Stop! 60% of people make this pension mistake
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- Опубліковано 4 сер 2024
- All of the potential pension mistakes that you can make the biggest one that many people make is taking all their pension in one go.
In this video I’ll go through exactly why that’s a mistake and what you should do instead.
Book your free call with me here
diannesullivan.co/
Money helper website
www.moneyhelper.org.uk/en/pen...
Timestamps
0:00 pre pension freedom
1:19 how many people take their pension in one go?
2:43 UK income tax
4:19 what is being done?
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Amazing video, A friend of mine referred me to a financial adviser sometime ago and we got to talking about investment and money. I started investing with $150k and in the first 2 months, my portfolio was reading $274,800. Crazy right!, I decided to reinvest my profit and get more interesting. For over a year we have been working together making consistent profit just bought my second home 2 weeks ago and care for my family.
Hi. I’ve been forced to find additional sources of income as I got retrenched. I barely have time to continue trading and watch my investments since I had my second child. Do you think I should take a break for a while from the market and focus on other things or return whenever I have free time or is it a continuous process? Thanks
@@julie-e3t However, if you do not have access to a professional like Clementina Abate Russo, quitting your job to focus on trading may not be the best approach. It is important to consider all options and seek guidance from reliable sources before making any major decisions. Consulting with an AI or using automated trading systems can also be helpful in managing investments while balancing other commitments
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@@julie-e3t Clementina Abate Russo is her name
Lookup with her name on the webpage.
I'm favoured, $27K every week! I can now give back to the locals in my community and also support God's work and the church. God bless America.
As a beginner what do I need to do? How can I invest, on which platform? If you know any please share.
Really how 😮?
It's Mrs Sonia Duke of course
She is really a good investment advisor.
I was privileged to attend some of her seminars, that's how I started my crypto investment
Started with 5,000$ and Withdrew profits
89,000$
Spot on Dianne. I had no help with decisions until I got independent advice and I'm in a Civil Service Scheme!! It is a financial minefield. Thanks for the advice. John
It terrifies me how few people appreciate the miracle of compound interest!
I think it’s very important to consider the reduction in the Annual Allowance that occurs when you start taking pension income. This is especially the case if you’re planning to make pension contributions in the future
I suspect that a lot of that 60% consider that the amount in the pension is so minimal as to be pretty much meaningless at retirement. Therefore more useful as short term lump sum
Many pension pots have trivial amounts in them, just not worth doing anything other than cashing out.
Yes and this probably has a bias in the figure of 60%
yes , if it,s a small amount it's not worth the hassle of the paperwork keeping going ;
Exactly. Listen carefully. In one sentence she says 60% of pension pots, the next 60% of people. I suspect these days few people have only one pot.
Another great informative video Dianne. Am I being cynical or is it coincidental that in school we are taught very little about financial matters. I suspect that with the majority of people knowing very little about money management, the potential for banks and other financial institutions to maximise profits is a lot easier.
Thanks for your generous feedback. A number of people have commented along similar lines to you. How to not pay more tax than you need to should be an essential part of everyone's retirement planning IMO.
I took a tiny private pension in one go. As a pension for life it would have bought the equivalent of one ready meal per week! And when I got quotes for a fixed term pension for the seven years till state pension age I felt I could do just as well managing the sum myself. But it remains unused, would pay for a PhD or a few good holidays.
Great video thanks! I have a sizeable DB pension that is frozen . I have a company that has all my details and valuation that I can see on their portal on my account. however when I asked them to sent my a valuation if I was to start drawing from it they tell me its with another company who hold my pension I called them and they said they have no records of my pension with them. so I don't know who has it, although like I said I can see the valuation on my account on their website. I have been going back &forth with both of them but getting nowhere any suggestion what i can do?
Hi Diane, are these just small.pension pots? Part of the problem with pensions is that they are conceptual. So Joe Public is just not as invested, as interested in.them
Plan ahead, especially younger people as the state pension age is increasing to the point it will soon be 69/70 before you get it, if you’re lucky.
Make sure you pay as much as you can afford as early as possible into a workplace pension, if you’re fortunate enough to get an annual pay increase, then increase your contributions as much as is possible. Biggest mistake is ignoring what’s ahead.
I had an old pension of just a couple of thousand and thought I would simply cash it in. But even though my total pension was more with another provider I could only take 25% of the 2k tax free and would be charged emergency tax of 40% on the remainder. It was easier to transfer this sum to my main pension fund and remove it tax free later if I want.
Who’s doing that free pension calculator? Is there another you’d recommend until that one has released this summer?
I took my pension pot over 5 year and as self employed got the tax back then invest in bonds and share to give myself a pension..I get 2x that a insurance would give me
I have to say the level of ignorance in regard to financial matters is staggering and if ever there was a case for protecting people from self harm, then stopping 100% withdrawals should be top of the list!
Ignorance generates taxs for the goverment and they don't what you to know
@@roberttopliss8512 Yes, but is there any excuse for ignorance when there is a wealth of information to guide you and all freely available?
What about other circumstances, such as a terminal illness, in such cases most people would want it all out.
@@davidcoleman6032 Why would they want it all out, a pension doesn't die when you do, perhaps except for a badly configured annuity. Pensions are also outside your estate and are therefore not subject to inheritance tax, but if you take it all out then it becomes part of your estate i.e. potentially taxable.
@@davidcoleman6032 If a medical professional tells your pension provider that you have a life expectancy of less than a year then you *might* be entitled to a 100% tax free withdrawal, depending on the pension terms.
this is scary. Are they actually withdrawing to a bank, or could they possibly be crystallking the entire amount to take the tax free cash? Assuming you’re retired for a while, you’d want a higher return than an average savings account, never mind possibly earning too much interest so paying tax on it - *and* paying over the odds on income tax from the initial withdrawal. Wow.
Great video. This is why we all need a financial advisor. I told a work colleague the other day, that maybe taking his pension in a lump sum may not be a good idea😢
I was reading the average pension pot is somewhere round 35k. There's a big difference in taking that ( or less) than a pot of a few 100k. If your pot is 30k, any annuity would be notional. Maybe someone wants to future proof their house, there are good reasons to take it, though broadly I'd prefer people kept their money as pension.
@hilarygibson3150 he almost certainly has much less than 35k. Probably not even 20k. Still a decision not to take lightly
I wasn't aware you could choose, this is news to me, if you receive more than your annual allowance now do you not pay the tax due?
I was expecting a number nearer 6% rather than 60%…
I do though have a couple of old DC’s with a few thousand in, these I’d take out in one go, but I certainly wouldn’t be touching my other big DC’s this way.
You could perhaps consider consolidating your smaller pots into your bigger DC fund? I might do a follow up to this video based on the comments I’m seeing that I’m not speaking to those who have smaller pension pots and that I don’t understand their struggles.
@@DianneSullivan I could, but TBH easier just to work thru them when I retire before I start taking from the larger DC funds - plus I've a number of DB pensions too.
Always found it callous how you are recommended to get a private pension because the State Pension is not enough to live on yet the government takes part of your personal pension off you in tax anway if you decide to either take it all in one go or get an annuity that takes you over the personal income allowance.
But the government PAYS you money when you are contributing to a private pension! There is no better "savings" scheme where you can get an instant 20% return and continue accruing without paying ANY tax while you do so. In reality, you pay tax when you take out an income but given you can take 25% without paying tax then the true cost to you then is 15%. So 20% is gifted to you to grow tax-free and when the time comes you effectively pay a return of 15%, sounds like a good deal to me.
@@mickratters8073 So how is that different to other people in normal paid employment? The personal allowance is the same whether you are employed, or retired.
Two of the biggest problems in this country - NHS is broken and the next will be pensions - gone are the days of work to mid 60's and enjoy some rest in your later years - no longer possible - pension returns on investments are criminal - i feel so sorry for those that have worked all there life paying into the system and being forced to having to keep going until they are old infirm and ill - only to find a broken NHS system that will leave them struggling even more. Nothing is mentioned about this why is the pension age going up, why does it not provide enough to let you enjoy the time off you have earned. HELP!
@johnclarke4082 Because of all the illegal migrants & scrotes are getting the benefits for doing SFA.
Have some savings in cash ISAs. You don't get charged income tax on that. Yet!
You’ve kinda paid the tax on it already since the money you put in the ISA was probably from a source (like your salary) that’s been taxed.
Having a nightmare with Scottish Widows. I wish I'd never taken a pension policy and used the funds to invest in an ISA. My IS A has done really well and the pension is just a way for the insurers to make money. It's a scandal.
Change the fund it's invested in or move it to another provider that offers the funds tailored to your requirements or if you're comfortable enough to control your own ISA then move it to a SIPP and control your pension yourself?
@@BaileyMxX I wish it were so simple. They've had my money for 5 months and taken no action to resolve matters. Unreal.
What sort of pension? Stakeholder? Easy to transfer to another provider, I did it recently.
I had a workplace (defined contribution) pension with SW and they were a nightmare...the customer services was terrible. I moved it to a SIPP with Interactive Investor last year and it's the best thing I ever did. Quite simple and fast...ii took care of the whole process, it was done in 3 or 4 weeks.
@@stevegeek same story here, moved to a sipp with ajbell and put it into a global etf. Minimal charges and better performance than the SW default fund.
is the "small pension pot" rule skewing this data Dianne?
Taxed when you earn it, Taxed when you spend it, Taxed when you save it, Taxed when you use your pension pot and Taxed when you die.....
@KevinOLoughlin-ys5ef Sorry but am i missing something here? Surely If i was paid and then that money is subject to PAYE taxes. If i then pay from my "take home pay" into an ISA it's been subject to tax? I understand the monies paid into an ISA are not subjected to a further raid by the "taxman". Also with a pension payment initially you are helped to grow your pension pot but at the time you drawdown anything after the 25% lump sum (or alternative options) these withdrawals are subject to tax at 20%. Therefore the taxman is recovering their slice of the pot? So someone may have a pension pot of say £100.000 after taking a lumpsum initially in reality that £100,000 is only £80,000?
@@rickh7553 No, you are not missing anything but your subsequent comment shows that you do understand the points that Kevin was making - so your pension investments are not taxed on the way in and 25% is paid tax-free on the way out; if you save into an ISA then yes, you paid income tax before you saved but all growth/interest is earned tax-free. What is confused is your mention of taking the tax-free lump-sum from your £100k [pension] pot - actually, you have £25k plus you still have £75k in the pot, which is not taxed until you have taken the £1,2570 personal allowance (perhaps from other sources) and then it is taxed at the 20% basic rate. That is an effective tax rate of just 15% on your pension. You also have a further £1k allowance for savings interest earned outside of an ISA or a pension. Overall, there are multiple opportunities for savers to avoid paying tax and someone has to pay for public services, why shouldn't that include you and me?
if you put £20k into your pension, the government gives your tax back, £5k.
If your pension pot increases x4 with no further contributions, so does the money they gave back. You have £100k instead of £80k.
If you salary sacrifice, you just don't pay the tax, same result.
However, you also won't pay 8% National Insurance.
At any investment level, the larger the principal sum invested, the larger the returns.
There are ways to minimise the tax you pay when in receipt of a pension, but I'm not going to go into them.
You can research that yourself.
£100k - 25% tax-free = £75k
£75k - 20% = £60k
£60k + £25k (tax-free) = £85k
You pay an effective rate of 15% (without strategy)
@@rickh7553that’s right, but the important thing is to access the pension pot in the most tax efficient way possible.
With the state pension age rising as it is 66 is becoming a distant figure and a lot of people find themselves as I did redundant just short of my 64th birthday. I had already planned to retire in the new tax year just after my 64th birthday.
After using my redundancy for a few months I was left with a few months to go until the new tax year. I had a small NEST pension pot
Payments into a pension aren’t taxed, either you can pay before tax is taken through a work based salary sacrifice scheme or you can claim the tax you paid back afterwards.
Investments within the pension aren’t subject to capital gains - which over a working lifetime, is a huge tax advantage.
You are taxed when you start taking your money out of a pension, ie it is treated as income. But, as you say you have the 25% tax free (and that doesn’t have to be taken as a single lump sum) and you still have your personal allowance, so there’s no tax on the first £12,570.
The big advantage here is if while contributing to your pension you are a higher or additional rate tax payer, so when you’re saving into your pension you’re avoiding 40-45% tax rates on that money and when you take it out, after the 25% tax free + the personal allowance, you’re paying 20% in your pension income (unless you’re drawing over £50,000 a year; income above which you’re paying 40% on).
If you stay in the basic tax rate you also have better tax-free allowances: £1,000 allowance on interest, lower tax rate for dividends.
Thank you Dianne. I suspect pension freedoms were partly introduced to extract more tax from those people who didn’t understand the benefit of spreading out their withdrawals over multiple tax years. Pension Wise was introduced later when such mistakes had already been made by some.
Like most pension channels you seem to speak to people who have Millon pound pension funds. Then ask why people on minimum wage on basic tax are taking their full pensions ASAP. The thing is most can take their full pensions and still continue to work and still be on basic low rate of tax. I know as an example most people over 55 at my place of work have taken their full pensions as they don't trust the funds. Most don't need the money right now, simply put it in bank accounts.
In a nutshell, you have explained why those same people have not got a ghost of a chance of becoming pension millionaires, let alone someone with even a modest pension income.
Sounds like most of them will have depleted their pots before state pension age and then will spend their years screaming how the government has failed them.
The biggest mistake anyone can make is extending their mortgage and interest payments, to pay into a pension with no guarantee of even getting back what youve paid, in let alone any growth, and any returns when eventually taken being taxable.
The biggest/only winners are the pension providers and Inland Revenue.
Far better to utilise the money to buy a better house and pay the mortgage off sooner.
Please explain the difference between crystallised and uncrystallised funds
Uncrystallised Pension: The pension pot is untouched, still invested, and no benefits have been drawn.
Crystallised Pension: The pension pot has been accessed, either through taking a tax-free lump sum, entering drawdown, purchasing an annuity, or taking lump sums (UFPLS), and is subject to income tax on withdrawals.
My advice to anyone holding cryptocurrency right now is to invest it and earn upto 80 times of the initial capitals. Holding cryptocurrency will make it reduce because once the price goes down it will definitely go down as well but when you invest it, you won't have to worry about anything
I have been struggling with stocks and forex since 2022 making loses everytime. I am strungling financially and am about to give up.Please please can someone reach for me and help me with trading please.I will appreciate it. Thankyou
Yeah! Our government has no idea how people are suffering these days. I feel for people with disabilities not getting the help they deserve. Thank you mrs Kristen Palmer, imagine investing $12,000 and received $202,500.
Same here, I'm blessed only. God knows how much I praise her, £32,000 every week! I now have a good house and can now afford anything and also support my family, and never will I forget to pay my tithes because God has been so faithful to me and my family
Can't imagine earning €32,000 biweekly,
God bless Ms Kristen,
God Bless America
...l appreciate the implementation of ideas and strategies that result to unmeasurable progress. Being heavily liquid, l'd rather not reinvent the wheel, thus the search for a reputable advisor, mind sharing info of this person guiding you please?
Government don’t care more tax revenue.
Very interesting
I worked for a electricity company for 51 years
My colleagues took the whole amount just over 1m
I took the normal safe company pension after the full term and started another pension with the same company .
My colleagues are down the Ferrari path .
I worked it out that yes they will have all their funds and have a real regular income.
But depends how long you live
Depends if you want your partner to benefit.
If I had taken the full amount at that time what would have been the right investment.
My concern now is what do I do with my second pension which I contribute to.
Should I take the full amount out the lady was right it’s a lack of education the government changed the rules and we don’t know how to play the game.
If I talk to a FIA they just want to sell me investment products tied up for 5 years I’m 69!
My plan is to take the whole lot and start a business
Depending on how much you are taking out, your business will start life with a 40% or 55% loss due to income tax on withdrawal.
Good luck with the business!
Thought there might be something useful I could act on sadly not.
I am retired but still paying into my pension only 100 a month better return than a bank account and government still paying tax relief in at 20 percent win win
Maybe the money accumulated is so tiny so it does not matter if you cash in? I very much doubt these people will have pension pots in several hundred pounds so taking 20-30k is not so significant.
Is a regular ufpls more tax efficient than fad over the duration of your pension ?
I didn't find this overly clear. And presumably if you take all of your money out and get charged 40% income tax. Many people still get charged 40% on their annual annuity if that is the bracket of tax they pay after retirement due to interest or and other investments.
@KevinOLoughlin-ys5ef thank you Kevin. That is one of the most clear explanations anyone has ever given to me about a pension. Much appreciated. Do you do this professionally?
As mentioned elsewhere - are these figures being skewed by people taking all the cash out of small pots ?
I had a Nest pension with only about £6 in it. It was from some work I did between jobs working for an agency. I cashed it in and paid less than £1 tax on it.
It wasn't worth transferring into my big pot.
I don't know the answer but I had the same thought - that the tax implications are negligible for low earners with small pots, especially in the longer term. If the pot is used to pay off debt, then the (certain) cost of the debt is likely to be significantly greater than the (uncertain) growth in investments, which also occurs over a longer-term.
Cashing it in was a mistake if you are still of an age where you make contributions because, If you've taken taxable money from your pension as a lump sum, your annual allowance might be reduced to £10,000. So you might have reduced your annual allowance from 60K to 10k for the sake of £6
@@wiganer9912 Technically, you are correct and this could be an issue for the OP, however, the concensus is that it is probably predominantly people in lower wage brackets that are taking this approach. As an example, it's necessary to contribute 25% of a £40k gross income to hit the £10k MPAA. £40k income is above the UK median and I'm sure that a 25% pension contribution would be unusual (although certainly not impossible).
@@davem.4003 it was literally only a year or two ago that the limit was under £3k. So could impact massively.
@@BaileyMxX Thank you. Please clarify what limit you are referring to and the impact it could/would have had. I'm not doubting you, it's just not something that I am aware of.
Edit: Ah, were you referring to the MPAA being only £3k? Yes, that would have had a much greater impact - equivalent to 25% of £12k, or 10% of £30k income (anyone can calculate the intermediate options).
What's the median size of the pensions you mention. If it's low that might explain why the % of people taking their whole pension is high - particularly in retail. Also, is converting to an annuity categorised as taking your pension in one go? There's still a lot of mistrust in finance sector following endowment and ppi scandals
Exactly. If you move around a bit and pay into a number of different money purchase schemes (some for just a year or two) then why not simplify things by drawing down the smaller pots first?
@@stevenrix7024
Is it such a bad idea? Especially if you then re-invest it so you have control of your investments because many people don't trust the pension provider who are only in the pension business because it is a cash cow. All of the rewards and non of the risk. It's time that the provider was paid a % of growth and was made responsible for a % of losses with NO charges.. This will incentivise them to be more focused on achieving growth.
Are there any safeguards or regulations to give strong warnings to those that don't realise that they shouldn't pull all of their pot at once due to the taxation due on it?
You can't move a DB pension to your own pot without being forced to have financial advise beforehand so surely there should be some advice given for those that don't realise what they are doing.
That’s a really good point.
@KevinOLoughlin-ys5ef Yes exactly. Pension freedoms allow you to take your entire DC fund in one go without any approval or advice of any sort. Those talking to Pension Wise first are less likely to do so. DB pensions are something else and are very highly regulated as they are a guaranteed income for retirement but only the public sector have these at retirement these days🙂
Why not take it all and invest it in property? get a good agent to look after it for you and be careful who you let it to, it's your property not the governments or civil servant's so just watch what you are doing and you can get up to 8% and still have your property.
I've recently got into property investing with a BTL and so far it's been nothing but hassle! So many regulations to comply with. Plus all the headaches working with various trades to renovate the property. It's certainly not something to get into with your eyes closed to everything involved. In comparison getting an income from a pension invested in stocks and shares seems quite appealing.
There are good agents? 😅
If you want to withdraw enough from your pension to outright by a £300k property, you would need to withdraw £500k, pay your income tax and be left with £300k for the property.
Doesn't seem like a worthwhile investment to me!
I'm still working but have a pension plan that is not currently being paid into. I'm old enough to take 25% tax free and I worry that the company holding the money may not be investing it well. There is also the question of their ongoing fees. I'm tempted to take the 25% tax free, put as much as is allowed into a cash ISA and stocks and shares ISA (50/50 split) and then accept that tax will be due on interest earned on the balance invested elsewhere. Does this sound like a bad idea in principle? Obviously any comment you may make is not financial advice.
@@philzvids3577 Do you need the 25% now? Since you suggest putting it into an ISA, I assume not. Why not transfer the whole pot into a lower-cost platform and reinvest as you would have done for an ISA, in S&S funds and money-market funds (MMF)? Taking the full 25% crystallises the remaining investments, which may make a future transfer more difficult (I'm not certain about that; it's not something I've tried but it would be worthwhile checking). Do you know what the charges are for your current provider, so that you can compare? Sometimes the employer continues to cover the administration charges, including those associated with the frozen pensions of past employees. Have you asked about alternative investment options (take care to look into the "spread" (the difference between the buy and the sell prices) because that can reduce your investment value if you are considering changing investments with the same provider? If you are unsure about investing yourself, then it may be worthwhile engaging an IFA to advise you (there will be a cost though).
Have you considered making an active choice in where the money in your pension is invested instead of leaving it to the pension platform to decide for you? If you haven't make a specific choice then you will be in their default fund which may or may not be right for you. After all, in principle the asset classes and funds available to you shouldn't be any different in a stocks and shares ISA c/w a pension - they are just different tax wrappers. There will be provider specific differences ofc so if yore not happy with your pension platform fees and/or the investment choice then you could transfer to a provider that better meets your needs.
The 25% question is difficult in general terms. I would say not to unless you have a specific need for the money. The rationale being is that you could end up with more 25% tax free if spread over many years in a drawdown.
But then again, many people comment here that they don't trust a future government to maintain the 25% tax free so want to get their tax free out as soon as they can even though they know it will make them worse off in the long run if rules don't change.
@@DianneSullivan In my limited experience, the choice of funds available within an employer's scheme is very limited in comparison to common SIPP platforms. Obviously this may vary from employer to employer and scheme to scheme and it's probably because to much choice causes confusion. Typically, everything will go into a default fund (so relatively safe but also low growth). (I know that you know this but some readers may not be aware of some of these issues.)
My previous response seems to have disappeared but the buy/sell spread can also be a significant barrier to reassigning investments into different funds. My personal experience is that when I investigated moving between funds, in order to freeze the value of my investments prior to triggering the pension, the cost of doing so was greater than the typical pull-back in markets, so given the likely duration of the process, I cannot win and the volatility risk remains with me.
@@DianneSullivan Thank you for the detailed reply. Much appreciated.
I first learnt about "small pot pensions" when I had an excellent free session with Pensionwise.
At the time I had 4 small direct contributions pension policies and was able to combine 2 of them and partially transfer from a larger pension into two of them. (The pension companies dont make this process easy and they drag out holding on to our money for as long as they can).
In 3 different tax years, I cashed in 3 small pot pensions.
So I have contributed to these statistics!!!!
Was I tax inefficient? Was I irresponsible?
I don't think so.
I used some of the proceeds to make additional contributions into my wife's state pension, allowing her to get the full state pension.
I also was able to pay additional voluntary NI contributions and now I will also get the maximum state pension.
I someone that is using one of their pensions to pay off the mortgage at 55, I don’t know what tax they paid on the withdrawal.
It's mad that your pension is protected from the government getting inheritance tax it also goes to your kids and the benefit of growth is way better than any property and no maintenance or scum smashing it uo
I love your videos but I think here you are not really understanding how lower income folk function - low income all thier lives, mini pension pot at 55 - at this point people want the cash yes, but they also want to maximise benefits going forward - so it makes perfect sense to me to take the whole amount, especaily if still working. Then either spend it or "hide" (with a trusted kid for example) to ensure that you don't have a bank account balance with 6k or more in it at any point as this will affect the Universal Credit or Working Tax credit that is being claimed - the vast majority of low income workers are claiming an in-work benefit and it is essential they keep their income low otherwise they lose the benefit and that is worth way more to them than any tax hit which will be small if at all as part time minimum wage income may iteself be lower than personal allowance.
- likewise they may NOT want the small amounts coming in as pensions when they eventually retire because as long as they stay with the lowest possible state pension they will qualify for pension credit which is highly likely to lift them to or above the level they would be if they had kept a low value pension.
Your video is coming from a stance of focusing only on pension and implying that folk are a bit thick for not realsing they would have to pay tax on 100% of draw down - in reality the low income, benefit juggling, never had much money to put in a pension pot group are often very savvy with money and know the ins and outs of the system incredibly well, have no issues with maths and are brilliant at working out how to maximise their future income.
Great point.
I agree, whole different mindset
Insightful comment.
Also, the 60% figure does account for all those stupidly small pots you may have earned if you only worked for an employer for a coupke of years.
Neither does it factor in ppl consolidating multiple small pots into a larger / better one etc
It’s the same with farmers. They might not look too switched on with that bailer twine holding up their trousers but they know exactly how to maximise their government grants and tax allowances. It’s all in their head, no complex spreadsheets needed.
Wouldn't it be easier to save into an ISA and bypass all these ridiculous rules of what you can and can't do with your own hard earned money?
@@fruityboy6885 Yes, it is simpler but saving into a pension does give you an additional benefit of 6.25% and for higher earners, the £20k per year ISA limit may be too low. The reality is that a combination of pension and ISA is probably the best solution. Always pay enough into your pension to gain the maximum employer contribution too - that's free money to help you in your retirement.
Your pension never keeps up with inflation so the buying power of your pension reduces over time.
It will keep up with and even outperform inflation if invested correctly.
Hi Ken, it could be that you need to review where your pension is invested if the performance of your fund is not keeping up with inflation.
@KevinOLoughlin-ys5ef have you seen what’s happening around the global financial system. The Dollar is coming to the end of its world reserve currency status. Central banks are buying gold the only tear1 asset. There is a reset coming and the printing of money out of thin air will be over. Commodities to keep what you have for me. BRICS are dumping dollar bonds and money will be backed by something. Th UK will be affected by what coming. That’s my opinion, suppose we will seen in the future which of us is right.
@KevinOLoughlin-ys5ef Perhaps Ken is referring to an annuity rather than investments? With annuity increases capped at 2.5% and that is an "up-to" value, the annuity will only keep pace with inflation while inflation is lower than or equal to the cap.
The pension companies are fraudsters as we all know. Get it into a SIPP. It should be made legal for employers to contribute to a personal pension SIPP.
To take it all in one go you must be mad. The tax would be horrendous.I retired nearly 2 years ago and have not withdrawn any yet My pensions are now in one place and are still accumulating
I agree. I can't believe any one with a large pension would do it either.
At least split it each side of the financial year.😅
You could do a partial pension transfer eg to Aviva of almost £10,000 and then cash in the entire new pension VERY IMPORTANTLY as a "Small Pot Pension" and still be able to contribute to your pension. You could cash in up to 3 small pit pensions in different tax years.
Depends how big the pot is and how much income you have. Many people are in a situation where cashing in the whole pot doesn't take them above basic rate tax.
Maybe due to rip off fees!!
Hidden 60% tax when u earn 100k - 125k.
Most likely they are pathetically small sums.
Why do you overlook frozen pensions in all of your commentaries?
I don't bother paying into a pension, rather put the money into bitcoin and let it grow. Pensions will be worthless by the time I want to use it..
If your accruement of deferred state pension is very high is it still taxed at 20% when taken, as they only allow you take it in one lump sum? I’ve left it till I retire so that the state pension is my only source of income.
?
Your only source of income being about 11 grand pa? The maximum state pension amount?
As far as I know, a deferred state pension is not paid as a lump sum; the weekly amount is increased a little for each 9 weeks of deferral. You still have your personal allowance, so if your state pension is your only income, then you'll only pay tax (currently at 20%) on the amount received above the personal allowance. You will therefore be liable for income tax only if you have supplementary benefits that take you over the personal allowance threshold. This could apply, I believe, if you were previously contracted-in to the State Earnings-Related Pension Scheme (SERPS).
My wife deferred her state pension for about a year and a half.
She was able to have 12 months backdated, paid as a lump sum (with no interest added) and then started receiving about 102% of the state pension. Yes she paid tax at her marginal rate on all of it (20% in her case).
For most people it's not a good deal to defer the state pension - watch UA-cam videos about it.
@@mikeroyce8926 Yes, a bad financial decision to defer ones state pension and as you say there is plenty of sound advice on YT and other sources.
Take it, spend it. Go into a home and the state will take it. Enjoy it while you can.
@KevinOLoughlin-ys5ef I hope your statement is still correct in the future. Starmer is sure to have his eyes on 'pension pot forms part of deceased estate'.
@brianwillson9567 that is a worry, what's labour going to do to fund their promises? 30% flat tax relief? National Insurance on pension payments?
So, would I be right in saying that once you’ve reached the amount in your pension pot where £50,270 is a 4% drawdown - it’s best to then take additional income from other sources to avoid the 40% income tax? Or have they thought of that and you get taxes 40% regardless?
My mate had a massive pension pot of about 850k which he took in one go. He bought a house in the Canary Islands with some of the money. Not sure what he did with the rest.
Lived the life of Riley. 😂
The rest paid the tax,
So he paid £127K more tax than he could have. Hmm, didn't think that one through, did he.
that's 60 in every 100!!! when you translate it like that it really hits.
Perhaps if the gov made it more attractive to leave your money in a pension, I'm sure more would. Having general conversations at work, one of issue is what if I drop down dead in the first couple of years of retirement. For many its the only opportunity to possibly obtain a sizeable amount of money and simply have a good time why you still can. A pension is a bit like owning your own house. You work all your life to pay it off and just when its time to enjoy the fruits of all them years of hard work, you need it to pay off your health care bill. Its not surprising that young people are not incentivised to plan ahead or even find a job. Sad I know !
Great points and that's why I prefer focusing on a S&S ISA. More control, and not pinned to a certain age.
For me, my goal is to keep the hands of the taxman off my savings as much as I can for as long as I can.
Leaving my savings in pension pots for as long as possible is one way of achieving it.
Drawdowns over many years to minimise the taxable amount in each financial year will be another.
ISA will only come into play when I've maxed out my pension contributions allowance or when I start saving for big purchases or building up an emergency fund.
@@wilderbeest773this is my philosophy.
Also, you can crystallise double the amount of your drawdown, but only take part of the taxable amount.
Crystallise £8k
£2k is tax-free.
Take that and £2k taxable.
Leave £4k in the crystallised side of the pension.
If your allowance is already used, you pay 10% instead of 15% (as you're only taxed on 3/4 of it).
If you still have unused allowance, even better.
It should keep my tax at 10% from 60-80 yr old.
After that, I'll sell the jetski and stop clubbing.😅
Their transferring it to gold with a bit of luck
I took a very small pension cash only, slightly bigger pension I took 25% and got a annuity for life with the rest, I will be taking my council pension at 62 and still work a part time job till I get state pension at 67. But the £12500 limit for paying tax is far to low it should be at least £18000! The cost of living meens nobody could life on £12500 today!! The state pension is a joke! If I had kept my national insurance money and invested it in a pension I would have got a whole mount more! And this tory government saying the state pension is a benefit is a lie! I asked my 85 year old step dad what was national insurance started for away back then? He told me it was started for the NHS and the state pension! My stepfather is into politics so he's not a stupid man and he was a engineer back when he was working. THE STATE PENSION IS NOT A BENEFIT !!!
I believe that if you draw your pension pot and spend it BECAUSE YOU SAVED IT through many years of hard work.? (Good on you, why not you saved it.)
If we say you have £100k & you draw it at the basic tax rate until it’s all gone, say 4 years it’s all gone including the lump sum.
Are you telling me that people that have never payed into a pension, but like say myself payed for say 35 years will possibly not given more in benefits than myself weekly, for saving nothing at all is rubbish.
The government want people to draw pensions monthly, saves them dipping into the GOV coffers to give less in benefits.
Why the government do not give people who have saved with lower pots better options not to withdraw these pots to spend how they like is beyond me.?
Once that pot has been used up the government will have to pay you benefits as like none savers, because on British pensions you cannot live like the rest of the Weston world being pensions so low in the uk.
The government maybe should look to giving a better uk pension amount,? to the people that have bothered to save over many years if they draw there pot as a pension with no benefits to pay out to compensate that their providing for their OAP needs and not the state paying benefits because the pot has gone.?
buy gold and silver
yes but that could be at risk of theft or fire
Ignorance?
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Your talking about rich people who had so much surplus income they could pay into private pensions, the same people
who are now retired and are reinvesting their private pension pots to be one even richer whilst living on the state pension.
The rich get richer whilst the poor live off the scraps. It should be compulsory to take all your pension at retirement and
use it to live off whilst paying income tax. At least some money will return to the system to help support the poorer
people who only have the old age pension to live off. Elitism is alive and growing and it’s divisive and hateful.
Generally most people will live up to their income so its highly unlikely that anyone with even moderate wealth will be surviving solely on the state pension while they continue to invest money from a pension pot, they would have at least some other form of income, why would they struggle on £221 a week?
I guess you didn't have the foresight to invest in a pension. Nowadays with auto enrolment where your employer has to contribute at least 3% and tax relief where the government will top up your contributions it is foolish not to have a pension because you are effectively getting free money form both your employer and the government. I have come to the party late and only have around 12 years to save for my retirement, but even that is not too late to build a decent pot.
I’m sorry that you feel I’m talking to the most well off. My intention here was to inform those less well off to pause and consider the implications of taking their DC pot in one go - as others have pointed out, every worker is now automatically enrolled onto a DC pension (unless you work for the public sector and have a DB pension)
@@wiganer9912 similar situation to that which i was in. My employer started the nest scheme and its remained at the minimum levels as they do not really want to be doing anything other than they were obliged too.
In the space of around 8 years i built up a fairly sizeable pot from paying into the scheme myself once my mortgage was paid off, what was the mortgage payment became a pension payment.
Even though the employer payment was minimal it still accrued to a few thousand and the tax relief is where a huge amount comes from.
I would urge anyone in Nest to look at the different funds as by default Nest are cautious and will not put you in any of the riskier funds which are worth investigating if your younger.
The actual investment returns are not actually that good overall (in Nest) if your in the more cautious funds and the charges on what you pay in are a bit on the high side.
@@DianneSullivan i now look at financial advice as similar to watching a film in that the second time you watch it you start to see little things you miss and then the third time you see something else.
Financial advice does always make sense or register the first time you hear it. The more you hear it the more you understand and the more you can learn.