pots but I just want to know for certain.
I thought that the £4000 limit paying into a live pension you refer to if you had taken some part of a pension only applied to DC schemes and not final salery DB schemes. I had started to access a small 28K private pension to finance building work taking the sum out over 3 years to minimise my tax rate - after 2 years the £4000 limit was anounced and made retrospective. Iam paying into a DB scheme. Can you please clarify the position otherwise I fear I will be caught out for the 55% tax rate
They have independent rules, have a read of this : www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/money-purchase-annual-allowance-mpaa
James, As I am drawing a company pension and also pay into a Sipp at £240 pm which is topped up the government by an additional £60 PM. Can I draw down £75 PM tax free Whilst still contributing to my Sipp?
If you only drawdown income from the 25% tax free sum will this trigger the MPAA? Also, can you avoid the MPAA trigger by only taking dividends and interest from your pension fund, instead of a capital drawdown i.e. use a Vanguard SIPP lifestrategy fund income (share class) rather than an accumulation (share class)? I realise this would involve tax on dividends and the bond interest taxation seems incomprehensible!
I don’t fully understand the government contribution. When I look at my work place pension I see my contributions and my employer’s contributions, but I don’t see any contributions labelled as ‘HMRC’ or ‘Gov’ or anything. Am I missing something?
Hi James. Do you plan to make a video about safe withdrawal rates in retirement? I am 66 and have retired. I am lucky to have a small final salary pension together with my state pension and a SIPP drawdown account. I would like some insight into how to withdraw the money from the drawdown account.
@James▪️shack ⑤⓪④⑤⑦①⑨④⑦⑨ Thank you for the offer James, but at the moment all I want is information about the current thinking, not specific advice. So,a video like your others would be sufficient.
Well I took out my company pension at age 55 I took a lump sum and monthly payments because I worked it out that if I waited till I was 65 to get the money back of which I would get from 55 to 65 it would have taken me to the age of 90 ... so it's a no brainer will I live to 90 probably not
James just come across your videos. Very useful stuff. Question on taking money out of pension and topping up other pensions.....but can I take that money out of mine and top up my wife's pension, assume she hasn't crystalised her pension at any point?
@@JamesShack 60, not stopped working yet, but considering. Was just wonder when I do and trigger pension (SIPP) can I move excess to Wife's SIPP and get additional 40% contributions to her pot, which we would trigger at a later date. Can't see any rules that would suggest otherwise
Advice request - I wish to remain in the house I have lived in for 20+years. My husband wants half. I am 62. Considering withdrawing 25% of pension pot and 100% of some of my policies VERSES taking out a small mortgage which would take approx 14 years, causing me having to work past retirement. Which is the best course of action? Can anyone on this forum suggest?
badly advised by pension company i asked for 25 % to be told only 25 % of the 25 % was tax free so ended up paying an extra £1000 in tax so i will you watching your videos before i make the same mistakes
😱 It’s a nightmare when you have no pension other than the state pension…..these are wise words you’ve given to everyone. I hope people take note ! Wonderful information 👍🏼
James, having a private pension which I do not need at the moment (65) I have deffered for the last few years, is it possible to leave it for my son/grandaughters (2) I have never heard of this from anyone in the Uk beofre
If it's a defined contribution pension then yes, If it's a final salary/defined benefit penson then often not. But you'd need to check with the company that runs it.
Great video as always but I think you have assumed people use more than the 25% lump sum to buy another property, payoff your mortgage or top up an ISA. Is your guidance any difference of you are doing any of these from JUST your 25%?
so my dad had terminal cancer just before retiring SO his pension was passed to my mother who passed away 2 yrs later and the whole POT between them the government had so i have 15 months before i hit 55 and then im taking all my 8 private pensions which will be sorted/moved to one big pot then semi retiring till my state pension its as simple as that :D
Hi Paul, sorry to hear that. So you inherited their pensions as a tax free lump sum (died before 75)? Consolidate pensions sure just don’t take it out of the pensions at once!
It might be a bit off topic for this video, but you you explain how ETFs take the ongoing fees? And inpartucular how investment product transaction cost can be negtive?
Could you not take your isa say 20.000 take out a loan of say 30.000 pay it in to your pension get 20 percent then 2 month later take your pension and £50.000 pay off the loan and put the £20.000 back in to an isa
HI James... I tried to fill out the work with me link but I cant book any calls in after Jan, I assume your fully booked... how can I contact you to see if you can help me?
would your advice be to take your free cash from your drawdown before reaching the age of 75,? would my next of kin be able to access any tax free money without paying tax that has not been taken?
Pensions are one of the most misunderstood products. What do you think of them, good? Bad? Is there something you think is better?
Terrible. Poor rate of return and enslavement until the day they let you retire.
@@dennisshea9540 The date you can draw is decided by the govt, that is true. But what do you mean by poor rate of return ? A pension should be the highest returning asset you own. If it’s not, then it’s not invested correctly.
@@JamesShack Pension is controlled by the union or pension leads. Historically poor investments. Ask Teachers Funds or States
Hi there James,
I need some serious help with my final salary pension which I can start taking now or transfer out to maybe a flexible draw down pension.
Kind regards,
John Mitchell.
@@dennisshea9540 Here we’re talking about private defined contributions pensions which are almost as flexible as an ISA.
So glad I watched this ! You just probably saved my Family a huge chunk of money. Thank You
I am 54, so you timed it perfectly !
Bless You
excellent summary again James. I have stopped working and reach 55 next year, so am carefully weighing up the right options
Nice if you updated this so it reflects 2023 pension changes
Thanks For making the confusing world of pensions much clearer.
You cannot pay much into a pension after your start drawing down, HOWEVER you can still put money into a maxi-Isa - this is the best approach.
I'm 55 next month so timely advice, thanks
Absolutely brilliant video, James! I'm passing this onto my soon-to-be approaching retirement aged parents now. Thank you!
I've found you just at the right time! or possibly too late you might say..... I'm 58 and husband is soon to be 60 with pensions not available until we are 65 (penalty to take early)
First like 👍 Nice to see you are using the timeline bar again.
Great video James. I wish I had seen it before I started my drawdown this year! But that said I retired at 55 basing my calculations on the 3% rule rather than the 4% much talked about by some, so I am still in a reasonably good position. It is just galling to know I missed out on all that extra tax free cash!
Thank you James a very clear concise video. have you done or please can you do a video to show any potential pit falls of the NHS pensions?
I did not know the third point - thank you.
A very valid comment was made about retiring when knowingly (or not) you have contributed enough to fund you alternative income from salary to pension. As Jame's implies this is a difficult decision to make as you switch from a salary to pension.
It’s very difficult. It’s a battle of logic and fear!
This has proven very useful, thank you. My problem is that I have a UK based private pension but no longer a tax resident, but obviously was when I took the pension out. Through various reason I will opt for the 25% Lump sum and considering draw down for the remainder over the next few years to go directly into my KiwiSaver here .
You are always better using a financial advisor. I’ve just retired and the advice and money I saved more than covered his fees.
Fortunately you have an adviser that really cares. Many do not.
Wonder what your thoughts are on buying annuities with a pension pot?
Hi, could you do an advice video for expats with a uk pension? There are hundreds of thousands of us who get bombarded with advice or sales pictches about transferring our pensions over.
I hear what you’re saying however I’d much prefer to take my 25% and enjoy the money while I can.. life is far too short to be holding out for a later date and not being able to enjoy your money properly when your 60/65 when u could be a lot more frail and house bound does not seem appealing to me.
Detach your income from your happiness
I agree with you buddy not very gets to good health at 80 you might be house bound at 72 and what’s the point of having more money then
No point saving in the first place then, cos a lot of people die in their 20s and 30s.
@@bigboldbicycle that’s a very silly comment. Statistically irrelevant compared to old age.
@James Shack once I’ve maxed out my work pension, what’s better for retirement - LISA of SIPP?
Good one James. Just backing away from my pension drawdown.
James brilliant - thank you! :)
Great examples and so simply explained.
Great information.
Have subscribed
Question not covered. Assuming you were to retire at 55 with a £300k pot. If you had no other income between 55 and 65 (till other pensions start) wouldn't it make sense to at least withdraw my personal tax allowance of £12500 per year, and not draw anything tax free from the pension (of course that would reduce the tax free allowance i could get as the total left would only be £175k which woild then be left untouched unless needed). This assumes I don't actually need that 12500 for living during the 55-65 but we would re-invest it. Hope that makes sense
I get the impression most people thinking of doing a flexible draw down are not aware of the limitations they are putting themselves into. Pension companies should do more to warn people.
This video is so informative! Thanks!!! 😃
Really pleased this has confirmed my understanding 👍
Absolute quality content. I must admit that I too planned on using my lump sum to pay off my mortgage and put the extra in my ISA. I will definitely rethink my strategy!
Currently my wife and mine projections show we will have potentially 2-3 years of mortgage still to pay at £800 a month on retiring but will have £20K in state pension coming in, plus private pensions so its not an issue but will not be using large lump sums to clear the mortgage , that can be a buffer for us/travel fund with my son in USA and hopefully grandkids to be visiting as well.
@James, I've came across your channel few weeks ago and I really like the mix of knowledge and my type of sense of humour in the mix. Well presented too! I've been thinking about transferring my old pension (below 10k) to my current one, with employer contribution in 3%+6% model. Is it a clever thing to do? Or would keeping these separate (the old pot is not being contributed to) is a better move? I appreciate your help!
It should be easy to transfer with nil cost and it keeps your pensions tidy and manageable
@James please explain again… pensions & inheritance tax … I take it this applies on,y to drawdown pensions & not final salary pensions (these are lost at death, unless passed to spouse)
It depends the pension scheme and at what age they would allow to draw out. In NHS scheme, the old scheme would allow to draw at age of 60 whereas the new scheme would allow to draw at state pension age. So, I have drawn one scheme of pension at age of 60 and the other scheme drawn at age 66.
Well I have other forms of income , but I will be taking my pension in February at 55 , I am already retired and intend enjoying my retirement to the full, my pension will be worth a lot when I am 75, but definitely not , waiting , going to enjoy my money why I am in good health , helping supporting my children 👍
Hi I have 6 pensions nothing major I’m 50 years of age and I really feel I probably won’t live until I’m 65 should I cash all in at 55 and enjoy the money
Quote of the century, "HMRC are neither generous or stupid" - Brilliant !!!
@George Johnson drawing down gradually over several years, say your personal allowance only each year can be very tax efficient.
And they lie.
Hello James, new viewer here, I stumbled across your channel from a random refresh of the UA-cam homepage - enjoyed the video so much I've subscribed and clicked the bell icon for more! I'm so glad to have found you and really looking forward to watching your channel grow.
There for the sub and welcome!
@@JamesShack I wonder whether you can share some knowledge on the pitfalls or benefits of accepting enhanced CETV’s as some pension funds look to de-risk. I recently declined an offer of +25% enhancement because I’m still under 55 and have a deferred DB pension which is guaranteed a minimum 3% or maximum 5% growth each April. Leaving it where it is with other death benefits included felt the right thing to do…for me.
Thanks for the clarity between Pensions and ISA's
learned lots from this thanks
I had a £115k pension but took it at 53 due to illness. All they gave me is £14k lump and £200 a month. Can I apply for more at 55
Really good video. Thank you 😊
Hi I contacted out for a short time at my workplace because that was the thing to do I did search and found it a while ago and found a small pension but I checked again on the gov portal and its no where to be found? I'm 60 and I'm only just starting to worry
Hi James wonderful video great insights
Have you any positive testimony I am currently out of work I am 55 I have paid in to a defined pension for 24 years
I can better my future and enrich my pension by becoming more wealthy can you talk about other pensions like ssas and Siipp
Working till I'm 70 no thanks now the government has increased the age because we live longer I would like to renovate small commercial properties and build a small portfolio
Get everything you say about the benefits of keeping money in pensions for inheritance etc but if you have already taken the tax free sum (for good reasons) and think you may want access to a large sum in the future then taking money out of your pension up to the 40% tax band and sticking it in ISAs is a better plan than the 40% or higher tax rate of a taxable lump sum withdrawal in the future.
Yes that may be the case, especially if you have years with no income tax and can just use your personal allowance. Of course you need to be very sure that this future expense will actually happen before you die!
Otherwise you’ll pay 40% tax anyway (but IHT)!
Excellent advice
Hi James, what are your thoughts on equity release on property? Is it worth factoring into plans or better to keep it as a contingency option in worst case scenarios? What are the drawbacks to using it?
Perviously equity release products have been extremely expensive relative to a normal mortgage.
Recently, several new products have come to the market that are much more competitive but then again interest rates have risen which puts many people off.
Either way, equity release can be very effective in the right situations.
I think the biggest mistake people make with their pensions is not to have a pension at all and instead rely on the State pension! I'm constantly amazed how many people fall into this bracket.
Preaching to the converted here, seeing as I work for a certain, government created body, which gives information to people about their DC pensions. Getting this job was the best thing I ever did.
What are the pro's and con's of taking the 25% tax free lump sum from a DC scheme and does it make a difference between the considerations for a DB if you go down the SIP or Crystallised route?
Good video, thanks. One thing I don’t understand is the 20% government top up. This implies the government pays an additional 20% into your pension pot as well as any income tax relief you get. So in the example given, £80 becomes £100. I’ve looked at my pension pot which shows my salary sacrifice contributions (including my employer’s) but I can’t see any government contributions. Am I missing something?
They HMRC are not going to top up by 20% on your pension contribution thay you haven't paid any tax on. The top up only applies to additional pension contributions that have already been taxed.
Salary sacrifice does not work in that way. It’s only money you have already paid tax on.
@@JamesShack ok thanks that makes sense.
One thing that catches people out is that 20% tax taken off £100 =£20
But
£20 added back to £80 = 25%
Hi James, you mentioned that if you died over 75years of age there is no IHT but the beneficiary would need to pay tax on the lump sum at their marginal rate "...just as you would have been." what if there were still funds that for me would have been part of my 25% tax free portion? Is that taxable for a beneficiary if I die over 75?
What if you have a series of small pensions that are in a frozen state? Cash them in or what?
James agree with everything you have said ..... however when the government looks round to where it can scoop up some extra revenue ... its going to look at the tax free lumps sum at some time. Then the calculations/strategy needs to change.
It will, for sure. But if we spent our time trying to guess what the govt may or may not do, we'll end up standing still and get nothing done. Play the game by the rules as they are.
Taking my pension at 55 was the best thing I’ve ever done. I went from having £280 a month to £1000 with £20,000 lump sum tax free. Iam a full time carer for my wife.
Doesn't the pension disappear the moment you sell the 75% to buy the annuity? If not, a which point would you eventually get the 4k back?
There's something I'm missing here so if someone could help, that'd be great. At 3:20 James is talking about putting in £80 and getting the £20 top up as tax relief, then taking £25 out tax free and £80 out as taxable to arrive at £85 withdrawn. I don't see how the math adds up and I'm probably missing something, but if we take £25 out tax free, there's only £75 left to draw down? Can someone explain the number to me in 'Mistake Number 1'?
@@JamesShack I have the same concern with the maths at 3:20. There is a contribution of £100. You mention £25 is taken out tax free & the remaining £80 is subject to tax. That doesn't seem right to me - £80 plus £25 is £105. I'd be grateful if you could please clarify.
£25 tax free + (£75 net of basic rate tax = £60) = £85
@@patrickb8404 £25 tax free + (£75 net of basic rate tax = £60) = £85
@@JamesShack many thanks indeed. I"m in agreement with the maths there and can see how arrive at £85. What I found misleading was the statement at 3:20 "you can immediately take £25 tax free and the other £80 is taxable....". There is only £75 remaining after taking £25 from £100.
@@patrickb8404 ah! I must have miss spoken!
Hello, anyone help?. When hmrc consider if you have significantly increased pension contributions, for the purpose of recycling is the assessment against the total of all contributions ( employer +personal) over all pensions(DC and dB) for each of the 5 years (2 before, the tax year possible pcls invested and 2 years after)?
Was intresting, thou as some one super lucky to be in DB scheme, i dont think taking cash out is an option, thou i would be stupid to try as my DB can not be beat, i am more hoping to be made redundant over the age 53 trigring the clause that lets me start claiming my pension at at 53 i would be far to old to start a new job...
Is there any thing people in local gov DB schemes can do, should do, or should be awar of?
I'm 55 next year, Is your your advice on using the 25% to pay of the mortgage is still good considering the BOE interest rates atm 5.0% 24/06/2023, I'm going to hit 55 and come out of a 5 year fixed rate mortgage deal at a similar time, my mortgage will then start costing me around £200 a month more (and no sign of the BOE reducing rates any time soon) seems like a no brainer to reduce my mortgage debt, or am I missing something?
I an only 33. I took out loads of my savings and put into my pension. I used to think ISA locked in fixed was ideal. Then I understood tax free benefit, paying less tax the other end when drawing out plus growth. 33 to 55 gives me 22 years for it to grow. I would rather invest now and be "broke" (accessible money) than be broke at 55. I've changed my lifestyle to account for this. If you've got savings at 33, put them in your pension and do cheaper holidays. You don't compare to others. They'll see when you retire at 55 and they're still working.
Good video. When is the 25% that you can take out tax free calculated from? ( When I reach 55, or when I first start using it, or something else?)
Also, has your advice changed about paying off a mortgage now that interest rates have risen?
your video shows pay 'of' mortgage not pay 'off'🤦, at 6.40
My pension pot was raided by the company so after years of paying in it's worth diddly squat. With hindsight, unless you are in a public sector final salary scheme, I'd say invest your money in property. You keep control of the capital and the income stream.
Really sorry to hear this. I also work for a large company and this has bothered me a lot that they may appear to be able to raid the pension fund whenever they like. I remember Robert Maxwell doing this to daily mirror employee's
Hi James, another fantastic video. Really helpful. 😊
Part 3 is going to need an update!!
How can I access personalised advice like this from yourself
@James Shack a silly question for you. How would approaching the lifetime allowance of £1,073,100 before the age of 55 affect the strategy of contributing to a DC pension? Would you stop contributing to it?
And then once you have reached the age of 55 and have retired, what is the most tax efficient way of dealing with your pensions if it is over the LTA?
My next video is on this.
@@JamesShack ah so it wasn't a too silly of a question (I hope) then!
Thank you for responding as always and I will be eagerly waiting for the next video to come out!
Thank you for this video. I'm trying to help my Mum who is close to retirement and this has been eye-opening. Thank you so much
Hey Chris, I’m glad it helped and we’ll do d for helping her out!
Example person turning 55 this month has 5 pensions in different amounts. The first one is the large one with a County Council around 28 years or there about. This one pension it seems has a step layer affect in terms of change to the pension with the County Council from Pension changes in 2008 and so on. The lump sum is guaranteed up till 2008 and after that the 25% kicks in from then with the portion taken from earnings from 2008 period. The 4 other pensions it seems are from different providers while changing jobs it seems. Now the advice I gave was along these lines keep the main pension as the large sum before 2008 figure and after that just take it annually. He got the pension 12 years before he would retire when 67 and the amount taken when 67 equals to 81 years of age before the it even out before from the age of 55 years. So in reality he would have the pension 12 years early even with a deduction.
The other pension I suggested to take a 25% lump sum from the second largest leaving the rest. With this and combining the 3 other small pensions he created another pension pot but with benefits and up to 4,000 yearly as a top up. By the time he reached 67 years of age he would have a second pension as well as state pension. Whilst having an early access to county council pension. Reality with state pension and the one taken at 55 years and the second pension created and draw down when 67 would led to a very comfortable retirement.
Some Advice explain the Pension changes from 1997 onwards would help. Upcoming change for people 2027 you have to be 57 before you can access your pension early if you wanted. Each pension pot you can take 25% tax free. The amount for investment if a pension is taken out is 4,000 per year if you wanted to start another pension after and so on.
Nice video. Clearly explained. Thank you. Have just hit the subscribe button.
Hi James. Very interesting video. Could you make a similar video for Defined Benefit pensions? Thanks!
Excellent video
Can I use drawdown from a private pension to help boost my declare able income for the year ie I earn 15k a year I withdraw 3k does that make my income 18k ? I have my reason for "artificially" raising it.
Only if you draw down the taxable part. But you will trigger the MPAA which means you can only ever put £10,000 per year back into a pension in the future.
How would your advice change if near/over the LTA. as taking the lump sum and investing that may be better than leaving it in pension fuelling more growth and tax liability. That would be a good video
Unfortunately between government and advisers most of us don't stand a chance. Thankfully I ditched my 25 year endowment mortgage in the 90s. My mis selling claim was rejected remember this before Internet so you relied on 1 person pretty much. Then I kept my Midland Bank personal pension where the forecast is normally pretty close to my actual investment despite years of compounding and best 25 years performance in history? Never mind buying some super speculative crypto currency made those problems go away. Joking apart knowing how these things work and getting advice is always helpful. Not to mention my top tip - spend less. Retirement used to be financially viable when we spent less in retirement now clever marketing has targeted the purse of everyone in retirement.
very good video. how do you feel but the idea of using ISA money to top up pensions ( not me but a mate asked me about the idea ) to use some of their unused pension allowance. - based on them not needing the money for a while. I think their logic was getting the tax relief on the way in and then that money growing over years / paying tax on way out ( except the 25% ) may be better than simply leaving in the ISA - all I presume assume same / similar portfolio and costs. I have to say I wasn't sure and I'd be interested in your general thoughts thank you
This can be a good idea. Pensions have more tax advantages than ISAs. The only downside is that you can't access it until you're 55. But if you're already past this point, or close to it then it's not a problem.
Just a question. If you have more than one DC pension say because you have had 3 employers by 55. If you access one pot say an old one for the 25% free tax sum, does this then mean going forward your current pot for your current employer will fall fowl of the £4k limit or is the limit just on the pot you accessed? I am guessing it will apply across all the pots but I just want to know for certain.
Applies across all pensions but it’s only when you access the taxable element of it.
I thought that the £4000 limit paying into a live pension you refer to if you had taken some part of a pension only applied to DC schemes and not final salery DB schemes. I had started to access a small 28K private pension to finance building work taking the sum out over 3 years to minimise my tax rate - after 2 years the £4000 limit was anounced and made retrospective. Iam paying into a DB scheme.
Can you please clarify the position otherwise I fear I will be caught out for the 55% tax rate
They have independent rules, have a read of this : www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/money-purchase-annual-allowance-mpaa
Thanks - been on your link,looks like I'm ok
James,
As I am drawing a company pension and also pay into a Sipp at £240 pm which is topped up the government by an additional £60 PM. Can I draw down £75 PM tax free Whilst still contributing to my Sipp?
If you only drawdown income from the 25% tax free sum will this trigger the MPAA?
Also, can you avoid the MPAA trigger by only taking dividends and interest from your pension fund, instead of a capital drawdown i.e. use a Vanguard SIPP lifestrategy fund income (share class) rather than an accumulation (share class)? I realise this would involve tax on dividends and the bond interest taxation seems incomprehensible!
No, tax free cash drawdowns don’t trigger MPAA.
No, any drawdown whether capital or income will trigger this.
@@JamesShack Thanks. Is it easy to specify with your provider that you only want a cash drawdown to avoid MPAA?
I don’t fully understand the government contribution. When I look at my work place pension I see my contributions and my employer’s contributions, but I don’t see any contributions labelled as ‘HMRC’ or ‘Gov’ or anything. Am I missing something?
That’s probably because you contributions are going in Pre-tax. So you just don’t pay any tax on that element of pay.
@@JamesShack Ah right! Thanks James! So usually the government contribution is more of a reimbursement?
LTA and other taxation considerations are missing from this argument and could lead to different mistakes
Hi James. Do you plan to make a video about safe withdrawal rates in retirement? I am 66 and have retired. I am lucky to have a small final salary pension together with my state pension and a SIPP drawdown account. I would like some insight into how to withdraw the money from the drawdown account.
@James▪️shack ⑤⓪④⑤⑦①⑨④⑦⑨ Thank you for the offer James, but at the moment all I want is information about the current thinking, not specific advice. So,a video like your others would be sufficient.
@@Peter-55 Hi Peter, that was a bot. Please be wary of anyone replying to you asking you to message them.
But yes, my next video is about that.
Well I took out my company pension at age 55 I took a lump sum and monthly payments because I worked it out that if I waited till I was 65 to get the money back of which I would get from 55 to 65 it would have taken me to the age of 90 ... so it's a no brainer will I live to 90 probably not
James just come across your videos. Very useful stuff. Question on taking money out of pension and topping up other pensions.....but can I take that money out of mine and top up my wife's pension, assume she hasn't crystalised her pension at any point?
Are you already over 55? Have you stopped working ?
@@JamesShack 60, not stopped working yet, but considering. Was just wonder when I do and trigger pension (SIPP) can I move excess to Wife's SIPP and get additional 40% contributions to her pot, which we would trigger at a later date. Can't see any rules that would suggest otherwise
@@iaingosling3445 yes it’s possible to do this.
I’ve got reasonable amount of savings ,allocated for pension,is it a good idea to put into pension pot (currently in savings acc)
Advice request - I wish to remain in the house I have lived in for 20+years. My husband wants half. I am 62. Considering withdrawing 25% of pension pot and 100% of some of my policies VERSES taking out a small mortgage which would take approx 14 years, causing me having to work past retirement. Which is the best course of action? Can anyone on this forum suggest?
-£67,0000 - just about the amount of pension my wife and I have been screwed out of by this govenment.
09:25 Isas. Your partner gets a one-off ISA allowance equal to your ISA total.
Yep - after the dead of the second spouse however it’ll be taxable.
badly advised by pension company i asked for 25 % to be told only 25 % of the 25 % was tax free so ended up paying an extra £1000 in tax so i will you watching your videos before i make the same mistakes
😱 It’s a nightmare when you have no pension other than the state pension…..these are wise words you’ve given to everyone. I hope people take note ! Wonderful information 👍🏼
James, having a private pension which I do not need at the moment (65) I have deffered for the last few years, is it possible to leave it for my son/grandaughters (2) I have never heard of this from anyone in the Uk beofre
If it's a defined contribution pension then yes, If it's a final salary/defined benefit penson then often not. But you'd need to check with the company that runs it.
Great video as always but I think you have assumed people use more than the 25% lump sum to buy another property, payoff your mortgage or top up an ISA. Is your guidance any difference of you are doing any of these from JUST your 25%?
No, i'm talking about people that use their tax free cash to fund those things. Often it does not make sense.
thank you
Heard if it goes higher, some family’s both accounts would go pop. But no one knows which way it is going to go. Could not care less.
Is this applicable for Britain only or in the USA as well?
Only the UK
so my dad had terminal cancer just before retiring SO his pension was passed to my mother who passed away 2 yrs later and the whole POT between them the government had so i have 15 months before i hit 55 and then im taking all my 8 private pensions which will be sorted/moved to one big pot then semi retiring till my state pension its as simple as that :D
Hi Paul, sorry to hear that. So you inherited their pensions as a tax free lump sum (died before 75)? Consolidate pensions sure just don’t take it out of the pensions at once!
It might be a bit off topic for this video, but you you explain how ETFs take the ongoing fees? And inpartucular how investment product transaction cost can be negtive?
Could you not take your isa say 20.000 take out a loan of say 30.000 pay it in to your pension get 20 percent then 2 month later take your pension and £50.000 pay off the loan and put the £20.000 back in to an isa
Thank you James - Pensions can be a real minefield, happy to see your pointers and tips are pretty much inline with my plans.
HI James... I tried to fill out the work with me link but I cant book any calls in after Jan, I assume your fully booked... how can I contact you to see if you can help me?
Hi Mr Mackey, I'm trying to free up more slots but fully booked for the time being.
would your advice be to take your free cash from your drawdown before reaching the age of 75,? would my next of kin be able to access any tax free money without paying tax that has not been taken?
Tax free cash is still available after 75. www.curtisbanks.co.uk/case-study/tax-free-cash-pcls-after-age-75/
Could offset it by continuing to pay mortgage but into a ISA.