I've digested a plethora of personal finance oriented channels here on UA-cam over the years and the only two that I can still stomach are you and Erin. You give the very best and spot on advice and ask thought provoking and unbiased questions that help listeners like myself become better. More importantly, thank you for recommending Stephanie Janis Stiefel my investment portfolio with her has been quite sustaining
I know this FA, Stephanie Janis Stiefel but only by her reputation at Goldman Sachs; even though she's now involved in managing portfolios and providing investmnt guidance to clients. I have been trying to get in contact since l watched her interview on WSJ last month
@@YaxelBuroneWell her name is 'Stephanie Janis Stiefel'. Just research the name. You'd find necessary details to work with a correspondence to set up an appointment.
I went from no money to Invest with to busting my A** off on Uber eats for four months to raise about $20k to start trading with Stephanie Janis Stiefel. I am at $128k right now and LOVING that you have to bring this up here
Thanks to pete. Following his recommendation, I started researching into Stephanie Janis Stiefel. Thankfully it was a little over a year ago now, I started an Investment with Stephanie’s Services and that allowed me to be on much MUCH more stable ground in the face of global financial upheaval. For what it's worth, it made a difference for me and my little family.
hi Pete. About a year ago or so, I found your videos and even though i'm some 20 years away from retirement, it made me start thinking about my own personal finances. Thanks to you I've realised the importance of thinking about my finances and planning my financial future. Your videos help me make informed decisions on where to invest hassle-free and somewhat safely and cheaply (index funds all the way). Thanks to your videos i've grown curious about the subject and looked for more material online, found other personal finance youtubers (the holy trinitiy of Pete, Damian and James Shack) and resources. I've started making a budget and seriously planning my savings and retirement. I'm planning on retiring at 60 with a comfortable sum if all goes conservatively well. You've made a serious positive contribution to my life, thank you so much for your channel and keep up the great work.
@@annamuja1831 I’m sure you will have seen to try and maximise via your contributions the amount your company pays as well. Also enquire if salary sacrifice is offered as well this can help keep you under the 40% tax threshold and save in NI contributions for both you and the company
@@Andrew-o9k6h there are millions of workers who don’t have the spare income to try and invest / set up a secondary income scheme. These are the workers who more than anything need to maximise their pension savings eg push for contribution matches, salary sacrifice etc. they are also the ones where the current 8% auto enrollment rate needs to be increased with both employer and employee paying more. 12% should be the minimum.
Your videos are really useful and I appreciate the time and effort you put into helping people. Every time I review my pension and investments, I can hear your voice saying 'be intentional' and 'the value of small increases'. Simple concepts perhaps, but the way you explain them and show the benefits is perfect. I can already see a significant difference since I found your channel a few years ago, so a huge thank you from me. I know what I'm aiming for and more importantly you've shown me how to get there.
I've lived in America and Canada. Paid about the same in taxes but get way more for my taxes in Canada. Most Americans hate the government (hate giving them their money even more) because they've never experienced good governance.
Hi Pete. I hope you're keeping well. I've been watching your videos for some time now. In short, they are excellent. You keep what many think is a boring topic super interesting. You are a natural in from of the camera by the way. Keep up the great work. I look forward to your next video. Thanks. Joe
Hi Pete Excellent video as always. Could you please clarify a comment you made in this video (at 1:57) regarding higher rate tax relief on DC pension. You seemed to say that the higher rate relief goes into your pension. However, I thought you claimed the higher/additional rate relief through the self assessment tax return. If yes, then don't you have to pay that money (either tax refund received or cash equivalent of your lower tax bill)from HMRC into your pension yourself in order for it to get into your pension pot?
Thanks, Pete. These kinds of videos always emphasise to me what an excellent teacher you are. I watched this through the lens of the money-ignorant person I was 10 years ago and I believe I would have understood this , given the simple way you explained it! I have a small NHS DB pension, a SIPP and a S&S ISA. I'm going to open a LISA in April. In my head, I'm seeing it as: ISA - early retirement bridge account or an 'in case I get too ill to work' account to get me through my 40s and 50s. It would also be used to pay off my remaining mortgage at age 50. LISA - my 60-65 cash ladder, especially given the growing possibility that 65 could end up being the new SIPP and DB pension access age by that point! SIPP and DB pension, with small ISA/LISA top-ups to reduce taxation - 65 onwards State pension - Bonus money to start piling up towards any care costs or having a cleaner, cook etc in old age.
I thought that the caveat with the LISA was that the value of the house you can purchase with it has a cap on it, and given how house prices have rocketed in the last few years, it's getting harder and harder to find a house within that price band, especially if you live in the south of the country.
As a company director and wanting to possibly wind down/semi-retire or possibly fully retire at age 55, I decided years ago to use only the S&S ISA. My reasoning is, I want the tax free life when older and not having to manage income tax etc on my money. I also think the retirement withdrawal age, which is 55, will be at 60 before I get to it. They are already moving it to 57, which is later than I want access. I invest £20,000 per year into my Vanguard account mainly into the S&P 500, I am age 36 at the moment. I am debt free. Love your videos and they keep me convinced I am on the right path.
Hi Pete, I'm a huge fan of your videos! I'd love to see a video on your predictions for the October budget. What changes do you think are most likely to happen?
The LISA (stocks and shares version) is great if you are a stay at home parent who also wants to save for retirement as alongside a SIPP (which for those not in paid employment is limited as you can only save upto £2880 per year and still get tax relief), the ability to save an "extra" £4000 (£5000 with bonus) in your LISA, means you can build up a retirement pot of your own rather than relying solely on a employed partner's.
For people working through their own LTD companies, typically one man companies for IT consultants etc, higher pension contributions result in lower income hence saving on NIC (employer + employee) = 23.8%
I’m sure it will Impact many BUT will it be as bad as the press are trying to scare us with? Will tax free lump sum be abolished? Highly unlikely as for many of us with modest pension pots this forms an attractive part of the nest egg. Having 30, 50,100K as a ready pot when we retire. It might get reduced to £200K or lower but that’s still a nice lump sum as don’t forget money has had tax relief or been tax free going into a pension. Will your pension pot face tax if being passed on? Eg inheritance tax? Maybe if to anyone else but your spouse if it exceeds current IHT limits. Again money has been tax free going in, why should it be be free if going to others, what level it’s taxed though is a different topic why not at 20%!?
This was so useful! I have a LISA but will be emptying that for my first house this year, a cash ISA and my workplace NHS pension. I am looking at starting a SIPP and stocks and shares ISA but unsure
I’d build up money in an S&S ISA to give yourself accessible, tax-free money. Your pension at work is great, so I’d focus on building wealth outside that, at least for now…
Fantastic video, thank you. I was trying to do the comparisons myself. I pay into a public sector pension and have a lifetime ISA too, I can't quite afford to max this out yet but hopefully I can eventually.
Thank you for your videos - I find them very interesting and useful. I have a question though: you compare LISA, and pension but not both of them. E.G. Surely it would be best to max out the money your employer will contribute (I your employed). If your earning under the 40% tax bracket I would think fill the allowance for the LISA(4K+1K TOP UP) till the age of 50 then contribute towards a SIPP. Although you did talk about total amounts in each pot, what you didn't talk about is the tax implications when you are drawing it down. I believe the above would be best because the Lisa has 20% added and 0 tax to pay when it is withdrawn, so surely that would make it better? Have I missed something or am I right here? It would be great if you could do more videos on Lisa's. Side note: I am aware that Lisa's are technically inside your estate and can't be accessed without a penalty.
I’ve been doing some research lately, and it really depends on how much you're putting in and when you start. With a pension, for example, the employer contributions can really boost your pot, especially if you're in a company with good matching.
Retirement age is going up, im in my 40s can i rely on that age for my retirement or add a couple of years worth of ISA money to compensate for the probable rise
It will rise as it’s in the plans but to what age and when? Thank god I’m 64 and within 18 months I’ll be getting both my state and work based pension. How they expect anyone in a labour intensive job to keep going to 68 or higher beggars belief
Hi Pete, just joined your channel. i have learnt a lot and you made a comment about additional contributions to my Pension for higher tax earner to which you declare your gross pension payment in your tax returns. it was a very quick comment on this video and wondering have you done a previous detailed video on this subject or would you do one to explain and what to do. as i am about to leave my employer and want all my salary as a contribution to my pension
I'm happy now you have finally "just" added a fixed amount every year rather than a percentage. The percentage increase you were using in a few videos was incredibly unrealistic, in my opinion, and the compounding nature of that, which helps your pot grow, also hugely grows your contribution amount to an unrealistic amount.
I think that percentage increases look worse than they are when in fact, over long timescales inflation means that what looks like a massive increase isn’t quite so big in real terms. Also, the thinking is that our situations might improve, we get promoted, the mortgage gets paid off, the kids leave home, all might mean more disposable income available. But I definitely take your point, and it was deliberate to stick to fixed increases for this video 👍🏻
An advantage of the pension that was not mentions is a reduction in child maintenance payments. Pension contributions are deducted from income before the CMS calculation is made. If you have 2 children, that is a 16% reduction in CMS payments in addition to the tax relief.
It doesn't change any of the advice you gave, but people need to keep in mind that the income tax saving related to pensions only postpones that payment - you pay income tax on money you withdraw as a pension. But you still win in the end because you will earn interest on the money you would have originally paid as income tax, and there is a lump sum you can withdraw from your pension which is tax free. So the sums tilt in favour of paying into your pension even before we start talking about employee contributions. I personally pay everything I earn above £100k into my pension because that way I avoid the (effective) 60% tax rate I'd otherwise be paying.
How I wish that main point of tax relief going in and its benefits was hammered home ref taxing coming out. To hear some of the press you would think a big bad wolf (Labour) was coming after you. It is only fair that tax is applied on accessing the money as it has grown happily less tax since it started. Tax is only paid once it exceeds your tax allowance. Of higher impact too many has been the freezing of tax allowances funny how this has not been attacked as unfair and hitting lower earners more when times have been hard, than now. I think that is one reason the Tories lost so many votes that impacted everyone and lower earners especially
Just a point, took out pensions for my grandchildren when babies, with the 20% uplift, From the government and the powers of compounding , has turned already into a reasonable sum , they are now 20 , in 40 years time could be used to pay a interest only mortgage or some such thing, Many in my family don’t agree with this course of action , but I will never see the results, But all I am saying i believe this to be a wonderful gift to grandchildren ,or by parents,
Love this - what a gift you have given those kids! My advice - talk to them about what you have done, use it as an opportunity to teach them about personal finance 👍🏻
Surely these figures are misleading without addressing the likely tax payable on the pension; I appreciate this was mentioned as to be covered in a later video but it really should be highlighted on all of the later comparisons to ensure it's borne in mind.
Given the long term nature of pension investments, how can I optimize my retirement account for maximum growth? I'd be retiring in 5 years and currently have saved $500,000 outside my pension account. Do you advise I queue into stocks or just add to my retirement account?
I agree, if you lack market knowledge, your best bet is to seek financial advice. At first hand experience, I've stayed afloat in the market since the 2020 pandemic crash to date, accruing over $500k ROI after subsequent investments. IMO, nothing beats experience.
@@marlene_orja how to put my money to work has been my daily thought, did my research and most suggestions pointed at the stock market, the thing is I'm an absolute noob at investing, would you mind sharing info of the person guiding you please?
Hi Pete Excellent video as always. Could you please clarify a comment you made in this video (at 2:25) regarding making payments into your pension ‘from your bank account’. I pay into a company DC pension via my employer and am lucky enough to receive tax relief and NI relief (via salary sacrifice) - your comment seems to suggest that if I had £10K spare cash in my bank account I could pay this into my pension and also acquire a bonus payment into my pension fund of perhaps 20% from HMRC. If I’m still working and inherited £10K (so have not payed any tax on it) does this mean my £10K is really worth over £12K if I can get it into my pension? Perhaps I’ve misunderstood this?
Another good video that I shared with my son. My only other comment is about the rates used not being as conservative as Id like. Maybe 5% returns and 2-3% inflation. It's a minor criticism of this video.
The figures would change but the comparison would be the same, if you see what I mean. The differences between the accounts would be to a different degree, but the point of the video was to show the impact of the bonuses and tax relief on the different accounts 👍🏻
I'd have like to hear about how a couple of things affect this: 1. 75% of the money in a pension is taxable so the value in those is effectively reduced right? 2. I think money saved in an ISA would be treated differently to money in a pension for benefits purposes if you lost your job before the age of 55. So if you put all your pension savings in ISAs, would you get no benefits until all those savings were used up but not with a SIPP?
1. No, the value isn’t reduced, but you’d have to draw more from a pension to get the same net income, but that depends on individual tax circumstances. Stay tuned for the next video - I’ll be dealing with this. 2. Yes, potentially. Having money which is unavailable to you (because it’s in a pension and you’re under 55) is unlikely to mean any benefits will be reduced. But to be honest, we’re building wealth here, and trying to avoid evening dependent on benefits anyway!
I don't know much about pensions but since retiring 2 years ago I have taken more interest. I have not withdrawn anything but combined 2 pensions and daily check the value The pensions were combined into the new pension provider between Nov. 23 and Feb. 2024. The value has risen by 16.1% to date although it does fluctuate a bit. This seems a remarkable increase to me and I am wondering about the performance of other funds, certainly better than any ISA. I have been paying into pensions for many years and never seen such growth often declines. The fund I am in is described as a Stable growth fund, how does it compare to others?
Hello Peter, Can you illustrate the difference between money in just a pension or just an ISA?. I know about the tax relief going into a pension but how much will be taken in taxes when you draw upon it compared to tax free withdrawals from an ISA. Your sums show you are much better off with a pension but this does not show the full picture re. the tax when you draw it.
Great informative video. Are there any future videos in the pipeline for parents who want to help their kids when they're older? Other than a Junior ISA, is there anything else to consider?
As you say Pete, all depends on the situation and individual. I am in the rare situation where I don’t have to pay income tax. For this reason, all of my investments are going into Stocks and Shares ISAs - and I manage to max it out each year. I don’t want anything to do with tax. The fact you get taxed when you take your pension out is ridiculous. With the ISA, I can put in £20k and never have to pay tax when I withdraw it. More importantly, I can do this whenever I want. I’d rather put the graft in heavy and hard early on than drip feed over a 30 year period. All of these accounts which have tax implications and age limits that the government can change… I would stay well clear of them. I don’t what to wait to the state pension age. It’s too long.
I understand the thinking. The quid pro quo of the pension tax benefits (on paying in) is the limitations and tax on withdrawal. And yes, the possibility that the goalposts will be moved. That’s not to say they can’t do the same with ISAs though…
how are you calculating the £100pm? are you considering it as ‘net equivalent’? eg £100 from your net income goes into ISA and LISA, but £125 is contributed to a pension (equivalent of giving up £100 net)?
Yes - I’m thinking that the same amount goes out of your bank account, £100, but that’s added to with a bonus in the LISA and basic rate tax relief in the pension.
From the US here! I have two pensions. I would much rather have had a Roth 401k throughout my working lifetime. $500/month invested from 25 - 65 at 9% is $2.3mil. I hate my job but can't leave because of I won't get my state pension. What do you think about doing a 70/30 stocks bond ratio?
I would avoid the index funds, mutual funds, or specific stocks for the time being. 5% fixed incomes are the safest bet for now. Save your cash for when the market actually shows signs of recovery
At a point like this, when the pressure is already on you to retire, its best recommended you seek the services of an expert, as this allows you make smarter investing decisions.
Generally speaking, a good number of people discredit the effectiveness of financial advisor in planning for retirement, For over the past 5years, I’ve had a financial advisor consistently restructure and diversify my portfolio/expenses and I’ve made over $1million in gains… might not be a lot but retirement doesn’t seem so farfetched anymore.
@@mikegarvey17Can you share details of your advisor? I want to invest my increased cash flow in stocks and alternative assets to achieve financial goals.
*Izella Annette Anderson* is the licensed advisor I use. Just search the name. You’d find her webpage and necessary details to work with to set up an appointment.
Thank you for your work, the only problem is with Lisa, you have to stop contributing after 50 year of old. If you've opened a stocks Lisa, You are prohibited to stop paying into it at 50, and can't open it until 60, your contributions really do matter, screw the 25% at this point, The dividends with get chewed away by fees as there's no contributions for the last 10 years. (English is my second language sorry hope you understand)
I think we know what you mean.. So you contribute until you're 50, but you can't realise the funds until you're 60, and you're worried that the platform fees will chew away at your gains as you can't contribute any money for that last 10 years after 50? Is that correct amigo?
In the example, I assumed that at age 50, the contribution went into an ordinary ISA, so you just wouldn’t get the bonus after that point. I really wouldn’t worry about the impact of the account essentially being dormant between 50 and 60. The money should be invested, with low costs, and if it is, then the account t will continue to grow between those ages into a nice tax-free pot you can access at age 60 👍🏻
Pete, Could you explain how the tax free portion of a defined benefit scheme is calculated? Or is it too complicated and dependent from scheme to scheme as these schemes can be anything from 1/50th to 1/80th for each year worked.
Great video, thanks Pete. I have a question regarding high rate tax relief. If I were to contribute now, under the current rules, but come the Autumn budget, high rate tax relief is scrapped (either then and there, or in March ‘25), and I were to claim the relief back via self-assessment after the end of the tax year, do you know if, because the contribution was made when the rule was extant, whether high rate tax relief would be paid, or, because the law would, by then, have been announced, passed and enacted, the high rate relief would not be paid by HMRC, or does it depend on the corresponding rules surrounding how a change would be applied, and so it’s impossible to say? Sorry for the long question! Basically, I have a large sum and carry-forward that I can use, but if I can’t get high rate relief, I might keep it liquid and use it towards a house instead. VMT!
Answering ahead of Pete, who knows. Everything could change come the budget some things might take effect from midnight that day. I don’t know if Labour are feeding bits of info so on the day their announcements are better and so a relief, or is it the press scaring everyone. I have modest pension sums a DC scheme with about £30k a DB scheme due in Feb with about £50K tax free. Do I take the tax free now, access the DB 5 months early? Or do I think these are lower amounts Labour might take the £267K tax free sum now and reduce it to 200 or even lower? So I won’t be impacted. If they do, having 150 or 200 K tax free is not a small amount and the money has been inputted tax free, people need to remember that
@@guyr7351 Thanks. The key question is subtle really and I know no-one can tell me what the changes will be - but whether in general, historically, if changes happen, and you have taken action ahead of the change but have to wait to submit a SA return at the end of the year, will the rules in place *at the time of the transaction* apply?
@@peteohead there is the crux of the situation that nobody is mentioning. Will they really change the rules half way through the tax year? It’s not like altering duty on fuel, no one makes long term plans based on petrol being £1.40 a litre say. We do though plan based on current rules As it stands next Feb I’m getting potentially £50K tax free a pension of £7k from a company DB scheme, a year later full state pension. Currently retired early using another DC scheme that’s crystallised plus rent income. I can reduce income from this once DB scheme kicks in. Have another relatively modest DC scheme £155k with currently about £25K tax free that I’m not touching. I feel that with my tax free being below £100K Labour won’t be looking at that level they will look at £200K plus, that’s still a tidy sum as is £100K tax free. My gut feeling is it has gone in Tax free so having a tax free lump sum is a bonus but we won’t lose it overnight
I think it would be practically impossible for them to apply something like that mid-tax year. The level of complication would be mind-boggling. Generally with things like this, it goes with the tax year, but we’ll see!
This is reasonably easy to do using an excel spreadsheet. I have done it to show to friends and colleagues just how quickly small amounts saved can grow due to compound interest, company input, tax relief etc even with modest growth expectations. When you then Factor in increase in contributions due to wage rises etc the changes seen are dramatic
Probably easier to Google ‘investment returns calculator’ or ‘pension savings calculator’ and go from there. The maths isn’t tricky but you’d need a spreadsheet
When you say Pension and employer match, are you talking about defined benefit pension ( which my employer gives me, and I'm thinking of Transfering into a SIPP ) or a defined contribution Pension, or both?
DC schemes, the default is 5/3% with employer paying 3 %. The 5% employee is effectively 4% with tax relief 1%. These numbers need to increase and the government (either party) should look to raise this up to about 14-15% of salary as the default. They should also make salary sacrifice option be mandatory as it allows employer and employee to save in NI. Doing this would allow with time many workers not to need a state pension. Currently if earning £30K your paying twice as much in NI that you get charged if looking to make up a missing year of NI contributions. That seems mad to me. It would be a brave Government but a fair one that said you can move your NI into your pension pot BUT you lose that year for a state pension. 20 years or so would see you with a much better position V state pension
@@guyr7351I'm confused with the default and all the percentages you mentioned 😂 it's all new to me. Can you explain as if you were talking to a 12 year old? As all that's gone straight over my head 😂😂
@@johnhoughtonbey7053 hi John, The Standard auto enrollment pension schemes many companies provide has default settings of 8% total contribution. This is 3% by the employer, 5% by the employee. Employee is effective 4% tax as relief from government is 1%. Some employers allow matched contributions, eg if employee puts in 7% they match it with 7%. so your getting 14% going in, this is the sort of level in reality most people need to be putting in to get a decent pension at the end. 8% is too low. Situation is made more complex as approximately the first £600 of your salary does not count, so it’s not 3 and 5% of your gross. This impacts lower paid even more, I can remember seeing my wife’s wage slip when she was weekly paid and if her hours dropped of £6 a week pension deduction. People really need to look closely at their pension deduction and work out what it will be in 30-40 years time assuming 5% growth. If your company offers salary sacrifice for your pension then take it up. What this does is alter your salary to the tax man. So if you’re just into 40% tax bracket you reduce your salary to less than 40% tax bracket and also save ( both company and employee) on national insurance contributions. Companies I feel have a duty to provide information on the pension and projected benefits. Either through in house staff or professional companies. If more people were shown the information in their 20-30’s then they would not sleep walk towards retirement thinking I’m in a pension scheme I’ll be OK. £50 a month total savings into a pension would grow with compound interest to approximately £70K if 5% per annum returns over a 40 year period. So getting money in at a reasonable level for 30-40 years is the secret
When it comes to a defined benefit pension, the amount that goes in doesn’t really matter, because the scheme guarantees you an income in retirement. With a DC pension (that I was talking about in the video) you build up a fund by paying in and investing the money. The employer match is simply that the employer puts in the same as you, which some (not all) employers will do. As others here have said, the default is 3% employer, 5% employer. Percentage of your salary, that is
Appreciate everyone will nitpick but in your summary you're suggesting LISA before S&S for home purchase only? If retirement is the goal then stick to S&S ISA and Pension?
Not sure I said it that unequivocally. I generally suggest that people have a LISA if they’ve bought their first home or not because the bonus is so valuable. Just make sure you have other money accessible
Hi, i think there is a relevant scenario which you haven't compared. Please can you compare SIPP vs LISA, where a person contributes £100 per month until age 50 and then no further contributions until age 60 please?
I could, but it should be obvious that if you stop contributing to one account and keep contributing to another, the one you keep paying into will do better! In the example I assumed that the money going into the LISA is redirected into a normal ISA, without the bonus, from age 50 onwards.
@@MeaningfulMoney thank you for your message. But isn't the fair comparison where the person stops contributing to both at the same age of 50 and then access the money age 60, without any further contributions between 50-60. I am still unsure whether 25% tax free is better than the higher sum available in SIPP, but taxed. Thanks
With a Roth IRA, contributions are made with after-tax dollars, meaning you can withdraw your contributions at any time, tax-free and penalty-free. Additionally, any investment gains can also be withdrawn tax-free and penalty-free upon meeting certain conditions. I’m currently debating whether to continue contributing or to liquidate my $338k stock portfolio-I'm at a crossroads.
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I have £74k in a fixed rate is a just starting a 1 year term, is it ok to put in my £20k yearly allowance bringing it up to £94k or should l just open up another isa
It’s your contribution inclusive of tax relief, very similar to contributions when you’re starting to take taxable income from a pension fund. £2880 a year that becomes £3600 with tax relief at 20%
I have no idea where my rnployers have been investing contricutions over the last 23 years but my pensions are absolutely nowhere near where they should be going by fhe nunbers tabled herem
The numbers are incredible! I've got a relatively short window as I'm 60 years old so my focus from here on in is definitely going to be my workplace pension.
@@clarenceishmael9615 if you can add extra payments in then get your tax relief so £1 immediately becomes £1.25 for a 20% tax payer. That’s guaranteed ( at present) beats virtually every other saving hands down. You can save a lot in 5-6 years that greatly impacts the final Pot
I think the pensions are becoming much less attractive due to rising access ages. Currently I have virtually nothing in an ISA , however I will coach my children to favour ISAs over pensions. They should absolutely maximise the employer match but not go beyond.
Everything over 50k goes into my pension to save me 40% now, bigger pot grows faster. Have some isa as well to maximise the tax benefits on withdrawal (staying below 50k from pension) also pensions are free of IHT, for now.
If you are currently a higher rate tax payer but will expect to pay 20% in retirement, you save 40% on the way in and pay 20% on the way out. Another benefit of pensions is the 25% tax free cash, so the effective tax rate on the way out would actually be 15%.
Currently tax rules would say pensions are better but everything could change come budget in October. I have a feeling that higher earners will be impacted more, those with modest incomes and pension pots won’t see a difference. Let’s face it you have saved money tax free and currently can get £260 K approx tax free, that is not a small amount. You could say why should you get any tax free as it’s grown without any tax being applied. I think the tax free amount will reduce but to what level? We wait and see
@@MeaningfulMoney Very, this year in particular it's been months, not weeks, for the automatic relief. I will say that the additional relief, claimed through a tax return, was much faster though.
Salary sacrifice means the money goes in prior to any tax, eg your salary was £52000. Salary sacrifice £12K means for tax and NI you now earn £40K. For tax paying tax at 20% only on the money between £12570 and 40K, Salary sacrifice saves employee and employer NI Contributions one of my employers paid those savings into our pensions so a win win
Just for context re my comment, firstly I understand the salary sacrifice process. But my job is a hgv driver where we get paid a basic 30k, but make our money from overtime, unsocial working, attendance etc, personally that gives me 60k+. I pay in 5% my employer matches with 10%, but I also pay another 20% avc. Now my pension contributions are based on my basic salary, which means 25% of 60k+ takes my earnings below national minimum wage!! So a portion of my contributions falls outside of salary sacrifice. So I have to fill an annual tax return in to reclaim from HMRC. Apologies for the long text, but I'm sure others may be in a similar situation and worth noting 😊
Holy cow the course £700 why so expensive..jeez why is it people who work in money feel entitled to earn more from hard working people. That does not seem worth it.
True BUT importantly it shows how today the benefits of small regular savings etc can grow. This is the current rules. If things change come the next budget expect the higher earners to be the targets/ impacted more than your 20% tax payer
@@kw8757no it means change the rules and e reduce the benefits. Currently everything going in is tax free and the growth tax free, once you access it only pay tax if it exceeds basic tax allowance.
Yeah, maybe, but it’s still your money. The government won’t steal it - they may just change how you can access it. But pensions are an incredible vehicle that everyone should utilise.
Sadly that’s the situation that leaves many saying why have I bothered. Mind you would I want to be in a position where my pensionable years only sees me with the state pension as income? No thanks I’ll take the tax relief going in and try to manage the tax when taking the money out
Spend your money because Labour are going to tax private sector pensions to fund extra payers of gold plating in public sector pensions and for the drag on public purse from the expansion of absolute poverty from mass immigration taking from the pot but making enough contributions.
I've digested a plethora of personal finance oriented channels here on UA-cam over the years and the only two that I can still stomach are you and Erin. You give the very best and spot on advice and ask thought provoking and unbiased questions that help listeners like myself become better. More importantly, thank you for recommending Stephanie Janis Stiefel my investment portfolio with her has been quite sustaining
Pete really is something special. Please think of supporting him (if you don't already, which maybe you do).
I know this FA, Stephanie Janis Stiefel but only by her reputation at Goldman Sachs; even though she's now involved in managing portfolios and providing investmnt guidance to clients. I have been trying to get in contact since l watched her interview on WSJ last month
@@YaxelBuroneWell her name is 'Stephanie Janis Stiefel'. Just research the name. You'd find necessary details to work with a correspondence to set up an appointment.
I went from no money to Invest with to busting my A** off on Uber eats for four months to raise about $20k to start trading with Stephanie Janis Stiefel. I am at $128k right now and LOVING that you have to bring this up here
Thanks to pete. Following his recommendation, I started researching into Stephanie Janis Stiefel. Thankfully it was a little over a year ago now, I started an Investment with Stephanie’s Services and that allowed me to be on much MUCH more stable ground in the face of global financial upheaval. For what it's worth, it made a difference for me and my little family.
hi Pete. About a year ago or so, I found your videos and even though i'm some 20 years away from retirement, it made me start thinking about my own personal finances. Thanks to you I've realised the importance of thinking about my finances and planning my financial future. Your videos help me make informed decisions on where to invest hassle-free and somewhat safely and cheaply (index funds all the way).
Thanks to your videos i've grown curious about the subject and looked for more material online, found other personal finance youtubers (the holy trinitiy of Pete, Damian and James Shack) and resources.
I've started making a budget and seriously planning my savings and retirement. I'm planning on retiring at 60 with a comfortable sum if all goes conservatively well.
You've made a serious positive contribution to my life, thank you so much for your channel and keep up the great work.
Thanks to you I have joined work pension scheme. Thank you.
Love this - great work! Your future self will thank you…
@@annamuja1831 I’m sure you will have seen to try and maximise via your contributions the amount your company pays as well. Also enquire if salary sacrifice is offered as well this can help keep you under the 40% tax threshold and save in NI contributions for both you and the company
@@Andrew-o9k6h there are millions of workers who don’t have the spare income to try and invest / set up a secondary income scheme. These are the workers who more than anything need to maximise their pension savings eg push for contribution matches, salary sacrifice etc. they are also the ones where the current 8% auto enrollment rate needs to be increased with both employer and employee paying more. 12% should be the minimum.
1st workplace pension (DB scheme)
2nd income over £50270 into a SIPP
3rd max out LISA until age 50
4th ISA - contribute alongside LISA
That's my plan
Your videos are really useful and I appreciate the time and effort you put into helping people. Every time I review my pension and investments, I can hear your voice saying 'be intentional' and 'the value of small increases'. Simple concepts perhaps, but the way you explain them and show the benefits is perfect. I can already see a significant difference since I found your channel a few years ago, so a huge thank you from me. I know what I'm aiming for and more importantly you've shown me how to get there.
I've lived in America and Canada. Paid about the same in taxes but get way more for my taxes in Canada. Most Americans hate the government (hate giving them their money even more) because they've never experienced good governance.
Hi Pete. I hope you're keeping well. I've been watching your videos for some time now. In short, they are excellent. You keep what many think is a boring topic super interesting. You are a natural in from of the camera by the way. Keep up the great work. I look forward to your next video. Thanks. Joe
Hi Pete
Excellent video as always.
Could you please clarify a comment you made in this video (at 1:57) regarding higher rate tax relief on DC pension. You seemed to say that the higher rate relief goes into your pension. However, I thought you claimed the higher/additional rate relief through the self assessment tax return. If yes, then don't you have to pay that money (either tax refund received or cash equivalent of your lower tax bill)from HMRC into your pension yourself in order for it to get into your pension pot?
Thanks, Pete. These kinds of videos always emphasise to me what an excellent teacher you are. I watched this through the lens of the money-ignorant person I was 10 years ago and I believe I would have understood this , given the simple way you explained it!
I have a small NHS DB pension, a SIPP and a S&S ISA. I'm going to open a LISA in April. In my head, I'm seeing it as:
ISA - early retirement bridge account or an 'in case I get too ill to work' account to get me through my 40s and 50s. It would also be used to pay off my remaining mortgage at age 50.
LISA - my 60-65 cash ladder, especially given the growing possibility that 65 could end up being the new SIPP and DB pension access age by that point!
SIPP and DB pension, with small ISA/LISA top-ups to reduce taxation - 65 onwards
State pension - Bonus money to start piling up towards any care costs or having a cleaner, cook etc in old age.
You’re very kind, thank you. Sounds like you have a great plan in place - more power to ya!
I thought that the caveat with the LISA was that the value of the house you can purchase with it has a cap on it, and given how house prices have rocketed in the last few years, it's getting harder and harder to find a house within that price band, especially if you live in the south of the country.
As a company director and wanting to possibly wind down/semi-retire or possibly fully retire at age 55, I decided years ago to use only the S&S ISA.
My reasoning is, I want the tax free life when older and not having to manage income tax etc on my money.
I also think the retirement withdrawal age, which is 55, will be at 60 before I get to it.
They are already moving it to 57, which is later than I want access.
I invest £20,000 per year into my Vanguard account mainly into the S&P 500, I am age 36 at the moment.
I am debt free.
Love your videos and they keep me convinced I am on the right path.
Yes, I do a pension/ISA split and it’s very heavily weighted towards my pension. 90/10 I’d say.
Hi Pete, I'm a huge fan of your videos! I'd love to see a video on your predictions for the October budget. What changes do you think are most likely to happen?
This is superb, thank you!
The LISA (stocks and shares version) is great if you are a stay at home parent who also wants to save for retirement as alongside a SIPP (which for those not in paid employment is limited as you can only save upto £2880 per year and still get tax relief), the ability to save an "extra" £4000 (£5000 with bonus) in your LISA, means you can build up a retirement pot of your own rather than relying solely on a employed partner's.
Absolutely right - great point! 👍🏻👊🏻
For people working through their own LTD companies, typically one man companies for IT consultants etc, higher pension contributions result in lower income hence saving on NIC (employer + employee) = 23.8%
Great video. I look forward to the next as I have already retired with a pot which I'm drawing down from at about 3% pa.
Looking forward to your video after 30th October!
Yeah, my thoughts too. As rod Stewart said, 1st cut is the deepest. Then load up more in coming years.
Better get the booze in, going to be a long day. 😢
I’m sure it will
Impact many BUT will it be as bad as the press are trying to scare us with?
Will tax free lump sum be abolished? Highly unlikely as for many of us with modest pension pots this forms an attractive part of the nest egg. Having 30, 50,100K as a ready pot when we retire.
It might get reduced to £200K or lower but that’s still a nice lump sum as don’t forget money has had tax relief or been tax free going into a pension.
Will your pension pot face tax if being passed on? Eg inheritance tax? Maybe if to anyone else but your spouse if it exceeds current IHT limits. Again money has been tax free going in, why should it be be free if going to others, what level it’s taxed though is a different topic why not at 20%!?
Is baseline 30% tax relief incoming 😌
@@MrSarkiemarkie possibly, and if applied to all then winners and losers, obviously worst case would be 20% for all many would lose out.
Super helpful to have everything visualised like this. Cheers Pete!
Glad it was helpful! 👍🏻
This was so useful! I have a LISA but will be emptying that for my first house this year, a cash ISA and my workplace NHS pension. I am looking at starting a SIPP and stocks and shares ISA but unsure
I’d build up money in an S&S ISA to give yourself accessible, tax-free money. Your pension at work is great, so I’d focus on building wealth outside that, at least for now…
Fantastic video, thank you. I was trying to do the comparisons myself. I pay into a public sector pension and have a lifetime ISA too, I can't quite afford to max this out yet but hopefully I can eventually.
Glad it was helpful! Sounds like you’re doing everything right - keep going 👍🏻👊🏻💪🏻
Thank you for your videos - I find them very interesting and useful.
I have a question though: you compare LISA, and pension but not both of them. E.G. Surely it would be best to max out the money your employer will contribute (I your employed). If your earning under the 40% tax bracket I would think fill the allowance for the LISA(4K+1K TOP UP) till the age of 50 then contribute towards a SIPP.
Although you did talk about total amounts in each pot, what you didn't talk about is the tax implications when you are drawing it down.
I believe the above would be best because the Lisa has 20% added and 0 tax to pay when it is withdrawn, so surely that would make it better?
Have I missed something or am I right here? It would be great if you could do more videos on Lisa's.
Side note: I am aware that Lisa's are technically inside your estate and can't be accessed without a penalty.
Do a video about Financial Advisors, I work with one and She is excellent. Last year instead of losing 20% I was down only 4%.
Amazing! thank you for sharing your experience. do you mind also sharing your how to find your Fee Only Advisor?
Essmildaa Morgan is well known, just look her up.
Wow, I know Essmildaa too! She’s helped grow my reserve, despite inflation, from $200k to $440k as of today
I’ve been doing some research lately, and it really depends on how much you're putting in and when you start. With a pension, for example, the employer contributions can really boost your pot, especially if you're in a company with good matching.
Retirement age is going up, im in my 40s can i rely on that age for my retirement or add a couple of years worth of ISA money to compensate for the probable rise
It will rise as it’s in the plans but to what age and when?
Thank god I’m 64 and within 18 months I’ll be getting both my state and work based pension.
How they expect anyone in a labour intensive job to keep going to 68 or higher beggars belief
Hi Pete, I used my ISA to buy my first home , anything on property , is it a good investment and why thank you
Hi Pete, just joined your channel. i have learnt a lot and you made a comment about additional contributions to my Pension for higher tax earner to which you declare your gross pension payment in your tax returns. it was a very quick comment on this video and wondering have you done a previous detailed video on this subject or would you do one to explain and what to do. as i am about to leave my employer and want all my salary as a contribution to my pension
I'm happy now you have finally "just" added a fixed amount every year rather than a percentage. The percentage increase you were using in a few videos was incredibly unrealistic, in my opinion, and the compounding nature of that, which helps your pot grow, also hugely grows your contribution amount to an unrealistic amount.
I think that percentage increases look worse than they are when in fact, over long timescales inflation means that what looks like a massive increase isn’t quite so big in real terms. Also, the thinking is that our situations might improve, we get promoted, the mortgage gets paid off, the kids leave home, all might mean more disposable income available. But I definitely take your point, and it was deliberate to stick to fixed increases for this video 👍🏻
An advantage of the pension that was not mentions is a reduction in child maintenance payments. Pension contributions are deducted from income before the CMS calculation is made. If you have 2 children, that is a 16% reduction in CMS payments in addition to the tax relief.
It doesn't change any of the advice you gave, but people need to keep in mind that the income tax saving related to pensions only postpones that payment - you pay income tax on money you withdraw as a pension. But you still win in the end because you will earn interest on the money you would have originally paid as income tax, and there is a lump sum you can withdraw from your pension which is tax free. So the sums tilt in favour of paying into your pension even before we start talking about employee contributions.
I personally pay everything I earn above £100k into my pension because that way I avoid the (effective) 60% tax rate I'd otherwise be paying.
Also the bigger pot will grow more, before you take out at a hopefully lower tax band…. Until labour ruin it.
@PaulB-q3d Yup, Labour are the big scary elephant in the room.
60%? Anything over 50K if you can no ?
@@mjribes agh ok, thought that was at 125K
How I wish that main point of tax relief going in and its benefits was hammered home ref taxing coming out.
To hear some of the press you would think a big bad wolf (Labour) was coming after you. It is only fair that tax is applied on accessing the money as it has grown happily less tax since it started. Tax is only paid once it exceeds your tax allowance.
Of higher impact too many has been the freezing of tax allowances funny how this has not been attacked as unfair and hitting lower earners more when times have been hard, than now.
I think that is one reason the Tories lost so many votes that impacted everyone and lower earners especially
Just a point, took out pensions for my grandchildren when babies, with the 20% uplift,
From the government and the powers of compounding , has turned already into a reasonable sum , they are now 20 , in 40 years time could be used to pay a interest only mortgage or some such thing, Many in my family don’t agree with this course of action , but I will never see the results, But all I am saying i believe this to be a wonderful gift to grandchildren ,or by parents,
You've done a wonderful thing.
Love this - what a gift you have given those kids! My advice - talk to them about what you have done, use it as an opportunity to teach them about personal finance 👍🏻
@@MeaningfulMoney thanks but even there parents think it is not a wise move, they should have it NOW,
Surely these figures are misleading without addressing the likely tax payable on the pension; I appreciate this was mentioned as to be covered in a later video but it really should be highlighted on all of the later comparisons to ensure it's borne in mind.
Given the long term nature of pension investments, how can I optimize my retirement account for maximum growth? I'd be retiring in 5 years and currently have saved $500,000 outside my pension account. Do you advise I queue into stocks or just add to my retirement account?
you can max out your retirement acct and still make a fortune with stocks, my top 5 picks are APPL, TSLA, NVIDIA, AMD, PALANTIR
I'd suggest you consider financial advisory, working with a well-experienced advisor can save you the cost of mistakes
I agree, if you lack market knowledge, your best bet is to seek financial advice. At first hand experience, I've stayed afloat in the market since the 2020 pandemic crash to date, accruing over $500k ROI after subsequent investments. IMO, nothing beats experience.
@@marlene_orja how to put my money to work has been my daily thought, did my research and most suggestions pointed at the stock market, the thing is I'm an absolute noob at investing, would you mind sharing info of the person guiding you please?
very much appreciate this.. was able to look up Annette by her full name and at once found her consulting page, she seems impeccable !>
Hi Pete
Excellent video as always.
Could you please clarify a comment you made in this video (at 2:25) regarding making payments into your pension ‘from your bank account’. I pay into a company DC pension via my employer and am lucky enough to receive tax relief and NI relief (via salary sacrifice) - your comment seems to suggest that if I had £10K spare cash in my bank account I could pay this into my pension and also acquire a bonus payment into my pension fund of perhaps 20% from HMRC. If I’m still working and inherited £10K (so have not payed any tax on it) does this mean my £10K is really worth over £12K if I can get it into my pension?
Perhaps I’ve misunderstood this?
Excellent video.
Another good video that I shared with my son.
My only other comment is about the rates used not being as conservative as Id like. Maybe 5% returns and 2-3% inflation. It's a minor criticism of this video.
The figures would change but the comparison would be the same, if you see what I mean. The differences between the accounts would be to a different degree, but the point of the video was to show the impact of the bonuses and tax relief on the different accounts 👍🏻
@@MeaningfulMoneyyeh I mean 2% real return is crazy conservative for me! I was going to make the opposite comment, shows you can't win I guess haha!
I'd have like to hear about how a couple of things affect this:
1. 75% of the money in a pension is taxable so the value in those is effectively reduced right?
2. I think money saved in an ISA would be treated differently to money in a pension for benefits purposes if you lost your job before the age of 55. So if you put all your pension savings in ISAs, would you get no benefits until all those savings were used up but not with a SIPP?
1. No, the value isn’t reduced, but you’d have to draw more from a pension to get the same net income, but that depends on individual tax circumstances. Stay tuned for the next video - I’ll be dealing with this.
2. Yes, potentially. Having money which is unavailable to you (because it’s in a pension and you’re under 55) is unlikely to mean any benefits will be reduced. But to be honest, we’re building wealth here, and trying to avoid evening dependent on benefits anyway!
@MeaningfulMoney you've written 3% employer 5% employer, at Hull City Council it's 5.8% we get deducted from our salary to the dB scheme.
I don't know much about pensions but since retiring 2 years ago I have taken more interest. I have not withdrawn anything but combined 2 pensions and daily check the value The pensions were combined into the new pension provider between Nov. 23 and Feb. 2024. The value has risen by 16.1% to date although it does fluctuate a bit. This seems a remarkable increase to me and I am wondering about the performance of other funds, certainly better than any ISA. I have been paying into pensions for many years and never seen such growth often declines. The fund I am in is described as a Stable growth fund, how does it compare to others?
Hello Peter, Can you illustrate the difference between money in just a pension or just an ISA?. I know about the tax relief going into a pension but how much will be taken in taxes when you draw upon it compared to tax free withdrawals from an ISA. Your sums show you are much better off with a pension but this does not show the full picture re. the tax when you draw it.
Great informative video. Are there any future videos in the pipeline for parents who want to help their kids when they're older? Other than a Junior ISA, is there anything else to consider?
As you say Pete, all depends on the situation and individual. I am in the rare situation where I don’t have to pay income tax.
For this reason, all of my investments are going into Stocks and Shares ISAs - and I manage to max it out each year.
I don’t want anything to do with tax. The fact you get taxed when you take your pension out is ridiculous.
With the ISA, I can put in £20k and never have to pay tax when I withdraw it. More importantly, I can do this whenever I want. I’d rather put the graft in heavy and hard early on than drip feed over a 30 year period.
All of these accounts which have tax implications and age limits that the government can change… I would stay well clear of them.
I don’t what to wait to the state pension age. It’s too long.
I understand the thinking. The quid pro quo of the pension tax benefits (on paying in) is the limitations and tax on withdrawal. And yes, the possibility that the goalposts will be moved. That’s not to say they can’t do the same with ISAs though…
I'm leaning towards Lifetime ISA for my spare money rather than AVC's.
Too much uncertainty with the government regarding pensions.
I understand that approach, for sure…
how are you calculating the £100pm? are you considering it as ‘net equivalent’? eg £100 from your net income goes into ISA and LISA, but £125 is contributed to a pension (equivalent of giving up £100 net)?
Yes - I’m thinking that the same amount goes out of your bank account, £100, but that’s added to with a bonus in the LISA and basic rate tax relief in the pension.
From the US here! I have two pensions. I would much rather have had a Roth 401k throughout my working lifetime. $500/month invested from 25 - 65 at 9% is $2.3mil. I hate my job but can't leave because of I won't get my state pension. What do you think about doing a 70/30 stocks bond ratio?
I would avoid the index funds, mutual funds, or specific stocks for the time being. 5% fixed incomes are the safest bet for now. Save your cash for when the market actually shows signs of recovery
At a point like this, when the pressure is already on you to retire, its best recommended you seek the services of an expert, as this allows you make smarter investing decisions.
Generally speaking, a good number of people discredit the effectiveness of financial advisor in planning for retirement, For over the past 5years, I’ve had a financial advisor consistently restructure and diversify my portfolio/expenses and I’ve made over $1million in gains… might not be a lot but retirement doesn’t seem so farfetched anymore.
@@mikegarvey17Can you share details of your advisor? I want to invest my increased cash flow in stocks and alternative assets to achieve financial goals.
*Izella Annette Anderson* is the licensed advisor I use. Just search the name. You’d find her webpage and necessary details to work with to set up an appointment.
Thank you for your work, the only problem is with Lisa, you have to stop contributing after 50 year of old.
If you've opened a stocks Lisa, You are prohibited to stop paying into it at 50, and can't open it until 60, your contributions really do matter, screw the 25% at this point,
The dividends with get chewed away by fees as there's no contributions for the last 10 years.
(English is my second language sorry hope you understand)
I think we know what you mean..
So you contribute until you're 50, but you can't realise the funds until you're 60, and you're worried that the platform fees will chew away at your gains as you can't contribute any money for that last 10 years after 50?
Is that correct amigo?
@@johnd00e-j9s Thanks, I hope he responds.
Is it true you just can't contribute at all after 50?
In the example, I assumed that at age 50, the contribution went into an ordinary ISA, so you just wouldn’t get the bonus after that point. I really wouldn’t worry about the impact of the account essentially being dormant between 50 and 60. The money should be invested, with low costs, and if it is, then the account t will continue to grow between those ages into a nice tax-free pot you can access at age 60 👍🏻
Not if your frees are very low like 0.2% total
Pete,
Could you explain how the tax free portion of a defined benefit scheme is calculated? Or is it too complicated and dependent from scheme to scheme as these schemes can be anything from 1/50th to 1/80th for each year worked.
Great video with just one small issue, I'd be amazed if you don't need to do another video on 1st November after the painful budget!
Ha! You may well be right - let’s see! Rest assured if (when?) one is needed, I’ll be right on it!
If I have used a LISA to buy a house and closed it on the sale, can I open a new LISA for retirement?
great video as ever bud, keep up the great work
Thanks, I appreciate it!
I've never worked for an employer thats matches the rate you pay in can you do one at the basic they have to pay please?
Great video, thanks Pete. I have a question regarding high rate tax relief. If I were to contribute now, under the current rules, but come the Autumn budget, high rate tax relief is scrapped (either then and there, or in March ‘25), and I were to claim the relief back via self-assessment after the end of the tax year, do you know if, because the contribution was made when the rule was extant, whether high rate tax relief would be paid, or, because the law would, by then, have been announced, passed and enacted, the high rate relief would not be paid by HMRC, or does it depend on the corresponding rules surrounding how a change would be applied, and so it’s impossible to say? Sorry for the long question! Basically, I have a large sum and carry-forward that I can use, but if I can’t get high rate relief, I might keep it liquid and use it towards a house instead. VMT!
Answering ahead of Pete, who knows. Everything could change come the budget some things might take effect from midnight that day.
I don’t know if Labour are feeding bits of info so on the day their announcements are better and so a relief, or is it the press scaring everyone.
I have modest pension sums a DC scheme with about £30k a DB scheme due in Feb with about £50K tax free. Do I take the tax free now, access the DB 5 months early? Or do I think these are lower amounts Labour might take the £267K tax free sum now and reduce it to 200 or even lower? So I won’t be impacted.
If they do, having 150 or 200 K tax free is not a small amount and the money has been inputted tax free, people need to remember that
@@guyr7351 Thanks. The key question is subtle really and I know no-one can tell me what the changes will be - but whether in general, historically, if changes happen, and you have taken action ahead of the change but have to wait to submit a SA return at the end of the year, will the rules in place *at the time of the transaction* apply?
@@peteohead there is the crux of the situation that nobody is mentioning. Will they really change the rules half way through the tax year? It’s not like altering duty on fuel, no one makes long term plans based on petrol being £1.40 a litre say. We do though plan based on current rules
As it stands next Feb I’m getting potentially £50K tax free a pension of £7k from a company DB scheme, a year later full state pension.
Currently retired early using another DC scheme that’s crystallised plus rent income. I can reduce income from this once DB scheme kicks in.
Have another relatively modest DC scheme £155k with currently about £25K tax free that I’m not touching.
I feel that with my tax free being below £100K Labour won’t be looking at that level they will look at £200K plus, that’s still a tidy sum as is £100K tax free.
My gut feeling is it has gone in Tax free so having a tax free lump sum is a bonus but we won’t lose it overnight
I think it would be practically impossible for them to apply something like that mid-tax year. The level of complication would be mind-boggling. Generally with things like this, it goes with the tax year, but we’ll see!
@@MeaningfulMoney OK touchwood no need to panic just yet then - I shall wait and see what is announced. Many thanks for the reply!
How do I work this out from myself? Can you show the formula for pension with company match
This is reasonably easy to do using an excel spreadsheet. I have done it to show to friends and colleagues just how quickly small amounts saved can grow due to compound interest, company input, tax relief etc even with modest growth expectations. When you then Factor in increase in contributions due to wage rises etc the changes seen are dramatic
@@guyr7351 no formula or equation that I can use in your reply😂
Probably easier to Google ‘investment returns calculator’ or ‘pension savings calculator’ and go from there. The maths isn’t tricky but you’d need a spreadsheet
When you say Pension and employer match, are you talking about defined benefit pension ( which my employer gives me, and I'm thinking of Transfering into a SIPP ) or a defined contribution Pension, or both?
He means a defined contribution one. Few people outside the public sector have a defined benefit pension.
DC schemes, the default is 5/3% with employer paying 3 %. The 5% employee is effectively 4% with tax relief 1%.
These numbers need to increase and the government (either party) should look to raise this up to about 14-15% of salary as the default. They should also make salary sacrifice option be mandatory as it allows employer and employee to save in NI.
Doing this would allow with time many workers not to need a state pension. Currently if earning £30K your paying twice as much in NI that you get charged if looking to make up a missing year of NI contributions. That seems mad to me.
It would be a brave Government but a fair one that said you can move your NI into your pension pot BUT you lose that year for a state pension. 20 years or so would see you with a much better position V state pension
@@guyr7351I'm confused with the default and all the percentages you mentioned 😂 it's all new to me. Can you explain as if you were talking to a 12 year old? As all that's gone straight over my head 😂😂
@@johnhoughtonbey7053 hi John,
The Standard auto enrollment pension schemes many companies provide has default settings of 8% total contribution.
This is 3% by the employer, 5% by the employee.
Employee is effective 4% tax as relief from government is 1%.
Some employers allow matched contributions, eg if employee puts in 7% they match it with 7%. so your getting 14% going in, this is the sort of level in reality most people need to be putting in to get a decent pension at the end. 8% is too low.
Situation is made more complex as approximately the first £600 of your salary does not count, so it’s not 3 and 5% of your gross.
This impacts lower paid even more, I can remember seeing my wife’s wage slip when she was weekly paid and if her hours dropped of £6 a week pension deduction.
People really need to look closely at their pension deduction and work out what it will be in 30-40 years time assuming 5% growth.
If your company offers salary sacrifice for your pension then take it up. What this does is alter your salary to the tax man. So if you’re just into 40% tax bracket you reduce your salary to less than 40% tax bracket and also save ( both company and employee) on national insurance contributions.
Companies I feel have a duty to provide information on the pension and projected benefits. Either through in house staff or professional companies. If more people were shown the information in their 20-30’s then they would not sleep walk towards retirement thinking I’m in a pension scheme I’ll be OK.
£50 a month total savings into a pension would grow with compound interest to approximately £70K if 5% per annum returns over a 40 year period.
So getting money in at a reasonable level for 30-40 years is the secret
When it comes to a defined benefit pension, the amount that goes in doesn’t really matter, because the scheme guarantees you an income in retirement. With a DC pension (that I was talking about in the video) you build up a fund by paying in and investing the money. The employer match is simply that the employer puts in the same as you, which some (not all) employers will do. As others here have said, the default is 3% employer, 5% employer. Percentage of your salary, that is
Appreciate everyone will nitpick but in your summary you're suggesting LISA before S&S for home purchase only? If retirement is the goal then stick to S&S ISA and Pension?
Not sure I said it that unequivocally. I generally suggest that people have a LISA if they’ve bought their first home or not because the bonus is so valuable. Just make sure you have other money accessible
Hey Pete, what is LISA alternative for 40+ people?
Pension, basically. There’s no equivalent otherwise..
@@MeaningfulMoney 👍 Thank you.
Hi, i think there is a relevant scenario which you haven't compared. Please can you compare SIPP vs LISA, where a person contributes £100 per month until age 50 and then no further contributions until age 60 please?
I could, but it should be obvious that if you stop contributing to one account and keep contributing to another, the one you keep paying into will do better!
In the example I assumed that the money going into the LISA is redirected into a normal ISA, without the bonus, from age 50 onwards.
@@MeaningfulMoney thank you for your message. But isn't the fair comparison where the person stops contributing to both at the same age of 50 and then access the money age 60, without any further contributions between 50-60. I am still unsure whether 25% tax free is better than the higher sum available in SIPP, but taxed. Thanks
FYI You can only save into a LISA up until age 50, then you can withdraw only from the age of 60
Yes. I do say that clearly in the video.
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I have £74k in a fixed rate is a just starting a 1 year term, is it ok to put in my £20k yearly allowance bringing it up to £94k or should l just open up another isa
Up to you, really - either approach works.
Does the maximum tax relief on pension contributions - £60K - include the employer’s contribution, or is that on top?
It’s your contribution inclusive of tax relief, very similar to contributions when you’re starting to take taxable income from a pension fund. £2880 a year that becomes £3600 with tax relief at 20%
The £60k is inclusive of employer's contributions
Includes all gross contributions, including your employer’s. You only get tax relief on your own contributions though…
I have no idea where my rnployers have been investing contricutions over the last 23 years but my pensions are absolutely nowhere near where they should be going by fhe nunbers tabled herem
Wouldn’t you start saving money into a pension or isa after the bonus stopped in a lifetime isa? Makes the figures meaningless
That’s factored in, and I do mention it in the video - savings carry on in a normal ISA after age 50
@@MeaningfulMoneythanks!
The numbers are incredible! I've got a relatively short window as I'm 60 years old so my focus from here on in is definitely going to be my workplace pension.
It’s just maths and consistency 👍🏻
@@clarenceishmael9615 if you can add extra payments in then get your tax relief so £1 immediately becomes £1.25 for a 20% tax payer. That’s guaranteed ( at present) beats virtually every other saving hands down. You can save a lot in 5-6 years that greatly impacts the final
Pot
I think the pensions are becoming much less attractive due to rising access ages. Currently I have virtually nothing in an ISA , however I will coach my children to favour ISAs over pensions.
They should absolutely maximise the employer match but not go beyond.
Unless the rules change , the earliest you can access pensions is 10 years below state pension age.
That’s not what the data or experts says. You should watch that section of this video. Doubt Pete would tell your kids that.
Everything over 50k goes into my pension to save me 40% now, bigger pot grows faster. Have some isa as well to maximise the tax benefits on withdrawal (staying below 50k from pension) also pensions are free of IHT, for now.
If you are currently a higher rate tax payer but will expect to pay 20% in retirement, you save 40% on the way in and pay 20% on the way out. Another benefit of pensions is the 25% tax free cash, so the effective tax rate on the way out would actually be 15%.
Currently tax rules would say pensions are better but everything could change come budget in October. I have a feeling that higher earners will be impacted more, those with modest incomes and pension pots won’t see a difference.
Let’s face it you have saved money tax free and currently can get £260 K approx tax free, that is not a small amount. You could say why should you get any tax free as it’s grown without any tax being applied.
I think the tax free amount will reduce but to what level? We wait and see
"That tax relief gets added within a couple of weeks." 🤣 HMRC didn't get that memo. Good video though, thanks for sharing this information.
Does for me and for all my clients. Is your experience different?
@@MeaningfulMoney Very, this year in particular it's been months, not weeks, for the automatic relief. I will say that the additional relief, claimed through a tax return, was much faster though.
I added my first bit of money into a pension recently and it said to wait 8 weeks. Been about 6 maybe so far
@@Flat-Five Wishing you a quicker process than I've had!
NB salary sacrifice means you’ll automatically receive tax relief at your current rate of income tax without having to claim via your tax return.
Only the 20%, higher rate tax payers need to claim the remaining 20% via tax return.
@user-zu6yh7xv1l not on salary sacrifice.
If you don't salary sacrifice but pay in and claim back, you have to do a tax return.
Salary sacrifice means the money goes in prior to any tax, eg your salary was £52000.
Salary sacrifice £12K means for tax and NI you now earn £40K. For tax paying tax at 20% only on the money between £12570 and 40K,
Salary sacrifice saves employee and employer NI Contributions one of my employers paid those savings into our pensions so a win win
Yes, quite right.
Just for context re my comment, firstly I understand the salary sacrifice process. But my job is a hgv driver where we get paid a basic 30k, but make our money from overtime, unsocial working, attendance etc, personally that gives me 60k+. I pay in 5% my employer matches with 10%, but I also pay another 20% avc. Now my pension contributions are based on my basic salary, which means 25% of 60k+ takes my earnings below national minimum wage!! So a portion of my contributions falls outside of salary sacrifice. So I have to fill an annual tax return in to reclaim from HMRC. Apologies for the long text, but I'm sure others may be in a similar situation and worth noting 😊
I placed everything in a pension and now just started an ISA. 😢
Well done - keep going 👍🏻
Holy cow the course £700 why so expensive..jeez why is it people who work in money feel entitled to earn more from hard working people. That does not seem worth it.
On October 30th the rules will likely all change, so this video is a bit premature.
True BUT importantly it shows how today the benefits of small regular savings etc can grow. This is the current rules. If things change come the next budget expect the higher earners to be the targets/ impacted more than your 20% tax payer
Not premature, no. Just the current rules. I’ll update it if needed.
You also need to consider that you pay tax on your pension drawings but not on your ISA drawings.
Haven’t even got to drawings yet - stay tuned till the next video 👍🏻
You need to factor in the fact that governments love to mess with pension rules.
For "mess with" read "steal your money".
@@kw8757no it means change the rules and e reduce the benefits. Currently everything going in is tax free and the growth tax free, once you access it only pay tax if it exceeds basic tax allowance.
Yeah, maybe, but it’s still your money. The government won’t steal it - they may just change how you can access it. But pensions are an incredible vehicle that everyone should utilise.
Lets see what happens on Halloween
Spend everything, retire with nothing and claim pension credit. The government are going to take the whole lot anyway.
Sadly that’s the situation that leaves many saying why have I bothered. Mind you would I want to be in a position where my pensionable years only sees me with the state pension as income?
No thanks I’ll take the tax relief going in and try to manage the tax when taking the money out
Why anyone would want to be dependent on state benefits is beyond me.
Spend your money because Labour are going to tax private sector pensions to fund extra payers of gold plating in public sector pensions and for the drag on public purse from the expansion of absolute poverty from mass immigration taking from the pot but making enough contributions.