Why You Shouldn't Pay Into Your Pension (UK)
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- Опубліковано 21 лют 2021
- We're always told that planning for your future is one of the most important things and pension contributions are the single best way you can do this planning.
You're told by the government, every financial advisor and every finance UA-cam channel about the importance of putting money towards your pension. Many recommend you contribute much more than the minimum requirement of 8%.
I am generally a big proponent of financial planning and I agree that planning for retirement is very important.
But it's also really important to be aware of the fact that if you save too much into your pension, it can be a really bad thing.
The UK Government has introduced a Lifetime Allowance for pension pots which sounds very high - it is over £1,000,000.
But although that sounds crazy, if someone one a median wage contributes the minimum amount from 21 to 68 which is the current target retirement age, their pension pot will actually be bigger if it grows at an average rate of 8% per year.
If you happen to earn more than the median wage for a good chunk of your career or your investments do better, your pension pot could be much bigger than that.
And if it is... the UK Government will tax you 55% of any amount over the limit if you take it out as cash or 25% if you buy an annuity... before then taxing your annuity as income as well.
Unfortunately this is something that just doesn't get mentioned at all when people talk about pensions and given that this may actually apply to a significant number of people as it stands, it's important to take it into account when you're making your financial decisions.
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And just a few days after I post this video, news comes out that the Government is considering freezing the allowance to raise extra tax... Who would have thought...
Maybe Rishi should have watched the video 😂
This video was possibly THE most important video I have ever watched on youtube. A few years ago I decided to 'plough' money into my pension. I was aware of the lifetime allowance but just wrote it off thinking I would never get anywhere near. A couple of decent years in the market and all of a sudden it's gone from looking unlikely to looking inevitable unless I take action. Thanks again.
@@jasonburford2013 Thanks Jason! I'm glad it's helpful as I got a lot of stick from people explaining to me that I don't get it and that it's nearly impossible to actually hit that limit :)
If you notice, they used the word “considering”. Action speaks louder than words
@@taffythegreat1986 the government did freeze tax allowances!
You do a reasonable job of caveating this analysis in your video, though I feel you could emphasise two things more clearly: firstly, that all contributions to a pension are made from pre-tax income, so there is an immediate 20% (or even 40%) gain at the front-end, further supplemented by the mandated employer contribution that is not received if an employee actively "opts-out"; and secondly that there is a commitment to increase the lifetime allowance by CPI (which you do mention, but do not proceed to analyse). I recognise your comment that "government is considering freezing the allowance" but that is always the case (and note that, similarly, government enjoys increased tax-take every year as the higher-rate tax threshold rarely keeps up with increases in earnings). However, a reasonable CPI estimate based on 30 year historical averages would be around 1.5%, though even with a pessimistic 1% rate of CPI the lifetime allowance would always stay ahead of the "total pot" size by your analysis. I would make two further points: firstly, that your analysis assumes an 8% growth of investments. While I don't disagree that this may be appropriate (based on historical average stock market performance for the last 50 years or so), the further back you go the lower this would be, and your comments that this is pessimistic is not reasonable unless you use more recent stock market performance (circa the last 10-15 years) as your sole indicator (considering pensions are invested for 30-48 years); secondly, note the UK government's track record in protecting existing investments when it makes substantive changes to annual and lifetime allowances. In particular, note the allowance protection measures provided by government for existing savers when allowance changes are introduced. I note this only to recognise that, in the event the government seeks to make substantial changes to the allowance limits, there is precedent for existing pension pots (or portions of pension pots) to be treated differently and protected from such changes. In view of all this, I would say that the analysis in your video is less reliable as a basis for informed decision-making on pension savings and risks dangerous interpretation by viewers. My concerns in this regard are emphasised by some of the comments in response to your video that suggest some people may actually de-emphasise pension savings and (heaven forbid) opt-out of a workplace pension altogether. Otherwise, thank you for the though-provoking video.
Hear, hear - this is always the risk with presenting this sort of information to the masses: some may interpret the conclusion extremely and go completely in the opposite direction. And yes, since the lifetime allowance is supposed to increase with inflation, the analysis here is basically all moot. Definitely an important thing to bring into light, but also not something that will adversely affect many people.
Instead, compound interest is the eighth wonder of the world because: "The real route to riches is to set aside a portion of your money and invest it, so that it compounds over many years. That's how you will become wealthy while you sleep. That's how you will make money your slave instead of being a slave to money.”
just the 2% yearly handling fee plus inflation and funds stuck for 30 plus years was enough for me to opt out.... it also said it can go down aswell as up... i can lose my own money i dont need help...
@@DFK12345 You are giving up FREE money as the employee contribution plus tax relief outweighs costs!
Going down as well as up is a short term feature all investments that have any decent return over time. You can only have zero volatility with savings accounts and short term treasury bonds that don't go up and down but LOSE purchasing power as they are ravaged by inflation.
is it worth doing additional voluntary contributions (AVCs) if you're on approx £60k as you're on a higher tax bracket? I can do up to 10% in AVCs with my employer
Ayeee congrats on 10k subs🥳🥳
Keep up the hard work 💯👌
Thank you! Onwards and upwards!
Great video! Enjoying your content. Keep up the good work mate
Thanks Jimmy! Really appreciate it!
Sasha this is a dangerous video and title and is much more complex than you are giving to it. You made too little of the fact that the Lifetime allowance is likely to rise considerably and could easily be in excess of 2 million in 40 years time. Not sure I agree with you covering a topic like this in such a one sided way. There are some massive benefits to paying in to a pension as well as a mix of other investments.
I did say several times that very point. However as it stands the numbers are what they are. This isn’t me making it up - I literally showed what the numbers are for those who are starting out on their pension journeys who may be in a different position to people further along.
The point on 2 million I covered too - I didn’t increase anything by inflation including wages to cut it out of the equation.
The amount could increase but it could also decrease like it already has done in the past 4 years and then people doing the right thing could get hit even harder.
I agree it’s a complex topic and I also agree that 1 video is not enough to cover everything to do with pensions but I don’t try to do that.
I go through one topic per video and based on some responses so far a lot people had no idea this limit exists let alone what it means so I’m pretty happy that people are learning.
@@SashaYanshin The tone of the video and the title could easily put people off paying in to a pension at all. If an employer matches a contribution then that is a 100% gain. Contributing to a pension to purposely go over the allowance might be a beneficial inheritance tax benefit. If it is a defined benefit scheme there can be some exceptional value there as well. There are lots for and against and you only have to look at some of the comments to see how people have taken the video as a reason not to invest at all. You could be influencing people negatively on what is a much more complex issue that if approached correctly can provide massive value to an individual. I understand you want to shock people in to watching but its bordering on bad advice as to how some people have taken its meaning and message.
@@financialfreedomandeducation I didn’t once recommend in the video that people don’t. In fact I did say the exact opposite at least 3 times.
I get that the title may be edgy but if someone watches the actual content, I’m not sure what your point is.
Is it better to only ever repeat the same narrative and never raise alternative points? Should I always say all the negative points when I say positive ones too? Because I have other videos where I tell people that they should put money into pension but don’t mention this or other downsides.
I hear your point but in the scope of a UA-cam video I can only focus on one point at a time rather than do a full on complete treatise.
I actually have a video about my investments in a pension scheduled at some point in the next 3 weeks which will give a completely different lens.
I want to give people different bits of information - I can’t do an hour long video each time on everything there is to know about pensions and yes - people need to know the cons as well as the pros in my opinion. 99% of the videos out there repeat the same pros. I sometimes do too but I’m not here to just repeat the same old stuff over and over.
I want to challenge people to think and consider different points of view.
I had a video literally a few days ago talking about how awesome the Freetrade SIPP is. I don’t have an agenda here.
@@SashaYanshin Hi Sasha I think we are probably going to have to agree to disagree on this one. I think you hit the nail on the head when you refer to only so much can fit in to a video.. This is an area that I think is best left to a financial adviser who can go in depth.
Yep - let’s disagree on that one because I for some reason have never heard financial advisors talk about this along with trying to sell people underperforming funds because they get a kickback.
But I knew people would have strong views on this - hence why I mentioned it in the intro.
Feel free to tell me how the main point of my video is incorrect though. because you may disagree with the message in principle but that doesn’t negate the specific point that the government policy on this as it stands is counter-productive.
Super interesting video, thank you! This is vital information!
Thanks Theo!
Thanks for the video.
I have a question after using official Govt calculator and seeing no bigger changes when increasing EE and ER values to fund my pension.
At moment state pension gives you £189 per week.
If you work in supermarket and earn 25k you get £189 ,when you work as professional and earn 40k annual you still get £189 ?
How does this work?How does much bettr salary inmrove your pension pot?
If there is no benefit earning more money then best scenario is to do personal savings or invest in some private pension plan.
Any input on what I said?
Interesting points. In my long experience of work place pensions, they have returned on average 6% plus there will always be the market dips and subsequent recovery time to factor in too. Workplace pensions are still important and if ever I should even get close to the lifetime allowance, then I'll just retire. I want to retire before the state pension age anyway so my workplace pension is extremely important in achieving that goal otherwise we just flog ourselves until we die.
I'm not saying that things are black and white - I agree that using the tax and contribution benefits of a workplace pension are a good thing but I also think pensions are at the beginning of a major revolution in terms of how much you can grow your portfolio and the options available and with the government now showing that the Lifetime Allowance is going to become an actual taxation lever, I can see it becoming something that the majority pay instead of only the super rich pretty fast.
That's how all taxes are introduced and then gradually moved towards the masses. :)
Hello, I came across your comment while in the comments section and, I was thrilled to say hello, how is life with you
Thank you for this video... knew a bit but now i am certain about it.
Just calling things out to make people think about their money a bit more!
Really interesting video! Thanks... Didn't realize that the threshold at just over 1million could affect so many people so adversely... Suppose this is why people love investment is as to invest into along aside a pension. Great video and congratulations on 10k subs.
Thanks John - Had a lot of people disagree as I expected but I'm just here to point out things that would prompt people to think a bit more and I'm glad that you found it useful :)
Thanks for this video Sasha . What’s your plan for your pension ?
This needs updating seeing as the Lifetime Allowance has been abolished in 2023
This is great Sasha! What alternative avenues exist to invest in? I’m 20 and want to be money savvy from the start, any thoughts on alternatives would be great to hear!!
Think my point is more on being aware of the limitations rather than flat out using alternatives. LISA is one alternative and other investments post-tax are another but a healthy mix where people make the most use out of their pensions AND investments is what I'm all for.
My advice. Marry well. Still married to my wife. Friends who are divorce get screwed. Marry a good woman.
Funny that right - encouraging people to do the right thing which may well mean a huge number of these people then pay a huge chunk of tax when they come to retirement. 👍
So here I'm the UK as I assume you like myself am... then what's the freaking point of the government introducing the matching my contribution thing with the company I work for.. for example..
I'm 34.. I currently pay in 110 per month.. to my pension from.the company. And the company match this contribution as its the maximum amount allowed to do so..
So.. after all that... your telling me.. its the government are essentially saying.. companies are topping up our pensions.. but its not real.. because when we retire they are taking that ability away from us to enjoy our own cash.
Honeatly.. its not hard to see why celebrities Swan off to bloody Monaco and all that is is really. 🤣
@@AJellySnakeRebel Pensions are fine, just be aware of the consequences of exceeding the allowances and plan accordingly if you're on track to hit it. www.hl.co.uk/pensions/pension-comparison-tool suggests that the average pension pot of a 61yrs old is nowhere near the Lifetime Allowance, but it could be relatively common to reach/exceed it depending on the business you're in.
If your pension provider has a calculator to estimate pension pot at retirement, use it to assess if the lifetime allowance is likely to be an issue for you and your circumstances. Factor in any other pensions you may have, or SIPPS you intend to start. www.hl.co.uk/pensions/pension-calculator or www.vanguardinvestor.co.uk/what-we-offer/personal-pension/pension-calculator may be useful.
If you come relatively close to the lifetime allowance then keep that in mind for the future and plan for it. If your estimate is nowhere near the lifetime allowance, don't worry about it too much unless your circumstances change or the allowance is substantially reduced.
When it comes to retirement age, there are several ways to use/withdraw your pension and some could hand the government more of a share than others. With a little planning you can make very tax-efficient use of your pension. Oviously a bit early to be worrying about it but check-out the options before you start withdrawing from your pension or you'll reduce the options available to you. www.vanguardinvestor.co.uk/investing-explained/using-your-pension-money covers this quite well and also covers the Money Purchase Annual Allowance. The MPAA is worth being aware of if you intended to draw from a pension while still working and contributing to pension, if it still exists in 23-25yrs time.
Haha. Pensions are still a good thing - just important to know where the limitations are!
Thank you for sharing- you make the valid point if retirement age keeps rising then £1m plus may not be as impossible at it may feel right now. Definitely good knowledge to have now. I hope people listen to the whole video and what you actually say though!
Definitely got a lot of comments that sort of sound like they came based on the Title & Thumbnail alone possibly with a small dose of skimming the description :)
Great video. I never knew about the lifetime allowance. Do you think it would still be good to pay into my pension if I stay under the allowance? How would we opt-out of paying into our pension?
Absolutely - I mention it multiple times in the video and my other videos about pensions - planning for retirement is incredibly important.
I am just pointing something very specific out in this video so that people learn about it and make smarter decisions with their money over time.👍
Really interesting video! I had never heard of this threshold! I started my SIPP a couple of years ago. What do you think would be a good alternative if you want to have a pot over a million for retirement but don’t want to be taxed so heavily? Maybe investing any excess in an investment Isa?!
I think using ISAs/other ways of investing as a counter is where I'm at. Certainly want to have a mix as you also get increased flexibility and other perks although the tax advantages of pensions are still worth putting some money into for sure - just important to understand the limitations.
@@SashaYanshin definitely sounds like a good plan. Really appreciate this video as it’s made me think a bit differently about our retirement plans.
Thanks Sasha!
Thanks for the content. The problem with all this is, the more you learn the more complex it becomes.
That much is definitely true!
Thanks a lot for this clarifying video👏🏻👏🏻
Nice video! Congrats on 10k 👏 .... Some valid points here Sasha.
As you used the auto enrolment rates there are a few things not taken into account like qualifying earnings, 20% tax relief meaning you only contribute 4% net, the fact if you stop your employer doesn’t need to give you the 3% that they were, higher value compounding etc... these factors “generally” mean it is worth paying into a pension regardless however I understand it is very difficult to cover everything in one video! 👍
Thanks Richard. I made a reference that the calculation is not quite accurate at the beginning which was partly down to the enrolment rates. The 20% tax relief is not really one of the issues here - I was working on gross pay numbers to keep things simple.
I do get that these issues are complex - I appreciate you acknowledging the fact that you can't talk about everything in 1 video unlike a lot of comments I got on this one. The number of people who said they never knew about the cap made me happy I talked about it though. It's easy to say at the moment when these sorts of pensions are still early (most only really started 10-15 years ago and back then the minimums were way lower) that reaching the cap is impossible but basic maths says it's a lot more possible than some people think and there's nothing stopping the limit being adjusted downwards in a government raid on pensions if money is tight.
@@SashaYanshin Firstly thank you for taking the time to send such a reply! I agree the amount of people who will learn that there is a cap from your video should make you happy and is a great job done!
As I have just started a channel myself I understand that to make a video that covers all parts would be near to impossible! especially as you are trying to be as generalised yet as entertaining as possible. My day to day job is that I run a Payroll company in the UK and deal with pensions on a daily basis and can clarify that Auto Enrolment came out in October 2012 and before then there wasn't a minimum and even then the minimum between 2012 and 2018 was 2% in total. The only part that really affects your figures as mentioned is Qualifying Earnings this means you don't pay pension on the first £6,240 earnt which using your average from ONS brings the average pensionable earnings down to £24,180 a year which means you only contribute £161.20 a month to meaning after compounding the average person will have £982k putting them within the cap.
Anyway as you said it was a rough guide and I applaud you for making the video as like you said we are in the governments hands and if they decide to change the cap to £0 in future well there is nothing any of us can do and will fall into the trap that your video explains...... once again great work and look forward to seeing more content!
Hey Sasha, maybe worth updating this video as its been announced the tax will scrapped from April 2024.
Which tax has been scrapped?
@@sufyanpatel8257the 55% tax on exceeding the LTA. LTA has been scrapped.
Hi Sasha - great video. Thanks for raising awareness of this very important point. A follow up on £2m pot to show the tax impact with numbers of early drawdown vs lump sum withdrawal vs annuity purchase would be great. 👍🏼
Not gonna look pretty at £2m with the huge taxes on anything over the £1m threshold...
Thanks for sharing, good to know. Now time to plan again
Thanks! Very interesting. I did know about the lifetime allowance but didn’t know what happened going above that
That’s why I wanted to talk about it (and get a lot of stick for doing it)
Thank you for bringing the lifetime allowance to our attention!
Not sure I 100% agree with the title, especially given that companies matching your contribution are essentially giving you free money, but certainly an interesting point! Cheers.
@@BigHenFor ahahaha "just saying", that's a lot of words, and you make a good point. However, currently the lifetime allowance is £1.07M, so it's really just about managing and periodically tapering off your [pension contributions : other investments]. Based on a your pension's projected growth, so you can max out the tax free lifetime allowance with company money. Which in fairness is basically what you said...
I am definitely not saying it's black and white - in fact I already have other videos talking about pensions and even in this one say this a few times. I'm just pointing out that there are other considerations that people need to be aware of that don't get the prominence I feel they should when people are encouraged to make large pension contributions over long periods of time.
I applaud this: important for us to make financial decisions with all the information to hand
Please correct me if I'm wrong but wouldn't the allowance have risen in thirty years time to around £1,943,772.12 (with 2% inflation assumption) ? Hence your 'average' pension would still be below the limit?
I made a specific reference about that in the video saying that over that length of time I didn’t want to count inflation so went on the conservative end and assumed a lower return figure to counter it.
Plus same argument will go for average wages etc which will then self balance too - the contributions won’t be fixed.
The allowance started at £1,500,000 in 06/07 tax year, rose to £1,800,000 in 10/11. It was then cut to £1,500,000 in 12/13, £1,250,000 in 14/15 and £1,000,000 in 16/17. Increases in line with CPI were then introduced but is there anything to stop it being cut again at some point?
@@ryanyoungson6762 Absolutely not! Was going to talk about it but cut it out as it would go a little off topic. Good point :)
@@SashaYanshin The point in your video is a very important one and one I didn't really consider until you mentioned it so thank you. I did calculations for my own circumstances and assumptions and just thought it would be worth pointing out in the comments about the rise in the limit (if the assumptions hold).
@@Huzayfa95 Yeah - I get that but if you assume the limit will increase, you need to assume the wages and average contributions will too AND that the government won’t manually reduce the limit (As they already have done).
Hey,
Can you help me understand difference between NI payment, NHS payment and pension payment? I am new to UK and these are all deductions in my salary so I am little confused between all this. I understand pension is deducted and paid later when we retire. And NHS fees is for availing health facilities. But what is NI (National insurance)? Where does that money do? How is it different than NHS and Pension payments? Its a part of my monthly deduction in salary. Pls help me with NI part?
Great video, thanks 👍
People think that the government is doing you a favor with pensions? They never lose.
yep total scam like everything else
Note that as of March 2023, the lifetime allowance has now been abolished.
I knew about this information but IAM glad you share this information as alot ppl don't know. Thanks 😘😘😘
Doing my best on the informing and educating front!
Super useful video Sir, thank you very much!
It's an interesting point, but despite being half way through my career now, earning above average income for most of it and maxing out my pension contributions (or at least, paying in whatever was required to maximise what my employer would contribute), there's not much chance of me hitting this lifetime allowance. Maybe if funds hit 8% every year I'll have a chance of getting close to it, but well let's just say that they've never been anywhere near that rate of return over the last 20 years, so I'm not holding my breath.
A few important points to remember:
1. The minimum contribution levels have gone up a huge amount so people who are young now are going to be contributing way more than those in their mid-40s.
2. Typical pension fund costs and returns have been abysmal for decades. This is now changing very rapidly with new types of SIPPs arriving
3. Pension funds grow a lot more as people approach retirement due to compounding so hitting the limit may seem far away until you get close.
4. I don’t know anything about your career or earnings but if someone’s pay increases over time, that limit can be hit quicker than people think.
5. Don’t expect that limit to forever grow while salaries and therefore contributions do. Last week has shown that it can and will continue to be reduced/frozen... Which can catch people unawares.
First point.. I would love to see your investment recommendation on an 8% p.a. investment return for 45 years.. I think this assumption isn't conservative at all.. generally speaking most individuals choose to reduce risk on the approach to retirement (moving at least in part into cash or lower risk bonds) these asset types are not likely to produce 8% p.a.. Studies have also shown UK investors tend to be fairly risk adverse. Second more important point.. in most cases the biggest incentive in the UK is that employers have to make a contribution and in the majority of cases this is well in excess of those required within auto enrolment (to be clear the 8% isn't all coming from you!). Third point employers often offer contributions on a salary sacrifice basis.. clearly giving tax and NI savings (upfront). Forth point UK pensions give you tax free investment returns (no capital gains) and also a tax-free cash lump sum. Fifth point you've completely ignore the impact of investment charges (employers are often able with economies of scale to negotiate far lower charges compared to retail products) So overall your example is completely oversimplified.. a comparison against other long term savings is required to form a true view..
You ignored the point of the fact employers pay into pensions (in most cases they make up 50% of the total contribution).. but don't pay into ISAs. The average total charge in UK employer arranged pensions is under 0.4% including platform fees etc.. (the charge cap in its self is 0.75%) so not sure what happened in your case!!
Andrew - In the video I repeatedly make the point that I am not advocating people should avoid pensions altogether. This is UA-cam video - I focus on one topic at a time and the point here is to educate people early on in their pension journey about the Lifetime Allowance. Comments and people reaching out suggests that a huge proportion of young people have zero idea about this allowance so I'm happy to have explained it to people.
I have other videos (and will have more) where I say a lot of very positive things about pensions. Almost all of your points I completely agree with - the point is that pensions do have restrictions and it is important for people to be aware of them because almost nobody ever mentions them.
As for the 8% and your points on fees - the world of pensions is about to change massively. Old pension funds that pay pathetic returns and charge excessive fees for the privilege are about to go down the same road that high street banks and traditional brokers are beginning to head down. Freetrade's SIPP is the first blow and more will come. There's no excuse for pension funds paying out 3-4% annual returns when the market indices return substantially more.
I think the main issue I had is the video title, which is misleading and a bit clickbaity .. people don't often get past the title. As shown by some of the replies / comments from people where they are talking about pulling all contributions from pensions.
@@ILZ677 even beyond employer conts requirements I’d get full tax relief on my AVCs (for me that’s 40%). I’ve just restarted a small avc which is £55pm before tax but after tax is only costing me roughly £37pm. If I decided to pay that into an ISA after 1 year id have paid in £444 (give or take) but for the same outlay I’ll have £660! I’ve put a lot of thought into the pros and conns of ISA v AVCs but I don’t see anyway that an ISA is better - maybe when I’m pretty sure I’ll hit the lifetime allowance I’d move additional payments to an ISA but not until then.
Hello again. Is there a SIPP that allows to add funds and trade in USD?
I'm receiving my salary in USD and living in the UK. While not planning to live at my retirement age the process of investing in average SIPP is exchange $ to £, then exchange £ to $ when investing, then exchange $ to £ when cashing my investment at the retirement age, then possibly exchanging my £ to $ or other currency when spending abroad at my dream retirement country... :(
I’ve been self employed since I was 18 and am now 29. I have only just realised recently how important planning for my future retirement is ( I think this is because I’m about to become a dad) I have chosen a pension with penfold as they claim to be aimed at the self employed and claim back the tax break for me but they clam the average yearly interest is around 4% which sounds pretty low. I believe the fund is managed by blackrock. Would love to hear your opinion on this if you have one.
I have not used them but a fee of 0.88% with a small selection of funds that pay very low returns is not something that sounds great on paper. The pension industry needs a bit reform because people are missing out on their portfolios growing without realising it - this is why I am moving all into SIPP.
Start your own fund, don't trust anyone/ company with your hard erned money.
They won't give it to you when you need it.
I’ve often wondered if pensions are worth it - however I think they’re good if your employer is paying in a decent amount too.
Otherwise I kind of think putting it in an ISA may be better in the long run, cause when you come to draw it down, it’s tax free
I think both are good - a balance is where it's at making the most of all the unique benefits of the different products available.
@@SashaYanshin Yeah surely just have both?
remember you have an income tax allowance. So some money can be drawn from your pension tax free it is worth having at the very least a small pension pot to take advantage of this. Any money that goes in an ISA has had income tax already paid on it so you pay up front. With a pension you don't pay income tax on the contributions and can avoid it on the withdraw if it is within your tax allowance. Now if you retire before state pension age you currently have £12500 ish tax allowance and can take the first 1/4 out tax free so that basically can give you £15,000 tax free a year. Then if you have built up an ISA too anything from there will be tax free too. So a balance of the two gives you most flexibility and can reduce your tax over all. I would consider though building up the ISA first whilst building up a small pension pot then later in life if you get higher earnings taking advantage of increasing my pension contributions to avoid 40% tax and feel pensions become worth more relatively as you get closer to 55 or 57 the age when you can access them under normal circumstances.
Employer contributions? You're getting a 60% return instantly by paying into any pension scheme, and that's the statutory minimum...most employers pay much more than 3% to your 5%. On top of that the tax relief at source of 20% (or 40% or 45% via self assessment return) is probably not as good if you tried to invest using a SIPP instead. The only real reason not to pay into a pension is if the provider is sh*t, that way you have control over what you invest in via tax relief using a SIPP. Not paying into a pension though and taking advantage of employer contributions is equivalent of paying down a smaller loan with a very low APR as oppose to paying down a larger loan with a higher interest rate because it 'feels good' aka, it's a bad decision.
Long story short, pay into your pensions people...its free money, the government have made it easy to do so you dont have to trawl youtube videos for investment advice - and if you approach the lifetime allowance (which you probably wont) then just stop paying in at that time, why opt out before you even reach that milestone?
Yeah, it is free money, especially when employers match your contributions. Shame people miss out on this.
Correct - if you’re a high / additional rate tax payer it’s a no brainer.
I'm only getting 25% back from the UK government in tax relief, on my pension contributions. I think you'll find that's the the same for most people, the majority of workers in the UK are 20% tax payer's. Unless your very lucky to be a higher rate tax payer, but the statistics suggest that if you get payed £80000 or more per annum you are in the top 5% of all earners for the whole of the UK. I think this guy needs to take a reality check. It appears in the not to distant future, maybe even now there will be an awful lot of people unable to retire from work because they can't afford to, and this is not helped by our tory government putting up the state pension age since 2010.. So we will be having a situation where by millions of people are in poverty, homeless, because they can't continue to work, fir health reasons, can't get a job etc. We are just cannon fodder, when you are worn out they throw you on the scrap heap. The tories are really taking us back to the Victorian era and the workhouse, poor house, poverty & inequality is increasing at an alarming rate since tories running the country. I suspect most people in their twenties don't have enough money to invest & May at best he able to pay the minimum contribution into their company pension scheme
@@fredatlas4396 . My wife is on £70,000, but she recently opted out of paying into her pension for a couple of reasons that I'm not sure about.
I think one was that if something happened to her, I wouldn't be entitled to much of it. Also, do you know if you pay tax on the pension when you take it out? Thanks
@@keithchegwin1222 I'm not a financial advisor, but as, I understand it your wife can nominate who she wants to receive the money in her pension if she dies. You should be able to find this information online somewhere, there is a website I think it's called pension wise. If she is earning £70000 per annum she will be in the 40% tax band and would get a lot of money back from the government inland revenue on any contributions she makes, plus some money from her employer if she's in a works pension. I don't understand why she doesn't want to pay into the pension scheme you should look online to find out more information, I'm assuming your living in the UK Also you would pay tax on income from a pension on any money above your personal tax aowance at the time, but you can take an initial tax free lump sum of up to 25% of your pension pot
Can someone explain plz the calculations - I am confused as monthly conrtibutions stay same then how is monthly interest shown worked out from first month.Annual interest for 1st year should be £193.82 with 8% interest rate Thanks
Forgive my limited knowledge on the subject (that's why I'm here haha). Does this also apply to private pensions? As I'm self employed. Thanks!
8% is incredibly optimistic, you would need to be comfortable with a 100% equity portfolio, and bear in mind whatever % of that is taken up by inflation, the LTA may rise accordingly.
That's the beauty of using SIPPs that I feel will become much much more popular than traditional investing funds that charge expensive fees for the privilege of consistently earning a fraction of what the market returns. The LTA has not been rising with inflation and in fact has been cut AND frozen since introduction instead...
@@SashaYanshin a sipp is not an investment fund it is just a platform to invest for a pension. You can invest in all sorts of investments in some sipps. And if you are 100% in equities in a retirement drawdown this would be very risky, a big risk of running out of money. Unless you are extremely lucky to have a very large amount of money in your account. In which case I guess you could put say put 6yrs of your money into cash or very short dated government bond index fund, to live off and the rest in a diversified portfolio of low cost equity funds. Although even 6 yrs may not guarantee a positive return on your equity investments
I’m averaging 12% - if anything 8% i thought was conservative
@@itsmesaltax I'm running between 12 and 15% on my returns per year on a 3, 5 and 10 year basis. Get a copy of what investment and look at their charts at the back.
Sorry but this is bad advice. My employer pays 13% contributions if I pay 5%. That, along with the tax savings, means I'm getting a huge boost to my pension for free, basically.
Also I can choose what funds I pay into and what proportions.
Making videos basically suggesting not paying into pensions is a bad idea, especially if someone who is clueless about personal finance watches this...
Is the life time allowance tax only applicable on lump sum withdrawal? For example if I were to drawn down on a pot which is over the life time allowance would I only pay income tax?
This is assuming not taking 25% lump sum at all of course.
25% excess LTA + marginal Income tax rate as income or 55% + no income tax for lump sum
I don't understand is this for all pensions including private pensions? Will the government literally tax you on a private mention if it exceeds that limit?
This is for all your private pensions. And yes - if they exceed, you get whacked with tax.
@@SashaYanshin what's the way around this as a self employed person? Put less into the pot every year or start it later ? Or is there some kind alternative the government can't tax?
I've felt the same for years. Annoying having opt out all the time and I still have lots of tiny pension pots to combine at some point.
I dont even trust my pension would still be there at 67+, could be age 70 by that time, and I might be dead by then! I'd rather have more flexibility of my investments.
Think making use of pensions is great because the tax advantages are definitely strong but the narrative that people should contribute as much as possible is what irked me to make the video.
@@SashaYanshin buying the dip in Tesla today is going to pay more than pension long-term ;)
@@gavinbroughton Haha! Unfortunately I'd have to sell Tesla stock in order to free up money to buy the dip on Tesla.
@@gavinbroughton you sound financially illiterate no offence
@@u3vs62cja Thank you very much
That is one of the reasons why I think the Lifetime ISA is a good alternative for those between 18-39
They are all good - just important to know the advantages and limitations of each and use them all to the best possible outcome :)
@@SashaYanshin agreed
Hello, first of all I really enjoyed your video. It's refreshing to have someone with the same ideology as myself. Everyone around me calls me crazy for even thinking about investing my pension fund elsewhere. Question is where do I invest? I had thought bitcoin but that's high risk, I was considering an index fund because the yield can be greater than that of my pension. I honestly feel like I'm paying into something that I'll not truly enjoy the benefits of. All help and advice welcome
Very insightful video mate, what I would say is, is 8% not very aggressive for a typical money purchase pension? Is the interest rate not closer to the 4/5% mark? Would love to hear back
8% does sound aggressive compared to the really poor returns that pensions have brainwashed people into thinking are reasonable. Given the way investments and markets have been for the last 100 years, expecting an average return of 4-5% which is what the pensions tend to pay is pretty bleak and this is why I think this landscape will be changing rapidly.
@@SashaYanshin fair enough, it's definitely thought provoking, especially is you have a pension from a previous employer that's just sitting there growing that 4% maybe something like a SIPP pension that tracks the broad market is a much more efficient way to hold those savings
Thanks for covering this topic. Would be great if you could do a video about pros/cons of opting out and investing yourself. I'm terrible at maths but concluded I'd only need to compound 4.1% a year to match the work place pensions tax breaks and employers contribution
Erm - the tax advantages of pensions are still huge. I definitely need to do an overall video on distributing money between different kinds of investments including pensions by the sounds of many of the comments!
Great content, would never have been aware of this until it was too late.
Thank you. That's what I am here for - to try and point out things that often don't get talked about.
Really useful video Sasha, I was aware of the pension limit but only because I was looking in to my pension :D Not because it has been advertised. Some good points in here!
Thanks Max - I guess I'm taking a lot of hits for the team talking about some things that need highlighting but that many people seem to dislike talking about because it doesn't follow the agreed narrative. 😄
@@SashaYanshin always good to challenge the narrative!! Otherwise everyone ends up like sheep!
I have just started earning from last year. I am 23 right now, I have 3.5k in my pension right now. What are my options now? What should I do?
Congratulations again on reaching 10k Sasha!
Thank you Julian! We're going for 20k in March. Because why not?!
@@SashaYanshin and 100k by December and then to the mooon🚀
That's roughly the plan!
I've been paying into a pension since I was 24 for well over 20 years now and there is absolutely no way I'll get anywhere near the lifetime allowance when I retire. I'll be extremely lucky to get anywhere near 500k let alone 1M.
One big reason is probably the performance of those funds. Which is exactly what I will be talking about very soon!
@@Hiram8866 I'm not sure what's misleading about a median wage - it literally is the level at which 50% of people earn that amount or more.
Also comparing the current situation where these types of pensions have not been around long, previously had very low minimum contributions, had very low returns and huge pension fund charges to what will be the situation going forward is a somewhat moot argument from my perspective.
@@SashaYanshin there has to be a factor here based on age. If we use the 50% rule then this is "largely" those in second half of career so whilst I agree it should slow down as you get older I think needs a more rounded video to stop the younger generation earning much less.
I've been paying in for over 20 years, and I've been earning above the national average for at least half that time. My combined pension pots are worth around 80k today. I've done the sums, if I'm lucky, I'll retire with about 300k, that's if I'm able to keep paying in and if the markets do well. Most online pension calculators basically advise that I ought to consider planning to die before I'm 80 if I want to have any kind of fun in old age. There's no way I'll be getting anywhere near my lifetime allowance.
@@Hiram8866 is the pension pot average this low as in reality it is only around 20 years that firms had to provide pensions so there were many people not in schemes. Like everything stats can be very misleading. for a good portion of my working life I have earned around the national average apart from 2014. I had several years where I was making no pension contribution other than NI payments.
I have a DB scheme where the CETV stands at £206K
DC schemes with £185K in them, I have put bonuses in from work plus money I have inherited.
I think the message of it is possible to hit your lifetime allowance so be careful is valid, although I would say those close to hitting it now will have been in higher paid jobs so are possibly aware of this.
One thing that is guaranteed is that the Government will change the rules in the future, especially say in another 20 years where we will have had 40 years of compulsory pension schemes having to be offered and most employees joining, so they will have built up a god pot
I had some saving as I didn’t have isa ever before. So I created my first isa this year , then I have some extra money coming in next month which I added to my workplace pension. Would you think that is a good strategy?
I am always nervous about money that is locked away for so long!!
I can't tell you what is the right strategy for you. I personally am a big fan of using the advantages of all the different schemes available including pensions. This is just a video talking about one side of the story.
Sasha Yanshin Makes sense. Since I have started off now (and late), i would try different ways
Thank you for this
I don't think young people turning down a 20% tax rebate and minimum of 3% free money due to being 'too much of a millionaire' in 35 years is wise. As you said at 6:45, this is the sort of tax issue you think about when you have hundreds of thousands invested and saved, not as a young investor. Cancel contributions at 500-700K in your pension, not at 10K! Imagine if the allowance double in 20 years and you said no at 25.
I’m with you there. I think it depends on how much you’re earning and whether you’ll hit that £1.7M number over time. For flexibility it’s always good to have a S&S ISA as well as your workplace pension and contribute equally to them so you have a tax free wrapper in the ISA but are less likely to get taxed 55% from the pension at age 65+.
@@BigHenFor Please elaborate?
I am completely not saying that pensions are bad full stop. I highlight this multiple times through the video. I am just making people aware that it's not all rosy and the typical advice of contribute as much as possible may not be the best. As it stands an average person in an average job on an average salary will be breaking this limit and I think this is something worth highlighting so that people are aware.
They can opt in at a later date. No biggie
I was literally trying to explain this to my sister. Are you a mind reader 🤣🤣
That's how I get all of my video topics. Pretty easy not having to think of them myself!
Retire your job,But never retire your mind....investopedia made me understand the importance of investment towards retirement planing..
@@user-ol7rk4wm8o Investment has always been a good option but the big problem is getting the right platform..
@@user-du5fz8xc2d Am 51yr.....
Started investing savings when I turned 45 and it has really been of great help to me and husband...
@@user-ol7rk4wm8o what do you invest in?
Ifully agree with this video.
Thanks for posting.
It also might be a good idea to delay contributions beyond matched contributions if you are a basic rate payer likely to become a higher rate payer in the future.
That's a great point Matthew - something that definitely goes against the grain and against all the advice but a consideration for sure especially with cash flow being at its tightest when you're young.
Sasha want to thank you for these great videos! Please keep doing these, you have a gift of explaining things in simple way!
Now about you point here - I would like to disagree with you as workplace pensions provide few enormous advantages over sipps, etc.
1. You can stop contributions when for example you get accumulated £500K. You would not expect your pot to grow to more than a £1m after that.
2. Workplace contributions are usually (as you rightly mention) are topped up by employer - that is like getting your portfolio grow 70% in one year. Nothing bits it.
3. It prevents you from reckless decisions like selling part of your ISA to buy a house or car. You have to keep money in until you are at least 55.
Let me know your thoughts!
Again your videos are blessing for beginners and intermediate investors!,,,
Thanks Alexander!
I actually agree - I think the point is that you can have both - it's not one vs the other. I do agree that making use of workplace pensions is important (video on this tomorrow probably) and can yield big upsides through employer contributions.
However, the pension environment is changing fast - nothing stops you moving money out of the workplace pension pots after getting the benefits from your employer and into SIPPs for what could be a better long-term return. :)
@@SashaYanshin Totally agree. The flexibility of SIPPs make them one to have as well as employer-matched contributions pension. Than using stocks and shares ISA to have maximum flexibility with investment options and to get access to it quickly without requirement to pay any tax!
Thank you for raising awareness of the ticking time bomb that is the lifetime allowance. Originally this was a tax on fat-cat pension pots and was much higher than it is today. While i’m grateful for the pension freedoms, I'm disappointed this tax still exists as I see this as a wealth grab on the working and middle-class as our assets are mainly in property and pension pots.
And as it gradually reduces in real terms through being frozen like it is now or actually reduced again, it'll creep into the vision of a lot more people who are telling me right now that I don't get it and that £1 million is a huge number.
I'm with you - I think limiting the 25% tax-free withdrawal to a max amount would have been a much much fairer way of doing it without screwing people over with tax, but it seems like the limit was never to stop rich people avoiding tax. Just another stealth tax introduction that doesn't worry people at first, but will gradually become the norm in the future as a lot of people will fall into paying it.
@@SashaYanshin hopefully, as this catches more people there will be a backlash from society and the government will rethink it. It's all well and good when it's a tax raid on wealthy pensions pots, however, once this starts to affect school teachers and nurses, I think this will become a headache for the government. It's already starting to bite as I've read news articles saying some doctors have been retiring earlier and refusing to work more as they don't want to get caught in the LTA tax trap.
@@garethclayfield5303 Let’s see. Unfortunately history of taxation tends to have people gradually get used to new tax rather than the other way around but there’s always hope 😂
@@SashaYanshin I agree that as more people get hit by the LTA, the greater the chance of public backlash to it or political parties appealing for valuable older votes by offering to increase it / abolish it in their manifestos.
The counter, as your rightly say, is that people just become accustomed to having to pay it. Or that, given we seem to have a private pension provision problem in society right now, there will in fact be too few people caught up by it.
One point I would make to you is this: would you feel reluctant to earn above £100k in income simply because you face a 60% marginal tax rate at that level (which is the case up to £125k)? I would suspect not.
It is somewhat foolhardy to avoid amassing over £1m in a pension pot just because you face a 55% tax rate on amounts drawn above that level. Retaining 45% of something is far better than having 100% of nothing.
@@keithplummer8214 Unlike earning income, pension contributions are a choice. If you are breaking the LTA, you have a choice of whether to contribute less and put the money into other investments or other places that attract a lower rate of tax.
Glad to see this video come out. Whether its Help to save, a LISA, or S&Sisa some initial maths makes me feel like these are better options than just saving into a traditional pension fund. Also I'm certain I dont want to be still working as hard in my 30s when i get to my 60s I'd rather have instant access than locking money away (still effected by market performance) until i reach a certain age.
I'm definitely for having a good balance. In my mind it doesn't have to be either or - pensions do have crazy good tax advantages that I want to make use of but people need to know that there are big limitations to be aware of too that generally don't get mentioned!
I just believe that most people given logical guidance (this is why your channel is one of the best). Will be better off self investing with an isa. Having more than 20k per year to invest should be viewed as a good problem. For most of us just hitting that 20k limit would be it's own achievement.
I finished university 3 years ago and have been working ever since and putting money into a private pension. I am planning to move from the UK so the maximum amount of worked years I will have is 5 years. Is it worth me investing in a private pension?
Errr. There are so many different factors to consider but the main one is - if you will be moving away from the UK, then I presume you will not get any tax benefit for contributing to a private UK pension as you will stop being resident and stop paying UK tax. So you won't really have any advantage in doing that over, say, just investing your money as I understand it.
Honestly, this was the most depressing thing I’ve heard since the first lockdown was announced.
Sorry bud. Tune in next week for a tonne of positivity!
You can access 25% lump sum and an annuity at 55 WITHOUT impacting your annual allowance. Plus CPI compounded over 40ish years as in your example will push the LTA way up.
I get your wider point that people should be aware of the LTA, but it's not that relevant for the average person. I hope the average person continues to save for their retirement as much as they can.
I do talk about both of those points in the video. Inflation will push wages and contributions up just as much as the limit so I don’t think that really affects anything plus I am guessing most people won’t want to retiring at 55 with life expectancy climbing and pushing annuity rates to lower payouts.
@@SashaYanshin Retiring from work and drawing a pension aren't necessarily linked. You can draw from your pension at 55 and continue working. In your vid you say noone will draw at 55 as they will want to keep working. My point is you can start to draw down AND continue to work. So your pot will be a lot lower when you hit 75
@@SashaYanshin As for inflation - most of the growth is coming from the 8% investment return. You'll need to take inflation off that if your not applying it to the LTA. Or it means you're using a c.10-11% annual return!
@@80arogers yes I am aware but drawing at 55 means a much lower payment on the annuity and will usually be bad on tax if you’re earning alongside so hence why I said most probably won’t choose to do that. And if the system forces them to do that, that just adds to the point that the government policy on this sucks.
@@80arogers I am using a combination of a lower return and the fact that wage growth is likely to outpace the growth of this limit.
Good points, this is something that I have been thinking about. I'm 25 and very bullish on my pension, I currently have 25K in my SIPP. Worth noting that you don't know how the Gov will change it. Assuming everyone hits the LTA, you'd think they would be more generous and increase it. The LTA is designed to cap the very rich, not just the average person. I can see them increasing it to 2-3M personally.
There's also the chance to gradually reduce the amount of tax due after the Lifetime Allowance and sort of make it an accepted norm that you pay for a portion of your private pension...
I was aware of the limit. Unfortunately don’t think I will hit it! I plan to retire at 60, so provided the value of the pot stays below 1m (for now) I’m safe.
Btw, what alternatives do you suggest ? 😊
Start adding to stocks and shares isas.
Think people are too used to the low returns typical pension funds provide in exchange for the fees you pay for their awesome service. I see this changing rapidly in the next few years with proper SIPP accounts becoming way way more prominent.
Our pension schemes operate on an “exempt, exempt, taxed” system which means contributions from any source and investment returns (for most part) are exempt from tax. It is only when you draw on your pension, you will be taxed at your marginal rate of tax. The example you showed in the video is for a pensioner on the high income tax bracket. Very lucky pensioner, however, for vast majority of people, they will most likely be on the basic rate of tax. Those who benefit the most are those on 40% tax bracket during working life but opt to contribute more to lower the tax bill and then benefit from income being taxed at 20% in retirement. With employers contributing too, these relief and employer contributions are essentially free money. People not taking advantage of this is clearly missing out. Even with the change to LTA, the gut feeling is to contribute less, but this may cost you even more if you lose out on generous employer contributions, again free money, albeit a bit less. Contribute less means enriching the state and your employer who will not complain about it.
That's when your employer is another guy. I own my company, therefore I would just pay full in contributing both personally and as an employer.
@@dandiaconu7591 That’s surely a double benefit for you, being able to offset your contributions against company profits before tax and also reduce personal taxable income? Win-win scenario.
Here's the best retirement advice you'll ever hear.
Have a side hussle and invest as much as you can privately.
The government aren't there to provide for you, you are providing for them.
I think it should always be encouraged to put money into your employer pension AND potentially a SIPP depending on a persons income and their pension pot size. Lots of employers will not do employer matches into a SIPP and that is the deal breaker.
I do say multiple times in the video including the beginning that planning for retirement is key but the message still stands - there is actually such as thing as too much planning for the future.
I have a works pension which is managed by the Royal London, I am now 55 years of age and trying to put as much in as I can afford. The company contributes 10% and I 20% but the pension this year as lost £1500. I contacted Royal London and they said we do not choose the investments your company does that, my account online it give you the impression you can change your own investments but when you hit save button it does not. The investment the company have chosen 80% of them are loosing money, when I got in touch with the person who deals with the company pension she seems not want to talk about it or moves the conversion in to another direction. Do you think some companies just tick the box because they have to provide you with a works pension by law and do not care about manage it properly.
Any advice like this is a bit late for me, but I am happy with having saved with an NHS pension for 28 years and a smaller private pension for 17 years, plus the State Pension. I know a lot of people who did not want a work pension and were going to rely on the Government. I was told when I started work at 18, it was not possible to live on a State Pension.
I retired at 63, with the NHS pension and then topped it up with my private pension until I reached retirement age (66). I then got the State Pension. My lump sum from the NHS was tax free, but I did pay tax of 20% on the private pension income, as the NHS pension was already higher than the tax allowance amount.
My advice would work until you can, or you want to. I chose to retire at 63, but I could have worked on, but I am enjoying life with a reasonable pension, that allows us to enjoy life.
I also work in the NHS (for 38 years), and still do. Unless I misunderstand, in this video he's suggesting an "average person" starting contributing 202.8 per month will breach the £1 million+ lifetime allowance in 47 years working. In my experience, very, very few lucky people will get anywhere even close to breaching their LTA - certainly very few in the NHS (I will still be a long, long way off that when I retire).
I don't know who he's aiming this video at but it sure as hell isn't the "average person".
I'm a subscriber and love most of your content, but this video doesn't make much sense. You're taking today's lifetime limit and applying it to what people will earn if they start today at 21 and contribute until they're 68... most people retiring now are nowhere near that allowance. What was the lifetime allowance 44 years ago if you were giving this advice to a 21 year old retiring today at 65? You can bet that the lifetime allowance in 44 year's timer will be closer to £3mil rather than £1mil.
That is kind of the point - this system didn’t exist before and defined contribution pensions didn’t really either - at least not with today’s prominence. Also all old pensions predating this were protected in 2016.
The lifetime allowance actually started being higher than it is today and it is something the government could in theory reduce again in the future.
Think it’s pretty relevant as I know a lot of young people contribute large amounts and this could be a pretty important factor in their decision making.
@@SashaYanshin Thanks for the reply Sasha and congrats on 10K! If nothing more it's good to get people thinking about their pensions and not just paying into them blindly.
@@StueyMonster Thanks buddy! I have to try and give the titles and thumbnails a little spice so that people watch them - because the underlying message is important! Trying to find that balance to get engagement but not push it too far :)
I get your point but in reality most people won’t get a pot over £1mil in today’s money. Point 2 5% increase is more realistic. Point 3 you are saving tax on your contributions via salary sacrifice. Point 4 there won’t be a state pension for anyone under 35 when they reach retirement age on my opinion.
It’s refreshing to hear this. Pretty much the only argument for saving into pensions comes back to the tax breaks on offer (and of course contributions from your employer - though you can probably show that salaries are lower to compensate), which is always a terrible reason for undertaking investments. Plus the govt can always change the rules on you over the course of your life literally overnight. I’ve always thought that pensions absolutely suck!
All very interesting on paper- but these type of savings has always been available one way or another. The Government's statistics currently state that only around 80% of people who retire in UK currently have no more than even £50000 in their pension pot. So instead of concerning about the maths which is easy, focus more on the human nature of saving money- which makes it so difficult to just lock large sums of money away for long periods of time and leaving it the hell alone.
I had an NHS pension, I worked out that I’d have to live far beyond the average life expectancy to get back out what I paid in.
So now I invest in gold, crypto and stocks and so far it’s doing better than any pension I’ve had. Higher risk but I guess without risk there is no reward.
Well, as you say, it's (mostly) riskier to invest in those things than it would have been in a pension- there still exists the risk that between now and retirement, that the total of your non-pension investments could be lower than what you'd have gotten via pension, especially accounting for tax relief and employer contributions.
This comment didn’t age well
@@flashclynes And that is exactly why you should never gamble for something you want back for certain.
So the strategy you would suggest is to invest in pension until your expected pot gets close to that limit* and then (and only then) start paying tax upfront on income, even if it is at the higher rate, and invest what is left in non-pension investments?
* Projected forward with inflation to the expected value at a person's desired retirement age.
Hiya Sash, could you help me out 57yo bloke just startinv out on my cripto journey, where is the safest place to buy Btc, whats a wallet? Have no idea how or where to start
A wallet is just a place where your crypto is kept. You can have ones online where the company deals with all the technical stuff yourself down to having the literal wallet downloaded on your computer with the entire historical record of transactions on it and everything in-between.
I personally don't do a huge amount in this space as it stands - I know some people talk about it a lot more. I have invested in crypto through eToro because I am using it and the spreads weren't too bad vs the fees I'd have to pay with many others anyway + I like the relatively better governance from an actually regulated investing platform. Check my link out if you're interested - that's the only place I currently hold crypto in :)
How did they come up with 55%? It’s criminal.
Almost sounds like a penalty for saving money for retirement that charges MORE tax than the highest existing income tax bracket. Funny that.
We keep voting them in and asking for free stuff. That's why.
The 55% tax is exactly equivalent to a the 25% charge followed by 40% income tax. 0.75 x 0.6 = 0.45. And the 25% charge on regular withdrawals is to undo the 40% tax recovered when a higher rate tax payer pays in when the withdrawal is at the basic rate. 1/0.6 = 0.75 x 0.8.
This is bullshit. The lifetime allowance is £1M for Christ's sake - that is a huge amount.
LTA is now scrapped and even if it's reinstated by Labour that's not to say it's staying at £1m for 40 years....
Me and my wife have 3 Buy to let properties and both we are working and paying into pension schemes, is it worth to opt out from pension schemes and pay of these mortgages? Thanks
I think buy-to-lets are a better idea then pensions.
What would be a good alternative for Vanguard ISA stocks and shares? Not seeking financial advice here, just alternatives 😊
Trading 212 and Freetrade are ones I use - I have my ISA on Trading 212 but they don't accept new customers at the moment. The Freetrade ISA is £3/month but is in my personal completely unprofessional opinion the next best thing out there in terms of pricing.
I’m not paying into a pension. I want my money where I have access to it and I receive the interest myself. There’s so much pressure to pay into pensions, making out they’re doing you a favour but that’s really not the case. There’s also so many people who believe paying into workplace pensions is compulsory when it’s not.
The only compulsory part is that your employer now has to automatically enrol you into a workplace scheme, but you can easily opt-out. It's a good idea because there was nothing to fill the void after most UK DB plans terminated. Anyone who is savvy about their own investments/retirement will be able to make the decision whether or not to continue contributing, but those that aren't risk reaching 60 with no assets without auto-enrolment.
Probably gonna hit this soon, finding information out is difficult, way more than it should be. I'm not even that well paid, just been investing for a while.
And especially if people are invested in higher returning pensions rather than the usual grow by inflation stuff regardless of how well the market is going.
Hi what pension strategy you suggest?
Interesting take thanks
Thanks Kevin!
Ain’t many people got a pot of over a million !!!, certainly no chance if your earning 30k, bloke needs a new calculator
I was thinking exactly the same! My projection for retirement is nowhere near £1m!! Been paying well over 8 percent of my earnings into a pension and I earn over £30k.
Are you actually qualified to give financial advice? You are using todays LTA and comparing against a future fund value. You are doing what pension providers did in the 80's by using an unrealistic growth rate and not taking into account inflation. The reality is that the vast majority of people will never hit the lifetime allowance and even if they did (which they wont) its really not a bad problem to have. Did you mention that funds held in a pension are free from Inheritance Tax? Or that the death benefits to a spouse are tax free? At least do a bit of research on a subject before purporting to be an expert
Videos on UA-cam that do not take into account anyone’s personal circumstances are not financial advice.
The video focuses on an aspect that most people don’t even know exists. I feel it is an important thing to learn about. I can’t cover every single aspect of pensions planning in one short video.
What u think about USS ? Here employee contribute 9.6% while employer contribute 19%.
I did not join any pension scheme until I was 35 (and then it was non-contributory). Instead I 'invested' in building a quality house (third property) and owning it outright. When, in retirement, I downsized, the returns from that were close to the pension limit- but were free from any and all taxes. Cash. When I add all the mortgage interest that I did not pay, plus rental returns from an annex, it was the best financial decision I ever made- or could make. I retired at 52, and travel the world.
Nice Mike - Sounds like a great way to spend time :)
My thoughts on Pension.
You put money in, you’re employee and government tops it up. But you want it out then you get charged the same amount they topped it up with PLUS they can move the goal posts to when you can get your OWN money. No thank you very much.
I think it's definitely not black and white. I would make use of the benefits to some degree but definitely not putting all my eggs in that basket for future planning.
I've been getting my money and investing it in trading 212. so I can keep an eye on it.
Not necessarily. If you’re a high / additional rate tax payer you will get tax relief up to 45% but when you go into drawdown you get 25% tax free and the rest taxed at 20% if you remain under £50k income per annum.
Please ignore this analysis. It is both logically and factually flawed. Yes, pensions are complicated and we are all looking for a simple explanation which allows us to make smart decisions. This will not help you make smart decisions. Most people looking for advice from inexpert sources like this are probably never going to reach their lifetime allowance, those fortunate enough to get close to the LTA will get expert pension advice and manage the problem effectively (these lucky few will have ignored the analysis presented here). The LTA is not likely to be a problem for the vast majority of people, the real risk is not accumulating enough value/cash equivalent in your scheme over time and finding that you have serious financial problems in retirement and end up dependent upon state pension and whatever supplementary benefits are available at the time. I
U have not named 1 reason why this is illogical or faulty
We have to make sure to do whatever necessary to avoid to be charged fees for our hard earned money,unfair and disgrace system we have to put a stop on it,to let the greed not anymore
In Canada there is no maximum in your registered plan (provided you aren't day trading). The only real advantage of the plan is 1- contributions aren't taxed and 2- you can sell and buy within the plan without paying any tax until you withdraw. At that point the entire withdrawal amount is taxed as if it is income. If you were to pick good stocks and just hold them for the duration you would only pay 1/2 the gain as if it is income. The other half of the gain is tax free.
Say if I was taking home roughly 1.9-2k a month, on top of the 8% pension should I then also max out LISA?
If you are planning to buy a house at some point soon, LISA is a pretty epic way of getting free money towards the deposit.
As a retirement play it’s a mixed bag - the extra 25% is awesome but the returns on those LISA products after that are not great at the moment.
Totally agree about paying into pentions and would rather invest in cripto
Haha. I didn't quite say what you said there :)
@@SashaYanshin sorry bro, but ive just looked @ coinbase and bitcoin.com from a first time investers point of view.
I'm pritty sure that paper money will be a thing of the past with all the printing thats been going on as inflagion decreases the value of the £ i have in the bank
Just reading down the replies in this thread, talk about scamming @ it’s worst, this is why I asked Sasha my question as following his channel I trust his advice far more than some scammy comment left by bots.
Please everyone don’t even think about replying to the later comments in this thread
John
Maybe it will and maybe it won't :) That's the beauty of this whole topic. None of us know but we can all make up our own minds as to what we think!
@@cassandrarosman171 Wow, that’s an awesome return of investment right there, what strategy do you use and how can I start up please?
@@cassandrarosman171 Please how do I reach him?
There doesn’t seem to be much emphasis placed here on Inheritance Tax. The older you get, the more you become interested in protecting your beneficiaries from 40% tax which is another huge benefit of SIPPs. By the way, does anybody know whether, if beneficiaries inherit a SIPP, that SIPP value is taken into account in assessing the LTA of the beneficiaries’ own SIPPs?? Thanks for a thought provoking (if slightly one-sided) video.
If you can make 8% annualised for 25 years then you are a genius. No one does. Why do you think most fund managers go bust or make sub market returns.
Could you please make a video about pension for younger people, like in their 20s? My employer enrolled me in Nest, where some of the funds have annualised returns well over 10%. However, their pension calculator shows an entirely different number to what I calculate with compound interest. All I can find online is "people in their 50s and 60s have very little in their pension pots", but I cannot find anything about people like me. I am 24 and want to understand what my pension could look like and how to find that out. According to your video, I really shouldn't be putting away for pension more, but I cannot find resources about the £1.5M+ statements. Please help!
Most pension funds right now will be showing annualised returns based on the last 12 months - which has been one of the biggest market bull runs in history and is in no way representative of long-term returns :)
I wouldn't base any real assumptions off those numbers. And remember - people in their 50s and 60s did not have high minimum pension contributions, did not have companies making big contributions on top, did not have the options to invest in much higher returning products like the new SIPPs are allowing people to and had very expensive fees for managing pensions which is now changing rapidly.
In fact 30-40 years ago, defined contribution pensions weren't even much of a thing so all of these quoted numbers are really a bit of a pointless statistic as they are in no way representative of the current situation for young people.
@@SashaYanshin thank you for such a detailed response! My conclusion from the video and your comment is that the minimums that I am contributing at the moment will be just enough and I should look elsewhere for any additional investment into my future. Thank you!