Pension vs ISA - So many people get this WRONG!
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- เผยแพร่เมื่อ 29 พ.ค. 2024
- #meaningfulmoney #meaningfulacademy #retirementplanning
Pension or ISA - which should you choose? I often get comments about how pensions are great while you're putting money in, but less great when taking money out, and that surely ISAs are better in the long run. Pension vs ISA - it's a grudge match that needs settling once and for all...
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I'm not sure if it's possible, but a really useful video would be about how to balance pension and ISA contributions if you want to retire before the age at which you can draw from your pension (which I think is increasing to 57, and probably further before I get there...). It seems stupid to have £1m banked but not be able to retired because its locked in a pension you can't access yet.
you can always access what you have in the ISA however, thus I prefer that. But I still put as much as the employer will double into pension
@@MCSMIK thanks, yes, this is also what I'm doing. But it will get to the point where you have too much in the ISA. If you have a £1m+ ISA then you probably won't spend it all before you reach pension age. So I guess it would have been better to put some of that money into a pension for the tax efficiencies.
Yep benefit of an ISA is if you have a recession you can pull your money out and buy another investment such as a property or use it for your own benefit such as an expensive holidays or health costs you might require or to help your kids
You can still retire at 55 if you have a pension from before the change. I have 2 pensions from different employers. The older will allow me to retire at 55, so I'm keeping it for that reason.
Great information. But the constant zooming in & out is very annoying
& distracting
My fear is that the more you are sensible and take advantage of current tax efficencies etc - a future government will just raid the pensions and ISA's of the people who were more forward thinking and went without in the short to medium term. There is already murmurings of mansion taxes for property over a notional value, so a tax on people who for years put everything they had into their home perhaps investing a lot of time and what money they had to improve it at the expense of new cars, holidays etc.
Sadly Iain, being sensible and planning ahead just means that the government can find ways of making you use that money when older, while still just covering the bills for those who spend it all.
I think the retirement plan should be live well for 10-15 years reducing the pot a good bit, then start to cut down a bit. When you think about there are not that many party animals at 80 spending all their cash on wine and women and wasting the rest 😀
Yes, and if you've got a nice fat private pension pot, you can rest assured you won't get a state pension.
Very true. Be prudent in this country and the government makes you pay for everything. Piss all your money up the wall and you get everything given to you for free.
It's rare that governments take a step back when it comes to tax and they will always punish the self sufficient. Just look at America now with the 10k student loan forgiveness.
I can only think of New Zealand that have scrapped both Capital Gains and Inheritance Tax.
I've also heard that Singapore scrapped a lot of taxes.
This s true from a tax planning point. However one very big advantage of ISA is time. You dont have to wait until you are 55 to start drawing monies. You can draw at any point, just in case you need it
Agreed. With an ISA the money is always yours if you need to access it for any reason. With a pension the money you’ve put in is only yours when the pension rules say it is.
Conversely, putting money in a SIPP ensures you don't access it too early. I see that as a very big advantage. It's tempting to withdraw from an ISA - if you are clearly planning for retirement, the SIPP withdrawal date limitation is a non-issue for most people.
Exactly.
This is more like a disadvantage over pensions as people always find something(like lucrative new investment)which is more important than your retirement money and taking advantage of compound interest
@@ivangeorgiev8724 With a strategy and self discipline you can achieve any goal
Sound advice, when I was at peak earnings, mortgage paid off, kids left home, I paid a huge amount of my salary into a sipp, and in those days saved 40% tax on the way in, and now draw out at 20%. I was also lucky enough to also save into Peps,(remember them), and ISAs.
Result, I retired at 55.
Yes, I was lucky, I was a high earner, but knew it could not last, it was killing me mentally, but I had the option now to retire.
Thanks for the video.
Same hear - I’m 57yrs - Big SIPP and ISSAs - job not killing me so all still growing……nice. feeling
Nice, shamefully I have a job that kills me, isn’t highly paid as a professional in the crumbling music industry, I have paid what I can into a pension, but now 59 it’s not worth much, and can’t see me ever being able to retire..or even know what the best plan is to do with such a small pension that matures next year. Keep paying in & working I suppose as no other choice.
@@boomish69 Oh sorry to hear that - you must feel trapped - I know others in that position. My advice is to put your health first - even if you earn less. You will be happier day in day out, will be more healthy and may find your happier working another 10 years or so
Hey John I am thinking about the same, but I am 37 year, salary 70K year I will start putting all my salary above 50K to pension it is 42% tax relief next year will be 43.5%. My issue is only about lifetime allowance but I think when I will get there 1 million I can move to another country to work and wait until have 58 years to retire
Do you think its likely SIPP withdrawal age will be increased by the government?
Most people including me don't realise the important of pensions and saving for retirement in our twenties. Can you do a video advising people who need to start saving at 40 and what kind of pension pots they can expect.
Finally!!! I've been saying this for ages!!! Plus ISA vs Investment ISA would be interesting, as the tax issues shouldn't be there surely
This. Please.
Yes please make a video on starting pensions in your late 30’s/40’s 🤞🏻
@@falconvelocity do you mean cash isa vs stocks and shares isa? Cash isa is pretty useless as they pay very little interest
Sheraz, a simple calculation is as follows
£100 a month invested for 30 years with 5% pa growth becomes £83,700 with all the compounded interest.
That is a modest amount a month, what is always stated is to utilise your company scheme to get your employer to put in their maximum. It’s free money and helps any pot grow.
£1 from you actually only cost you 80p if a standard rate taxpayer.
If you pay into a personal scheme using your taxed salary then every £1 becomes £1.25 with the tax returned and soon you are building up a good pot, and always save when you get paid or before your paid ( company scheme) as what you don’t see you don’t miss
Also time horizon s very important. For someone who were born in the 50 to 70, their retirement age was fairly low and so can still enjoy a lot of the pension when they retire. Sadly the life expentency doesnt move as fast as the rise in pension age - we barely live until our 80 or 90 in best case scenario these days, so having the abiliyy to draw things out earlier from an isa becomes more important
Life expectancy is headed back the other way. But the govt keep increasing the age to meet some figure in some spreadsheet at the treasury.
This is the best video I have seen explaining UK options. Subscribed.
Best thing I did was do nine years in the raf ,even though it’s not a huge pension ,it will make such a difference to my life
Me too! You can add AVC’s to that brother.
Could you make a video about late to start retirement options and strategies please? For people that haven't given it much thought until they're in their 30s 40s 50s please?
Guessing as you asked this a year ago, there is no advise. I am in my 50s. when i first considered pensions, i could not afford the "mortgage" they wanted. Not sure many could. Trying to build a business and i have my state pension, but no idea how i will afford to retire at 70. Never could afford a mortgage either!
Unfortunately, almost all of these youtube (cough) money gurus talk a bullsh#t game. Additionally, they are not interested in the slightest in answering questions - as you can instantly tell looking below and elsewhere. Your best bet is to talk to a real adviser, not the jokers you find in social media.
Yes that would be very good listening
@@nbc911 The more you look at this and similar channels, the more I'm convinced these channel owners are only interested in people with sizeable pension pots, paid-up own house, plus other sources of income.
I've asked question and seen others ask only for all of us to get completely ignored - ESPECIALLY if you don't own a house. The channel owners are clearly only in it for 'the clicks', unfortunately.
James shark did it
I have to say I am really young and just starting my career and found all the pension stuff overwhelming but you are a god sent with how easily you are explaining it. Thank you so much for sharing your valuable knowledge
Glad it’s helpful - thanks for watching!
Make sure you contribute to the workplace pension! Your employer legally also has to contribute too. Should be automatic but check your payslip
😂😂
Brilliant piece of advice and really good examples. Thanks for sharing
Hi Pete - great series of videos. I’ve only recently discovered them. You do a great job, thank you
Hoping to retire in 10 years at 62 so maxing out my ISA and paying into 2 pensions.
My wife will be very well off if I go before then. 😢
Thanks for a great video ~ a useful and clear explanation. It always "hurts" when you make a withdrawal from the pot, but you have to reconcile the initial benefit of the tax relief of the pension plan to reduce the annoyance of giving 20% "your earnings" back to HMRC. It's even worse with Standard Life making the assumption that they will tax your withdrawal at 40% and you then have to submit a P55 form and wait a month for them to refund the overpayment. C'est la vie apparently.
Another great video. Thanks for sharing, Pete.
A great format, easy to understand thanks!
Would be useful to have an example showing the effect of the life time allowance for pension and how this affects the difference.
Thanks so much for this!!! I've been so massively stressed trying to understand the best way to save for retirement. This has been the first video based in the uk that's actually explained pro's and cons. So thankful for this.
I’m glad, Paul. There’s tons more at MeaningfulMoney.tv
@@MeaningfulMoney thanks. I've subscribed on Google podcasts and will definitely take a look at your website.
This is a really good site, and advice you will hear is always be in your company scheme if the company is paying in as well as it’s free money. If your able to salary sacrifice into pension this can save tax as well as you can take yourself below the 40% tax bracket.
My thinking is pension first, and then if you have extra cash to invest think of an ISA
I have been lucky as in my 50’s I was in my best paying job plus good annual bonuses, I used this to really boost pension funds ( I had no credit card debts). Job has changed and earn 50% less but I can manage on this and still save extra into my pension
Realistically, how many of us will live to 100...both my parents died by 75
Thank you Pete very helpful insight, easy to follow . . Not that dry!
Thanks, another short easy to understand video!
Thanks again Pete for another great informative video. As someone who has started investing fully in Rental Property initially in my financial journey , then my SIPP pension again with property, and finally ISA's and the Stock Market in the last few years, i can safely say that your summary at the end (9:56) is actually the best advice and outcome for us all!! Empowered choice and options which, let's face it, is the secret to not only personal finance but Life itself!!!!
Hi Pete. I would just like to express my gratitude to you for this content, this has been a game changer for me. Your name came up in conversation yesterday with one of my patients in Hayle, a former colleague of yours at Jackson's GB (I'm sure you will figure out who it is) . I expressed to him how I had stumbled across your content on TH-cam and how it is helping so many people. Next time I am in Penzance I owe you a drink. I really appreciate the time and effort that goes into making these videos. Thanks so much. Rob
Hi Robert. Thanks for such a lovely, encouraging comment. Any time you’re in PZ, do pop into the office - I’d love to chat if diary permits!
Brilliant, as ever. This video needs to be watched by the self employed who are - according to the Office of National Statistics (ONS) - even more disinclined to invest in pensions.
Thank you for uploading this video
Yep, we got this wrong, thanks so much for the video Pete - you may well have saved us a ton of £££ (and our estates - we'd no idea SIPPs weren't in the IHT calculation). You're a hero, keep up the fantastic work. Jay
With inheritance tax at £325K per person and then an allowance for your main home on top of that works out at aboutv£500K per person before inheritance tax starts to become due.
Anyone who has an estate value above that figure needs to take advice on the ways to minimise tax liability. Why the government feels it’s right to tax the estate of a deceased person who will have paid taxes on their earnings which they used to build wealth and a buy a property I do not know.
It is only I HT three if you die below age 75. As that is impossible to predict it is a questionable advantage.
Good video with great illustrative calculations.
One point i think you missed out in favour of an ISA is the money is always there and available to you to extract if you need to. Say your 45 years old and your dream house/car etc comes available but you are £20k short, the isa could be used. The pension couldn’t in this scenario. I know saving is mainly about the end retirement benefits but there maybe bumps or opportunities on the way there.
Especially with personal pension age increasing to age 57-58. As with most things its all about having a balanced savings portfolio to cover different scenarios
Brilliant information exactly want I wanted to know .subbed
That was very informative thank you.
Brilliantly informative as always Pete. Even though it’s only a week since we found you, we’ve learned so much already. I have a Final Salary pension (in a big multinational company) as well as using my full ISA allowance each year. If I’ve understood correctly, it would make perfect sense to take a tax free income from my ISA as much as possible when I first retire and try not to touch my pension pot as much as I can 🤔
Keep up the good work 👍🏼😁
Tread carefully here, Nick. If your pension is Final Salary, there is no pot, just the guaranteed income and maybe a tax-free lump sum at the beginning. If you defer your pension, then the scheme will usually increase it when you do eventually take it to reflect the fact that you’ll be drawing it for less time. Please seek advice if you’re unsure, and start with your day-to-day needs, NOT with the tax system. Your needs come first.
@@MeaningfulMoney Thanks for the advice Pete. Yes, we have several options with our FS pension including a tax free lump sum and also a stepped option. Will definitely be seeking advice before making any decisions 👍🏼😊
Best thing about the ISA is I can access it anytime I need it. I don't need to wait until the government says I can.
Brilliant video - thanks 😀👍
Fantastic video.
Thank you very much 😎😎
This is all very interesting and is something I do spend time worrying about. I have way more tied up in ISAs than I do with pensions, but I like having the access to my ISAs and expect that I will most likely spend most of my live overseas so wouldn't want issues with pension funds stuck in the UK till I reach retirement age.
You can take out 25% of the pension pot tax free. You can take out the rest as an when you need it, paying tax. That money withdrawn would not be stuck.
You can transfer the funds to a qrops which is a qualifying registered overseas pension and extract in your new country of residence depending on where that is. This way the assets will be denominated in the currency you are located and you may also benefit from local pension rules around tax free entitlement etc. you need to realistically have been in the jurisdiction 5 years or longer to benefit from the higher tax free cash entitlement but you also benefit from now lifetime allowance limits. Caveat to this is that you are hit with a tax charge of 25% to move the fund to a qrops so hmrc can mitigate some of the tax receipts they will lose as you aren’t taking income in the U.K.
Don’t avoid pensions just because of this concern as it’s something that can be mitigated
Thanks Pete, great work. As I won’t get the state pension until age 68 (provided the state don’t changed that in the meantime or indeed the state pension remains an ‘entitlement’) and therefore I can’t access my private pensions until 10 years prior, it seems important to ‘diversify’ my saving into ISA as well. Personally, once I’ve contributed enough to maximise my employer’s matched contributions, I’m paying into ISA. ISA I can take anytime (perhaps before 58 if I’ve had enough of real work) and is some hedge against state intervention on pension rules (eg. will 25% tax free sum still exist?) and tax (eg. Pensions into inheritance tax seems a no brainer).
Fantastic video.
Thank you 😎😎😎
Great video, really informative, thanks
Very useful Pete. Could you cover LISA v Pension please
Great video. Stays away from all the "you need 1M to retire" nonsense in favour of well defined illustrations. All this before accounting for the fact that your company is likely to offer anything between 6%-14% matching. Free money you should definitely be taking.
Excellent video...have not seen this analysis done before and so helpful! Thanks, liked and subscribed...hope it helps the ego boost! 🙂
Thanks for the material
I loved this video and agree with the math, however my father was on a final salary pension earning some £20000 PA sadly he died at age 62 which means he only ever saw £40000 of what I assume was around a £600000 pension pot? My mother then received a £10000 pension for the rest of her life, she died at age 88 she actually received £260000 from my dads pension pot. What I want to know is what happened to the rest of the money that was in this pot? This is why I have always used an ISA at least I know what is left goes to my children
The insurance company gets to keep it.
@@JayPatel-jp1weIs this true? Do you happen to know why it isn’t treated like other assets in an estate and bequeathed to beneficiaries mentioned a person’s Will? Or even via the Intestate process, if there isn’t a Will.
do you remember that bloke you always saw at the pub? lol. Seriously though it sounds criminal. There are lots of fraudsters in finance. I was subject to one when living overseas. At that time I was young and naive but realized soon enough that I got a bad deal so stopped contributing in after 2.5 years. 20 years later and the extremely high fees ate all my investment. luckily it was only about 4k. I couldn't withdraw without a huge penalty meaning I'd get barely anything so left it. Sorry to hear your father wasn't able to enjoy his retirement.
This covers every conversation I have had with my dad for about 5 years, he is obsessed with complaining about paying tax on his pension!
Your dad’s grievances are entirely understandable.
Your Dad makes sense, he's spent a lifetime supporting the most useless government on the planet only to carry on supporting them, whether he likes it or not. Tax on pensions and savings is theft.
Great advice, great audio, great production. Think I've just found my favourite new YT channel.
Great to have you here!
So well explained - very sound advice to have both, especially as the Government could raid pension pots in the future and make them subject to inheritance tax in the same way ISA’s are.
It's a bit conservative 6% average returns and if it goes to market average at around 11% there is a big difference in the calculations on theory
And the difference between ISAS and SIPPS is with one you pay taxes on the initial amount only but with pensions you pay taxes after on the final compounded growth pot except the 25% tax free allowance
A working average
Could Pete be accounting for inflation by using a 6% conservative return?
6 % average returns is definitely not conservative!
good point on the taxes.For an ISA, If your a higher rate tax payer then it would take about 7 years at 8% growth to get back that 40% you paid in tax initially. So as an example 10k you would only get say 6k after tax then it would take almost 7 years for that to become 10k again at 8% growth.
Why do they not teach this at School ? Seriously, so many of us are ignorant of this stuff but it is essential ! Thank you, love the way you present, I don't feel like I'm in a lesson (& get bored) and I understand you.
Thank you, Sue! Really glad it was helpful and comes across well 🙏🏻
Very true. Education could be so much better,
Problem is that the goal posts keep moving so by the time you’re thinking about pensions everything you learned in school would be outdated.
Best concentrate on maths not tax.
@@twig3288 That's true, but the basic principle of compound interest and why you should save in your twenties is a good thing to learn. I wasted so much money in my twenties, and I wish someone had just told me what that would be worth if I saved some of it... I'd probably own a house now.
@@devononair That’s maths. It doesn’t change depending on the government.
Pensions and tax however do change and so cannot be learned because of the inconsistency. It used to be that tax cannot be retrospective, that was until Gordon Brown became chancellor.
Very useful and very interesting. Thank you
This is such an education , keep up the good work , Alex
Thanks Alex - appreciate the kind words!
The problem is that government can dip into private pensions whenever they feel like it. Gordon Brown’s famous pension raids helped to kill off final salary pensions in the private sector. At least with an ISA you can cash out and leave whenever you want provided the government don’t exercise their bail-in option (Cyprus style) which will convert your cash deposit into shares in the financial institution holding them.
Great video Pete! Could you do a similar comparison for LISA vs Pension? I'm 30yr old and just bought my first house and now I'm finally wanting to get a handle on planning for the future
Yes please, I was thinking the same
Noted. And thank you!
Well if your 30 you have nearly 40 years to grow your pension pot and you can secure your retirement by addressing it now even with a modest monthly saving.
£100 a month into your pension , assume 5% growth (on the £1200 saved) for 40 you have £152K at the end.
That £100 is total contribution, obviously as you earn more can save more (or have more taken automatically if in a company scheme)
Double the saving doubles the pot so you can see how big it can grow, and if like many pour money in when older, kids etc no longer a drain, house paid it gets better and better.
@@MeaningfulMoney yes , LISA on £250 pm with 25% bonus pa until age 50 and then £250 pm from age 50 to 65 would be interesting, Pete.
@Taiwo Omotosho yes, £100 month is 1200 a year. Assuming 5% growth on the £1200 is £60
Year two £1260 plus another £1200 with 5% becomes £2583.
Repeat for 40 years the compounded interest and regular contributions is how pensions score over a long period, yes I am assuming 5% growth and calculating that on the years total contribution, but there would also be periods where the return is much higher than 5% so it is working on an average. £152, 207.71p with this approximate model.
If you invested £1200 and got 5% pa return reinvested and left for 40 years with no more money other than interest added it would grow over 40 years to over £8000.
This is why people should look for regular saving into a pension fund where in UK you get tax relief etc. start early and your pot will be very healthy when your close to that retirement age.
Man, you are the man I've been looking for all these years! Thank you thank you thank you!
Great to have you with us, Antonio!
Great video! Makes a very good point about either but best to have both, only if you can afford to…
I've been thinking along the same lines, Pension and ISA. Makes sense to always take the 25% tax free and transfer as much as possible of that in to the ISA. Brilliant video.
Depends on whether you need to plan for IHT; if you do then the 7 year rule, and giving from spare income, will need consideration. Trusts also, but complicated these days…
Not necessarily, but when someone is a financial planner and give examples to go hand in hand with their content you are not necessarily going to question it, with higher investing amounts the ISA will pull ahead, I think the video is not good at disclaiming that you should seek financial advice to your own circumstances.
Also, you cannot transfer from a pension to an ISA.
@@PrivateSniperUK except after you start taking lump sum or drawing down. All depends on personal circumstances
@@tonykelpie that's not a transfer though, that's a separate thing :)
The problem is that you need to wait until retirement age before you can start withdrawing money with a pension and they keep increasing it! ISA's are better
I understand. That delay in access is the flip side to the tax relief on contributions though. ISAs are not better. They are different. Best option is to have both of you can, but if you have to decide between the two then earlier on in life the ISA is the more flexible option.
I have both but I weight payments, by a significant amount, in favour of my pension for the reasons you’ve given.
great video, most useful thank you
Good video still planning on retiring on a ISA only because I plan on retiring early at 40-45. Will have a work pension kick in at retirement age and will may also be eligible for state pension 25 years to qualify
That doesn't seem most efficient. Why not use ISA until 55 then pension from 55? That way you get 25% tax free lump sum out of the pension and also your whole income tax personal allowance out free of tax from 55 to state pension age. ISAs are good but the normal ISA can't match at least 25% added on the way in and so much of it untaxed on the way out.
@@jamesday426 I get an early monthly departure payment from my work when I leave at age 40 as I Will have been with them for 20 years ,which is about £8K a year and a full pension from them at 67. I will have enough invested at 40 to retire with the ISA on top I’m only considering working to 45 to qualify for the state pension.
@@tibz1490 tbh you'll be ok to retire if you don't live past 60 and there is zero inflation and you own a home outright.
This is sound advice for already wealthy people, however the average saved into UK pension pots is a paltry £62, 000, with rampant inflation in food,fuel and housing costs coupled with stagnant wages the idea that a 25 year old has £250/month to contribute to a pension is a pipe dream for all but the high earners. I think it's highly unlikely that today's youngsters are going to be leaving an inheritance of anything like £3, 000 000.
Just an illustration that Pete is doing. Of course even those on modest incomes can probably still afford to save for the long term and putting away something , especially into a pension, will rarely be regretted by someone in the future. In my experience of dealing with clients, seeing a fund build up and grow is a great motivator to try and save a bit more and do what you can to build up a retirement fund to give people options in later life.
Agreed there is WAY too much focus on IHT in this video. I want to worry about how much money I can spend in retirement without going broke. Not how I can minimize IHT to my heirs leaving them 7 figure pots of money. Weird take by Pete. I guess he is influenced by his High Net Worth Clients.
Great comparison thank you.
Be interesting to see the same for Pension vs LISA
So useful! Thank you for sharing your knowledge.
Thank you Andreia!
In my view it's more sensible to have both a pension and an ISA to get the full benefit of both. Access to cash pre-retirement age and access to cash after. So many people will draw their 25% from their pension pots at 55( soon to rise) simply because they can and then nor have much else in the way of savings and then not have sufficient to live on later in life. A combination of both seems the most cost effective solution.
As for the people who say what's the point of saving in to a pension. The govt need us to make our own provision because the country can't afford to support everyone. People on max state pension of £9300 will almost certainly need to top this up with state benefits as £9300 is not enough to live on and that's assuming you've got the full 35 years qualifying contributions in the first place. The other advantage of drawing retirement income from both an ISA and pension is that one dilutes the tax on another. If you drew the same pension as ISA each year you would have the effect of halving your effect tax rate to just 10% assuming that all your retirement income was under £50k
I agree. That’s the conclusion of the video!
@@MeaningfulMoney Unfortunately inspite of the video people still don't get it. That's why I stated what seems toe to be obvious.
Great video. Well done.
Would be interested in seeing a Pension vs Lifetime ISA comparison.
Isn’t that what he has just done?
@@keoghrichard1988 he might have covered it in another video, but not this one. Lifetime ISAs are not the same as standard ISAs. Lower annual subscription limit and age plus other restrictions apply, but crucially unlike normal ISAs, a conditional 25% government bonus is paid on subscriptions - effectively equivalent to basic rate tax relief on money in and still no income tax on money out.
@@matttyrer9096 ah ok! I see, valuable info! Thanks!
The best video I've ever seen on pensions. Thank you.
Wow, thank you! Much appreciated, Tom!
I agree with what you have shown, my portfolio are balanced with isa v pension investments, this makes them tax efficient. But to grow my pension now and max the benefits of it whilst I'm still working is a no brainer. Unless you take more risks with isa investment, there's no better investment currently than pensions. Offcourse depending upon your circumstances and life goals.
Good video and explanation. However you missed the part where pension providers take administration fees from you, this can significantly reduce the growth
Stocks and shares ISA providers do the same thing. Both my SIPP and my ISA are with Vanguard and the fees are identical on both.
Minimal now a days compared to the 90’s
The pension providers charges may be muchlower these days, but so are returns, so watching what you are charged is still very important. Actually it could be the most important aspect of chosing any form of investment.
Where do you get 6% growth in the last 10years? Especially in an ISA
Stocks and Shares ISA, balanced portfolio with not too much risk. Seriously.
Getting half% so bought a new car
This is great, I finally understand the difference! Thanks.
I’m glad, Steven - thanks for the feedback!
Great video thanks
Love these videos, they are so well put together and easy to understand. My question, is 6% growth realistic? my pension pots admittedly smaller than those described don't get close, especially after charges and inflation
Long term returns from UK equities have been around 5% plus inflation. Say 7% including inflation if BoE 2% target is met. But that's before costs and funds have internal and also explicit costs and pensions have costs so what's really achievable is below 6% if using UK large cap (market capitalisation, so big companies) equities. You can improve that by adding some small caps and maybe emerging markets.
Personally I'd have gone with something like 4.5% for a high equity balanced managed fund, have the monthly contributions increase with inflation then say that "all numbers are in today's money" to keep things nice and simple.
But 6% before inflation is good enough for his case, though I think he partly shot himself in the foot because it produced a high emphasis on inheritance tax benefit that 5% would have reduced. Since I expect the target audience to be those early in accumulating money I think more focus on benefits while alive and potential early retirement would have been a more productive approach for the target market I expect. But he's highly capable (and should know I have a friendly and understanding smile while writing this) so he undoubtedly had his reasons for his choice, different though it is from mine.
Rates of return are not dictated by the size of the pension, but by the way they are invested. 6% is a reasonable long term growth assumption, though when I’m planning with clients I use 5% to be conservative.
Ftse100, in 2001 was 7200 and in 2021 7200. Thats 0% capital growth for 20 years. In the meantime you get dividends which are about 3% currently. Thats supposedly 2% inflation (currently 4%), 1% real. Inflation may boost earnings, but will ultimately crush asset values as the yield must rise above inflation or money flees. There is also a very real risk premium which has disappeared from that 3% return. So where is this 5% REAL 'long term' ABOVE inflation return guaranteed from the stock market?
@@SlobberySlob It's in the 95% of the global equity market which is outside the UK. Plus you get much greater diversification. Higher reward, lower risk. It's what professional investment managers - I used to be one - call a no-brainer.
@@SlobberySlob Nothing is guaranteed, but it is in the markets outside of the UK that this growth is mainly to be found.
Interesting thinking about pensions not as a retirement fund but more as an inheritance trust, something i hadn't even considered before.
How realistic are those income numbers though? I can't see many people with easy access to a £1 million+ lump sum taking only an £18,000 income. I feel most people will constantly be battling against themselves not to draw down the pot to near 0 before they die.
You may be right about the income level drawn, Ryan, but I had to strike the point somewhere. That said I have clients with seven figures in pension funds drawing nothing and spending down non-pension assets instead, purely for IHT planning. Wanted to dispel the myth that you give all the tax relief back on retirement in a pension.
Yes, retirement lifestyle planning is very important. Some people will think of the point they can access their pension pots as 'party time' and blow a big percentage on a flash car and/or a few mega luxury holidays. However, others will have planned their retirement on spreadsheets years before and essentially live their lives the same as before retirement with a few luxuries that they've planned beforehand in the most tax efficient way. Yes it's boring, but that is the way to ensure your retirement money will last
The ideal plan I think is to be drawing down so it eventually runs out when you die. The problem is we don’t know that date, so the best you can do is make a guess, but you will typically need more income 65-75, after then slow down a bit. Post 80 the majority of people less active and less spending being done
I've been trying to teach members of my family about this stuff for years but they just switch off. Great video
This is a quality video all over. Thank you.
Thank YOU, Euan!
Hi Pete. This might sound a really silly question but I only have an ISA, so no experience with the pension.
When you talk about 20% tax relief, how is that sum actually added to your total? For example, if I put £10K into the S&P 500 via a Vanguard SIPP, does the portfolio automatically state £12K or is there a process by which the tax relief is added? Many thanks.
If u put 10k in Vanguard will claim the tax ftom hmrc and add it to your portfolio. Typically it takea about 6 to 8 weeks before u see the money in. Btw on 10k u will get 2.5k not 2k. This is because the 10k is the net of gross less 20pc tax. So u earn gross 12.5, hmrc keeps 20% tax ao 2.5k. U r left with 10k. U put 10k in vanguard and canguard claims 2.5k from hmrc. Hopefully makes sense
It's instant on vanguard for me. Only basic rate though. You have to manually claim higher/additional rate in a self assessment.
@@joemacdougall9205 hi Joe do you have a step by step how to do a self assessment ? I am a higher rate 40%, I see it is complicate because information mix with self employed it is so confuse
@@user-lz3lr6jj5w would definitely say speak to a financial adviser and get them to work with your accountant it gets very complex at those levels
@@joemacdougall9205 Hi. Does HMRC pay that extra tax relief as cash. Or top up your SIPP again?
If I get to 100 with a million quid ill regret not spending it. No point being the richest man in the graveyard.
Yeah or have a big chunk I can give to my son, who’ll be 70 at that point!
Most young people say that - I can tell you having the best part of a million at 55 is better than a kick in the nuts……
@@rufdymond yes having £1m and retiring at 55 would be great, but I see no point in retiring and not enjoying life just to maintain the pension pot with the aim of passing it down to children. I fully expect my children will benefit from my estate when I die but that will not be how I plan to live my later years. Yes plan to minimise any IHT liabilities they might face but No to planning to leave them an almost unused pension pot
Amazing video, Pete. Well done.
Cheers Mike
Thank for the video, we have more in our 2 ISA (Thru lucky investments) than Pensions, your example was very useful as we had not thought through the IHT implications as we have no direct descendant's only Nieces & Nephews
Less of an issue for you then, Simon, but still a consideration. It’s a big plus in favour of pensions, definitely…
Thanks Pete for another great video - not sure if others have asked already but will be super interesting to see how using Lifetime ISA for retirement might change things here with the annual bonus?
Pensions and savings are important, just don’t forget to live in the meantime.
Half of us die by pension age and if you make it you will only find inflation ate your retirement pot.
@@sang3Eta hi mate, your pension isn’t just sitting around doing nothing - it’s invested in funds and growing too! Highly likely to beat the rate of inflation each year
@@RobYates312
Until Biden came along…
@@Project-Masculinity inflation is driven by demand after lockdown ending, common across most countries at the moment regardless of who is charge
@@RobYates312 Inflation is way higher than people think it is. I don't use CPI, I use money supply growth the M1 dollar supply is 14x what it was in the 07 banking collapse. $1.37tr to $19.4tr
Good video. Makes me appreciate my employers (NON contribury) 40/60 pension
Excellent vlog ,using both is a great idea ,and may be top up your pension plot each year from isa to gain 20 percent tax relief on top ,only about 4 k in total ,but some money for nothin,if not working
The amount of tax we are charged in the UK is absolutely sickening. The older I get the more I am outraged that almost everything is taxed at least once, and often targeting those who have just tried to save their own money or invested it somehow.
Tax is to pay for things like schools, the NHS and the police. Society can’t function without it.
@@marcusnelson3520 great….so even with huge taxes have you tried using the nhs, even though they are getting more and more money it’s getting worse and worse. Most would be happy with taxes if the could see the true benefits. Like nasa sls shows that chucking money doesn’t make a net improvement. Not to say free market but a balance
In the uk it’s death by a 1000 cuts, a tax here a tax again and then again, now a sugar tax now a fat tax… oh a green city tax that’s 45£ a day because you can’t afford a new car, next will be a co2 tax then a energy used tax ect yet nothing will change
Labour and the conservatives are one and the same on this
@@HankHillspimphand Germany, France and Austria pay more into their NHS as a percentage of GDP.
It’s complicated though, because I am not sure how social care is counted.
I don’t know enough about these issues. I’d imagine that salaries for doctors and managers are costing a lot. The NHS needs to become more efficient.
At the moment there are still backlogs from COVID-19, so it is a tough time to assess the NHS and how long it takes to get treatment. Hopefully within a couple of years things will improve.
Labour and the consrvatives are different. Labour will increase taxes on income, savings and invesments to spend more. The conservatives will do the same, but less so.
Really, what this country needs (particularly London), is for rents and property prices to decrease. I’m just not sure how that is possible without a market crash.
@Marcus Nelson thanks I never knew that's what my taxes go towards, idiot.
Uk is like a tax haven compared to most European countries, I moved back in 2022 and pay close to zero tax by contributing to my private pension and getting refunded. That’s why nothing works in this country.
No Pete, this isn’t “useful”, it’s … gold dust. I am right in the middle of these kinds of calls and so this and your LTA video are so incredibly helpful. Not sure I can say thank you enough 🙂
I’m glad, Iain - thank you!
Good video, good explanation!
I think I only confirmed what I already thought I knew but very interesting.
Thanks so much for this! Found it extremely useful 😎
Glad it was helpful!
Fantastic video!
3:13- net yes you pay tax on pension income which you don’t pay on isa. But good point on IHT situation and final summary - both makes sense
Thanks so much for the info.
Most welcome 🙏🏻
Enjoyed the presentation but there is one additional point that I'd like to raise, and is a bit of a gripe for me. When your child/ren inherit this large chunk of money, it is much better for them as a pension as it can a) grow untaxed and b) be passed on to the grandchild/ren without being subject to IHT. However a large inherited ISA can only be moved into an ISA of their own at £20k pa. So any savings or investments will be in a non-ISA, so, and here's the gripe, savings interest and/or investment dividends on any 6 figure number will end up being taxed until your beneficiaries get them moved into their own ISA pot, because of the reduced limits set by this so called Conservative government. And the amount will be subject to IHT, and this will be true for generation after generation. (Unless future governments subject passed pension pots to IHT.)
Great video thank you. My employer also puts 12% into my pension most employers add something to pension in my experience. So pension example would be even more generous with employer contributions.
Wow, I was waiting for that information in the last part. Having a Pension and ISA.
Got there in the end, eh?!
Great explanation in an understandable format. One additional point I would add is the judicious use of the Personal Allowance - could reduced the marginal tax rate on pension fund withdrawals - thereby further increasing the attractiveness of pension v isa.
Totally agree!
You are really good. Thanks for your work 😊
Thank you!
I’ve just closed my S&S ISA and transferred into my SIPP - thanks for the advice!
I’d always have both, given a choice!
Really great video, it's made me reconsider my pension contributions. Keep up the good work
Thank you, Robert - will do!
I do both as you allude to. I look forward to the flexibility of having both!
Great video! I think the key is speak to an adviser! They will be able to guide you on your circumstances and work together to develop a plan!
Not sure if i did the right thing, but i blitzed the mortgage payments before savings and pension.
Every spare bit of cash i paid extra off the mortgage.
Only when the mortgage was clear did i start pension and ISA.
It made sense to me. It was so nice to be mortgage free very early.
it depends on the actions you take now.
If you lets say had a 25 year mortgage and payed it off in 20 years if you was to now invest for the next 5 years with your old mortgage payment and your overpayment you would be behind by a small amount if you instead invested the difference and then just put the overpayment as an investment into lets say an ISA (Pension is a bit more difficult to quantify here ISA and mortgage are both after tax so its a bit easier to look at).
So on paper yes it is better to not pay of your mortgage if you just look at the maths but in my opinion knowing you are mortgage free will give you much more confidence that you no longer have the biggest debt in your life that can affect your housing.
Overpaying mortgage, Upping pension or doing ISA are all good if you are doing any of these you are likely doing much better than the average person.
(ofcourse this is just hypothetical math right I am no financial advisor or anything so do take it with a grain a salt)
@@ekkeking Thanks for your grain of salt, it's appreciated.
What I did once I was mortgage free, was buy another property to rent out, ( yes another mortgage haha, but one somebody else was paying off ) , then as soon as I hit 55, I took out 25% from my pension to pay off the rest of the mortgage on the rental property (very high buy to let interest rates ) .
So now I'm mortgage free on both properties, I planned to fully retire at the end of this year at 57, a bit of income coming in from rental property, plus ISA and small pension I can draw down if needed.
But, it's all a bit pointless though, as I have stage 4 cancer, but am determined to beat it. It's not going to cheat me out of my hard earned retirement plan.
So it's spend spend spend now , holiday galore time and just see what happens.
The future is uncertain, so I'll be grateful for each day .
A great choice given the interest rate fluctuations. You have a pension in your property and will not have to pay tax on it. Older generations know how much a roof over your head is worth, despite all the idiots on YT telling you that rental is even an option. No matter what, they can't repossess your home if you own it outright!
Great information. However, if you plan to move overseas check if the ISA is still tax free. For example, Canada and the US will make you hurt.
Very good video!