I've kept much of my savings in cash for safety, but I'm unsure if it's right for retirement. Contemplating investing $400K in stocks, as I've heard investors can profit in tough times. Unsure about my next move.
It's impressive how much you saved during your working years, a feat not many achieve in a lifetime. Now that you're retired and rely on your investments, it's wise to redistribute your capital to mitigate risks during market fluctuations. Consulting a financial advisor can help simplify this process.
Due to my demanding job, I lack the time to thoroughly assess my investments and analyze individual stocks. Consequently, for the past seven years, I have enlisted the services of a fiduciary who actively manages my portfolio to adapt to the current market conditions. This strategy has allowed me to navigate the financial landscape successfully, making informed decisions on when to buy and sell. Perhaps you should consider a similar approach.
this is definitely considerable! think you could suggest any professional/advisors i can get on the phone with? i'm in dire need of proper portfolio allocation
I'm being guided by "Sophia Maurine Lanting" who is widely recognized for her competence and expertise in the financial market. She has a thorough understanding of portfolio diversification and is regarded as an authority in this field.
I admire your dedication to educating your audience. We all aim for financial stability and a better life. Achieving this is possible through wise investments, frugal living, and careful budgeting. I'm grateful that I learned the importance of working hard for financial freedom at a young age.
Even though I engage in investing, I feel disheartened by my lack of expertise in assessing the performance of individual companies and determining the optimal timing for stock purchases. The erosion of my financial reserves due to inflation adds to my concerns. At this point, I require precise market trajectory information, but I find myself unsure about the appropriate course of action.
I wholeheartedly concur, which is why I opt to entrust the day-to-day decision-making to an investing coach. With their specialized knowledge and extensive research, it is highly unlikely for them to underperform. Their expertise is centered around harnessing the asymmetrical potential of risks while also employing measures to safeguard against unfavorable outcomes. I have been collaborating with an investment coach for more than two years
Sonya lee Mitchell is the licensed fiduciary I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment.
Thank you so much! This is exactly what I needed right now. I wrote her an email and am waiting for her reply. Hopefully, she responds soon. I plan to start the year on a strong financial note.
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 😀
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.
Spread your risk with as many legitimate investments as you can, shares, bonds, pensions, property and ISA’s. It’s impossible to say how each will be treated for tax in 20 years time. Indeed, your savings may all be blown on care home fees - if so, make sure you have enough money to make it a 5 star one…
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.
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
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.
@@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.
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.
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
I'm 40 this year, I have just finished paying off my mortgage. This would not of been possible with a pension. My ISA is giving me freedom and choices. I have also avoided any higher interest rates with the mortgage.
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.
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
Amazing video, A friend of mine referred me to a financial adviser sometime ago and we got to talking about investment and money. I started investing with $150k and in the first 2 months, my portfolio was reading $274,800. Crazy right!, I decided to reinvest my profit and get more interesting. For over a year we have been working together making consistent profit just bought my second home 2 weeks ago and care for my family.
Hi. I’ve been forced to find additional sources of income as I got retrenched. I barely have time to continue trading and watch my investments since I had my second child. Do you think I should take a break for a while from the market and focus on other things or return whenever I have free time or is it a continuous process? Thanks
@@Essien-ij However, if you do not have access to a professional like Clementina Abate Russo, quitting your job to focus on trading may not be the best approach. It is important to consider all options and seek guidance from reliable sources before making any major decisions. Consulting with an AI or using automated trading systems can also be helpful in managing investments while balancing other commitments
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
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
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.
@@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.
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!
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
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.
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
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
I have two pensions. I would much rather have had a Roth 401k throughout my working lifetime. $500/month invested from 25 - 65 at 9% is $2.3mil. I have $100k that i like to invest in a non-retirement account, Where would you invest this as of now?
I would avoid the index funds, mutual funds, or specific stocks for the time being. 5% fixed incomes are the safest bet for now. Save your cash for when the market actually shows signs of recovery.
45% of Americans do not invest in the stock market because of lack of guidance. Every year you don't invest, you are falling behind. I’m hitting numbers in the stock market I used to dream of… Going from $50k to $600k in my portfolio is surreal all thanks to insights from my financial advisor.
She goes by ‘’Melissa Terri Swayne’ I suggest you look her up. To be honest, I almost didn't buy the idea of letting someone handle growing my finance, but so glad I did.
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.
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.
Totally agree with this video 👍 and I continue to suggest to youngsters to get saving into both pots... Annual return on my pension this year is 27.2%. The ISA is 28.7% .... BLOODY BRILLIANT !!! I'm seeing around 20% year on year, but this year has got my thumbs up 👍👍👍Retired a couple of years back at 56.
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.
The thing is, it depends what the pension is invested in. Company pensions by default are usually invested in some ridiculously low return mix of bonds and bad equity funds... usually to try and reduce volatility in the short term (pointless). Whereas if you just simply buy the S&P 500 index fund from blackrock or Vanguard the trailing 10 year average return is 14% (as of 2024). My solution has always been to change my pension immediately in any company i work for to "Freestyle" or "Custom" and basically invested it in a fashion to mirror what i do in my ISA. I even bought Nvidia in 2007 in my BA pension where i had complete control 😂.
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.
The more of your videos I watch, the more I realise how ignorant I am about finance.....But then again I would imagine most people are.....Thanks for the excellent videos
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.
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.
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.
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
@@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.
UK Pensions just feel like a "Slap in the face". Ive worked since I was 16, now in late 50s, only been unemployed total of 6 months in that time, even worked 3 jobs for 2 years. So all that tax, NI payments taken out and what's left I put what I could into a pension, plus work pensions (which I have consolidated) and when I retire I will get taxed on the money !!! It's like a double tax. I kwon there are brackets before you pay tax but if a fund is created from "take home" money, after it has been taxed and NI, then a person shouldn't have to pay tax again ? If I could Id move the money to an offshore account but I heard those fees would be almost as much as the tax man charges. Can you, if you haven't already done it, a video on the taxes on pensions when you retire, say if the person has a pot of £100k, plus the state pension added and what we could expected to get and what taxes we might have to pay ? Thanks
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
The math for Pensions is obviously better. However there is also the problem of access. With an ISA you can drawdown whenever you like, pension age keeps rising.
Not a private pension. I have both a high S and S ISA as well as a sipp. You can't rely on one entity you need both to level up along with property equity. Hard cash savings also helps.
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
@@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.
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
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.
For me the big problem is: a lot of things could change long term including the tax rules for both, if that happens with ISA you can take action, take rhe money, pension you have no option.
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.
I have been looking into pensions lately, Annuity's seem past there sell by date. You give them all that cash for about a 5% return and never see your initial investment again. Seems like an ISA or similar would be better for most people these days.
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).
Thanks for the video, really interesting comparisons. I suppose the fear for many younger folks is that access to SIPP’s is dictated by wherever the state pension age is, minus whatever figure the government sets - which is both entirely out of the investors control and also which all signs seem to say will move further and further back (if it exists in the future, for those in their 20s and 30s, despite us currently paying for todays pensioners). That seems like such a huge caveat, that SIPPs may be better in terms of compounding due to the tax relief, but you can’t access it until who knows when, if ever. Being in my mid 30s I’m so skeptical about the future state pension age that it seems very sensible to sacrifice that (for me) quite marginal difference you outlined, in order to choose to retire at 60 if I want, rather a decade or more later
I run at a 50/50 ISA to pension, same investments. However 1: worst case you can access the ISA. 2: government's think the prudent are rich so what if pension withdrawal age increases to 60 70 year. You have it all locked away without access.
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.
Are you saying that the government adds on 25% to the total amount added? So if you added £100, your employer matched it then the government added to it you'd end up with a monthly pay in of £250? And it only cost you £100? ...for example.
The Rational Reminder podcast had an interview with Prof Scott Cederburg who argued that future tax rates mean investing post-tax (ie ISA) may make more sense, especially for younger people, than pre-tax (ie. SIPP). Based on his US analysis he recommend the amount you put in a pension account is your age + 20 as a percentage, and the rest in an ISA equivalent. I would be interested to hear what people think of this in a U.K. context.
I do Pension ( Minimum matched to Employeer ), Property ( My first house I rented out ), and ISA ( as much as I can afford ). This means I won't pay loads of tax as an OAP, and looking to retire early at 57 in 2033. Cost of living however is kinda destroying my dream !!
Good video and explanation. However you missed the part where pension providers take administration fees from you, this can significantly reduce the growth
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.
It's important to make use of both. The pension for the tax relief, but also the ISA so that between the two, your retirement income is more tax efficient because any withdrawals over your personal allowance is taxable. So the ISA can take the pressure off your pension. The added benefit is that anything left in the pension could pass to children free from IHT. Also by investing in the ISA you maintain liquidity which is very important when going through life. There will be life events, or you could be faced with making a difficult decision where money is.a factor but it shouldn't be. EG "I hate my job or my partner but can't leave because I live month to month". It's very important that you can make authentic decisions when it matters, and access to funds helps you do that. When you retire, you could withdraw £1000ish pm from your pension tax free (personal allowance), £1000 from your ISA tax free (if there's enough invested), and if your pension builds up to a decent enough amount, the tax free cash could fund a general investment account and you can use the capital gains allowance to take further monthly withdrawals tax free and therefore a large percentage or all of your retirement income could be tax free.
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.
@@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.
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.
Makes me realise my Armed Forces Pension 75 was a mega good deal. One third pay for life from the age of 40 or after 22 years served. That said when they worked this pension out the survey they conducted concluded the average life expectancy was 55 years of age. However life styles changed rapidly and fortunately many live far longer. This pension ensures I have a quality of life and an entitlement through NI contributions to a State pension. AF75 has been stopped for this generation of servicemen.
I’m in the AF pension ( I think ) I joined in 1998 and left 2003 So have a preserved pension I’ll get aged 60 No idea what it will be like Guessing not much
I had a private pension in the early days of PPP, but the costs and charges were high and the investments performed poorly. So I went down ISA route. I don't accept that the ISA and Pension can be compared on the assumption of growing at the same rate.
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!!!!
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.
what might be really helpful is a excel spreadsheet for some of these amazing videos. that way we could put our basic details in and see how that pans out. I know there is the voyant go stuff and I will get to that but a basic excel spreadsheet here or there might help us get to the academy stuff a bit quicker? Just a thought Pete but all in all I love the videos you produce. Might be in the market for a new financial planner later this year as the fees on the current one are likely to bite off quite a chunk of what I'm putting into my pension.
@@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.
Hi, i could never get my head around pensions (young ignorance). Now 40 and with kids in tow, it’s something on my mind. I pay into a pension with my employer and their contributions are good, for now. I also, through work, have access to AVCs. Again, this is blows over my head. All the ‘old’ boys at work advise doing them. Is this something I should be paying into? Thanks. Great work.
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 👍🏼😊
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
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.
@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.
Things most have changed . My dad used to sell pension for the pru . But what he thought he was going to get when he retired to what he got was about a quarter of the value . And when he sadly passed away the pension died with him . So know my mother gets nothing. If he had put the money in to a savings account there would still be money in there . ?
The problem with a pension is that you can't touch it until 55, whereas an ISA is always available. So if you are in your 20's an ISA is the way to go until you have enough set aside to be secure and then start to contribute to a pension, or as you approach 55 (as this is when you can take cash out of your pension. In fact, one could take cash out of the ISA when you are close to 55 and put that in the pension and get tax relief on it. So you could have put cash in when on tax rate of 20 and then put that into the pension and get 40% tax relief on it. That's my theory anyway, would this work??
Yeah but the good thing about a pension is the fact you can’t touch it and it’s allowed to grow over a long period of time. If you just put money in an ISA you could be tempted to spend it all.
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.
Yep, it’s the same maths. With pensions you always think in gross terms so if tax relief is at 20% and you pay £80 in it gets grossed up to £100. While the £20 tax relief is 25% of the £80, it’s 20% of the gross amount of £100. That’s why anyone who talks about pensions talks in terms of 20% and 40% relief, because those are the income tax rates being relieved. Make sense?
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
One important factor which you seem to have missed is the effect of pension admin charges. I duplicated your model and added in an admin fee of 1.5%. From age 45 the pension was worth less than the ISA. Even reducing the fee to only 0.75% led to the pension being worth less than the ISA by age 62.
Pension and ISA fees are usually the same these days, and should certainly be cheaper than that. I’m interested as to why so many commenters think that ISAs are somehow cheaper than pensions? Of course I’m talking about stocks and shares ISAs, not cash ISAs.
@@MeaningfulMoney my Stocks & Shares ISA with ii costs a fixed price of £9.99 per month (or approx £120 per year). Aviva's current boast is that currently "We charge just 0.70% each year for managing your pension". The Independent newspaper recently did an analysis and found that many pensions were charging up to 2% per year! I have just checked my pension with Countrywide Assured, and they are charging me 1.9%.
Even worse... and I'm not sure how they justified it... I had an Aviva pension (which I had stopped paying into several years ago). It's value was only £790 but they were charging £24.64 per month for admin! That's around 37% admin fee. Once I spotted this, I closed down that pension, as it was just losing what little value it had every year.
@@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 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
Great information. Question - As retiree not paying tax atm, if I withdraw £20k from my crystallised pot to deposit into my £20k ISA UK Tax allowance, is the £20k taxed automatically on withdrawal at the basic tax rate of 20% = £4k, thereby leaving £16k net. (having already taken my TAX free allowance of £12,570 for the year). The only benefit I can see is faster access to the ISA cash v Pension withdrawals which takes up to 3 weeks!
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
Very insightful video. However, if we did take into account inflation with price increases in rent/food and general living costs in the future when we retire; i think we'll be forced to take out higher sums out and thats when alot of tax will be applied. And thats when ISA's really shine out. Also with ISA's you can take money out anytime any not have to wait until you 65 to enjoy your hard earned money.
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?
I think ISA is better for more flexibility. You can withdraw before retirement age and use the money for other investments or emergencies. Plus in this day and age moving out of the country is becoming more norm.
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.
If you already own a home and well settled (probably 40yr old) , pension is the way to go. If you still don't own a property it makes more sense to save in a ISA for the deposit instead of Pension
@@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
the pension figures seem to assume you'll live long enough to collect the pension. Plus, the downside of a pension is you have to wait until your old to get access to the money. If you die of cancer in your 50s or early 60s like many of my relatives then a pension might not be as valuable to you as an ISA
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 🙂
Sorry, most of us are paycheck to paycheck so no ISA? Also the pension will be our paycheck replacement so the draw down will target running out of money at 90. Hoping the care home will still exist for the destitute?
I’ve been in a work pension for 3 years ( my age 59) I contributed 8% of my salary matched by my employer. The fund lost £520 last year ! Compared with previous year
Pete, I'm a big fan of your videos. I remember watching this particular video when you first released it and thought it was great. Unfortunately, now that I understand tax and pensions much better, I am less sure it's as helpful as I thought it was when I first watched it. Multiple people have pointed me at this video when I've tried to correct their understanding of the advantages of a pensions vs ISAs. To be clear, I'm not arguing that there aren't plenty of compelling benefits in lots of circumstances, but there's some people who are confused about what these benefits are and seem to have picked up some misunderstandings from this video and other TH-cam content creator videos on this topic. Firstly, I love the idea of lettings the maths do the talking, but I believe that there are mistakes in the calculations. For example, the amount of money accumulated in the pension looks to be wrong. The pension number in the video is 20% more than the ISA number, but I think it should be 25% more. You could argue that using the large pension value would tip things further in the favour of pensions so the mistake doesn't matter much in video in which you are advocating for pensions. But it does risk undermining confidence in letting the maths do the talking if the maths looks to be wrong. The comparisons of ISA vs pension values during retirement (e.g. at age 100) are comparing net value (in the case of the ISA) with the gross pre-tax value (in the case of the pension). I think saying "So they are more than £500,000 better off" is very misleading given this. If this particular comparison use the net values for both (apples to apples) and if the maths didn't have errors in it, then the ISA and pension would have exactly the same net value. This is because this example is assuming zero tax free cash and base rate of tax both at contribution and withdrawal time. It's the tax free cash and any difference between the effective tax rate saved at contribution time vs the effective tax rate at withdrawal time, that makes pensions perform better than ISAs in the pure numbers game. Given this, I think people could easily reach the wrong conclusion given this part of summary: “Yes you are taxed on the back end with pensions, but the growth and compounding on the tax relief is so so valuable. Really doesn't take that much to reach this critical mass so that you really can't undo the benefits of that growth.” On the other hand if you have an employer who is happy to match contributions in a salary sacrifice scheme (in a sense converting reduced NI into contributions) then that is really free cash in my mind. Though I realise that's beyond the scope of this video where it was keeping things simple. The IHT benefit is likely a huge deal for many people. But I think the video distorts this somewhat by comparing the net value of the ISA with the gross pre-withdrawal value of the pension. The video does mention there will be potential income tax to pay but brushes this aside as not wanting to muddy the waters. It might have been more helpful to assume beneficiary withdrawals would be subject to the basic rate of tax as a reasonably representative lower estimate of the tax they might incur. A couple of benefits of pensions compared to ISAs that are not related to better tax treatment which are often overlooked: 1) I believe that ISAs are included in means tested benefit calculations, so while an ISA gives you that emergency fund, you might end up having to spend it in circumstances you didn't expect to have to (such as illness or redundancy); 2) you generally get better annuity rates and more annuity escalation options when purchasing using a pension rather than cash purchase (e.g. you can't get a money purchase index linked annuity). I hope this feedback is helpful. I really like the content you produce and have learned a lot from your videos. If you are ever developing a v2 of this video, hopefully these ideas are something you can consider and are useful. I know you've done a couple on the abolition of the LTA and new tax free cash rules. But perhaps a v2 of "pensions vs ISAs" might still be useful? Who knows it might even get another 500k views?
Hi Alex - I spotted this comment a couple of weeks or so ago, but have only now had chance to sit down and pull out the spreadsheet I used for the video calculations. Imagine my horror on realising that I had actually understated the contribution to the pension vs the ISA! I can't actually believe that it's taken three years for anyone to spot that, but you're right - even though it makes the pension look worse that it will in fact be, it doesn't engender confidence. I don't think I've ever made such a maths blunder - a bit worrying, but I'll blame it on brain fog from hormone-induced chronic fatigue at the time... I think the death benefit comparison is a bit more subjective. I've yet to have any beneficiary of a post-75 drawdown plan take the lot out in a lump sum, incurring potentially higher or even additional rate income tax in doing so, so I think the comparison stands in this case. I'll also stand by the critical mass statement, for now at least! As I was talking in the summary about the pension holder's point of view rather than that of any future beneficiaries. You just know I'm going to revisit this video now! And I'll seek to address some of your other points in that, too. I'd like to thank you for the gracious nature of your feedback. Plenty of people would be snarky, but you haven't been and for that, I'm very grateful. Now I'm off to self-flagellate to punish myself for incorrect maths, which I really can't quite believe...
Great video and I admit that the results surprised me but there is one interesting parameter in your model that you didn't play with and that is the 6% growth rate. The pension is building up its "head start" prior to starting to draw income because it has not only the money that the investor explicitly puts in but also the extra funds from HMRC's tax breaks. How much benefit is derived from the extra HMRC funds depends on the assumed annual growth rate so another interesting example to try and tilt things in favour of the ISA would have been to assume some lower growth rates to see what that did to the numbers. I might try to build a spreadsheet model myself, make sure it can reproduce your examples so that I know that I've got it right, and then plug in a few different assumptions for growth rates myself to see what happens. I confess that I now have the opposite of buyer's remorse, I have "non-buyer's remorse". I have assiduously put the maximum into my ISA each year ever since ISAs were launched but after taking early retirement I have mostly not made use of my ability to still contribute £2,880 each year into my currently-still-untouched SIPP and have HMRC gross that up to £3,600 for me. I'm 64 now and there have been something like 12 years when I could have made those contributions but didn't. I suppose it's not the end of the world but it would have been an extra £8,640 in my SIPP, inflated by whatever return I would have got on those additional investments over the years they were in the SIPP. Oh well, I can't rewrite the past but thanks to your video I will change my behaviour from now on.
With a company pension scheme that is salary sacrifice type, the effective relief is 30% for a basic rate taxpayer (20% income tax, 10% NI), and the compounding of this relief over a long time period within a pension will be significant. However, an ISA is also essential for immediate access requirements prior to taking a pension say for instance protection against redundancy etc. A useful strategy would be to move monies out of an ISA into a pension a few years (5 yrs ?) prior to pension commencement to max out annual pension contribution. So best option would be a combination of both, the only question being what % of excess income is placed in either.
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.)
You know what your ISA grows at, you do not know what you're going to get from the pension investment. In the past 6% would be a bit low but these days including management fees my pension hasnt grown at all over the last 4 years its gone backwards and its a lot easier to use the ISA switch to change providers.
I've kept much of my savings in cash for safety, but I'm unsure if it's right for retirement. Contemplating investing $400K in stocks, as I've heard investors can profit in tough times. Unsure about my next move.
It's impressive how much you saved during your working years, a feat not many achieve in a lifetime. Now that you're retired and rely on your investments, it's wise to redistribute your capital to mitigate risks during market fluctuations. Consulting a financial advisor can help simplify this process.
Due to my demanding job, I lack the time to thoroughly assess my investments and analyze individual stocks. Consequently, for the past seven years, I have enlisted the services of a fiduciary who actively manages my portfolio to adapt to the current market conditions. This strategy has allowed me to navigate the financial landscape successfully, making informed decisions on when to buy and sell. Perhaps you should consider a similar approach.
this is definitely considerable! think you could suggest any professional/advisors i can get on the phone with? i'm in dire need of proper portfolio allocation
I'm being guided by "Sophia Maurine Lanting" who is widely recognized for her competence and expertise in the financial market. She has a thorough understanding of portfolio diversification and is regarded as an authority in this field.
Thanks a lot for this suggestion. I needed this myself, I looked her up, and I have sent her an email. I hope she gets back to me soon.
I admire your dedication to educating your audience. We all aim for financial stability and a better life. Achieving this is possible through wise investments, frugal living, and careful budgeting. I'm grateful that I learned the importance of working hard for financial freedom at a young age.
Even though I engage in investing, I feel disheartened by my lack of expertise in assessing the performance of individual companies and determining the optimal timing for stock purchases. The erosion of my financial reserves due to inflation adds to my concerns. At this point, I require precise market trajectory information, but I find myself unsure about the appropriate course of action.
I wholeheartedly concur, which is why I opt to entrust the day-to-day decision-making to an investing coach. With their specialized knowledge and extensive research, it is highly unlikely for them to underperform. Their expertise is centered around harnessing the asymmetrical potential of risks while also employing measures to safeguard against unfavorable outcomes. I have been collaborating with an investment coach for more than two years
Your advisor must be really good. How I can get in touch? My retirement portfolio's decline is a concern, and I could use some guidance.
Sonya lee Mitchell is the licensed fiduciary I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment.
Thank you so much! This is exactly what I needed right now. I wrote her an email and am waiting for her reply. Hopefully, she responds soon. I plan to start the year on a strong financial note.
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.
Spread your risk with as many legitimate investments as you can, shares, bonds, pensions, property and ISA’s. It’s impossible to say how each will be treated for tax in 20 years time. Indeed, your savings may all be blown on care home fees - if so, make sure you have enough money to make it a 5 star one…
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
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
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
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
Do you think its likely SIPP withdrawal age will be increased by the government?
@@user-lz3lr6jj5w please check that £20k is allowed yearly. Think that amount is too high percentage wise.
I'm 40 this year, I have just finished paying off my mortgage. This would not of been possible with a pension. My ISA is giving me freedom and choices. I have also avoided any higher interest rates with the mortgage.
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
The one big advantage with an ISA is you can access it before you retire.
So if you have unexpected bills, it's a useful pot of money to dip into.
Amazing video, A friend of mine referred me to a financial adviser sometime ago and we got to talking about investment and money. I started investing with $150k and in the first 2 months, my portfolio was reading $274,800. Crazy right!, I decided to reinvest my profit and get more interesting. For over a year we have been working together making consistent profit just bought my second home 2 weeks ago and care for my family.
Hi. I’ve been forced to find additional sources of income as I got retrenched. I barely have time to continue trading and watch my investments since I had my second child. Do you think I should take a break for a while from the market and focus on other things or return whenever I have free time or is it a continuous process? Thanks
@@Essien-ij However, if you do not have access to a professional like Clementina Abate Russo, quitting your job to focus on trading may not be the best approach. It is important to consider all options and seek guidance from reliable sources before making any major decisions. Consulting with an AI or using automated trading systems can also be helpful in managing investments while balancing other commitments
@@Fatihu-nq Oh please I’d love that. Thanks!
@@Essien-ij Clementina Abate Russo is her name
Lookup with her name on the webpage.
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. 😢
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.
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
😂😂
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
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!
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
Great explanation. So many of these kind of videos always presume the person has a family to leave money too. Singletons advice is very rare
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
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!
This is the best video I have seen explaining UK options. Subscribed.
I have two pensions. I would much rather have had a Roth 401k throughout my working lifetime. $500/month invested from 25 - 65 at 9% is $2.3mil. I have $100k that i like to invest in a non-retirement account, Where would you invest this as of now?
I would avoid the index funds, mutual funds, or specific stocks for the time being. 5% fixed incomes are the safest bet for now. Save your cash for when the market actually shows signs of recovery.
45% of Americans do not invest in the stock market because of lack of guidance. Every year you don't invest, you are falling behind. I’m hitting numbers in the stock market I used to dream of… Going from $50k to $600k in my portfolio is surreal all thanks to insights from my financial advisor.
Great gains there! mind sharing details of your advisor please?
She goes by ‘’Melissa Terri Swayne’ I suggest you look her up. To be honest, I almost didn't buy the idea of letting someone handle growing my finance, but so glad I did.
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.
Totally agree with this video 👍 and I continue to suggest to youngsters to get saving into both pots... Annual return on my pension this year is 27.2%. The ISA is 28.7% .... BLOODY BRILLIANT !!! I'm seeing around 20% year on year, but this year has got my thumbs up 👍👍👍Retired a couple of years back at 56.
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.
I've been trying to teach members of my family about this stuff for years but they just switch off. Great video
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.
The thing is, it depends what the pension is invested in.
Company pensions by default are usually invested in some ridiculously low return mix of bonds and bad equity funds... usually to try and reduce volatility in the short term (pointless).
Whereas if you just simply buy the S&P 500 index fund from blackrock or Vanguard the trailing 10 year average return is 14% (as of 2024).
My solution has always been to change my pension immediately in any company i work for to "Freestyle" or "Custom" and basically invested it in a fashion to mirror what i do in my ISA.
I even bought Nvidia in 2007 in my BA pension where i had complete control 😂.
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.
The more of your videos I watch, the more I realise how ignorant I am about finance.....But then again I would imagine most people are.....Thanks for the excellent videos
I’m sure you know more thank you think, Tony. Keep watching and learning and you’ll be expert-level soon! Thanks for being here… 🙏🏻
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.
Very good. Clear and concise. Like your final comments. It’s good to have multiple options. Thanks
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.
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!
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 :)
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.
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.
UK Pensions just feel like a "Slap in the face". Ive worked since I was 16, now in late 50s, only been unemployed total of 6 months in that time, even worked 3 jobs for 2 years. So all that tax, NI payments taken out and what's left I put what I could into a pension, plus work pensions (which I have consolidated) and when I retire I will get taxed on the money !!! It's like a double tax. I kwon there are brackets before you pay tax but if a fund is created from "take home" money, after it has been taxed and NI, then a person shouldn't have to pay tax again ?
If I could Id move the money to an offshore account but I heard those fees would be almost as much as the tax man charges.
Can you, if you haven't already done it, a video on the taxes on pensions when you retire, say if the person has a pot of £100k, plus the state pension added and what we could expected to get and what taxes we might have to pay ?
Thanks
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
The math for Pensions is obviously better. However there is also the problem of access. With an ISA you can drawdown whenever you like, pension age keeps rising.
Not a private pension. I have both a high S and S ISA as well as a sipp. You can't rely on one entity you need both to level up along with property equity. Hard cash savings also helps.
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.
Don't forget employers add contributions to pensions, and behaviours can be adjusted to control some of the tax risks.
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.
there's no difference, the size of the pension pot will always be 1.25 the size of the ISA pot no matter what the growth rate.
For me the big problem is: a lot of things could change long term including the tax rules for both, if that happens with ISA you can take action, take rhe money, pension you have no option.
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.
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
I have been looking into pensions lately, Annuity's seem past there sell by date. You give them all that cash for about a 5% return and never see your initial investment again. Seems like an ISA or similar would be better for most people these days.
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).
Thanks for the video, really interesting comparisons. I suppose the fear for many younger folks is that access to SIPP’s is dictated by wherever the state pension age is, minus whatever figure the government sets - which is both entirely out of the investors control and also which all signs seem to say will move further and further back (if it exists in the future, for those in their 20s and 30s, despite us currently paying for todays pensioners).
That seems like such a huge caveat, that SIPPs may be better in terms of compounding due to the tax relief, but you can’t access it until who knows when, if ever.
Being in my mid 30s I’m so skeptical about the future state pension age that it seems very sensible to sacrifice that (for me) quite marginal difference you outlined, in order to choose to retire at 60 if I want, rather a decade or more later
UK government in all likelihood will raid pensions after starting wars abroad. So I'm prioritising ISA deposits and only paying in workplace pension.
I run at a 50/50 ISA to pension, same investments. However 1: worst case you can access the ISA. 2: government's think the prudent are rich so what if pension withdrawal age increases to 60 70 year. You have it all locked away without access.
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.
Are you saying that the government adds on 25% to the total amount added? So if you added £100, your employer matched it then the government added to it you'd end up with a monthly pay in of £250? And it only cost you £100? ...for example.
The Rational Reminder podcast had an interview with Prof Scott Cederburg who argued that future tax rates mean investing post-tax (ie ISA) may make more sense, especially for younger people, than pre-tax (ie. SIPP). Based on his US analysis he recommend the amount you put in a pension account is your age + 20 as a percentage, and the rest in an ISA equivalent. I would be interested to hear what people think of this in a U.K. context.
I do Pension ( Minimum matched to Employeer ), Property ( My first house I rented out ), and ISA ( as much as I can afford ). This means I won't pay loads of tax as an OAP, and looking to retire early at 57 in 2033. Cost of living however is kinda destroying my dream !!
Hi Pete - great series of videos. I’ve only recently discovered them. You do a great job, thank you
Great point. I pay into my pension as i am a higher rate tax payer. I also do iSA funds because i like the flexibility.
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.
It's important to make use of both. The pension for the tax relief, but also the ISA so that between the two, your retirement income is more tax efficient because any withdrawals over your personal allowance is taxable. So the ISA can take the pressure off your pension. The added benefit is that anything left in the pension could pass to children free from IHT. Also by investing in the ISA you maintain liquidity which is very important when going through life. There will be life events, or you could be faced with making a difficult decision where money is.a factor but it shouldn't be. EG "I hate my job or my partner but can't leave because I live month to month". It's very important that you can make authentic decisions when it matters, and access to funds helps you do that. When you retire, you could withdraw £1000ish pm from your pension tax free (personal allowance), £1000 from your ISA tax free (if there's enough invested), and if your pension builds up to a decent enough amount, the tax free cash could fund a general investment account and you can use the capital gains allowance to take further monthly withdrawals tax free and therefore a large percentage or all of your retirement income could be tax free.
Jeremy Hunt has signalled an end to the cgt allowance.
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.
Makes me realise my Armed Forces Pension 75 was a mega good deal. One third pay for life from the age of 40 or after 22 years served. That said when they worked this pension out the survey they conducted concluded the average life expectancy was 55 years of age. However life styles changed rapidly and fortunately many live far longer. This pension ensures I have a quality of life and an entitlement through NI contributions to a State pension. AF75 has been stopped for this generation of servicemen.
I’m in the AF pension ( I think ) I joined in 1998 and left 2003
So have a preserved pension I’ll get aged 60
No idea what it will be like
Guessing not much
Very useful Pete. Could you cover LISA v Pension please
I had a private pension in the early days of PPP, but the costs and charges were high and the investments performed poorly. So I went down ISA route. I don't accept that the ISA and Pension can be compared on the assumption of growing at the same rate.
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!!!!
Where do you get 6% growth from ?
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.
what might be really helpful is a excel spreadsheet for some of these amazing videos. that way we could put our basic details in and see how that pans out. I know there is the voyant go stuff and I will get to that but a basic excel spreadsheet here or there might help us get to the academy stuff a bit quicker? Just a thought Pete but all in all I love the videos you produce. Might be in the market for a new financial planner later this year as the fees on the current one are likely to bite off quite a chunk of what I'm putting into my pension.
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!
Hi, i could never get my head around pensions (young ignorance). Now 40 and with kids in tow, it’s something on my mind. I pay into a pension with my employer and their contributions are good, for now. I also, through work, have access to AVCs. Again, this is blows over my head. All the ‘old’ boys at work advise doing them. Is this something I should be paying into? Thanks. Great work.
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 👍🏼😊
Agree with your final comments. Great vid. Have multiple streams as nobody wants to wait until 65 to get their hands on the pension pot.
You can withdraw at 55 for private/workplace pension
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.
Things most have changed . My dad used to sell pension for the pru . But what he thought he was going to get when he retired to what he got was about a quarter of the value . And when he sadly passed away the pension died with him . So know my mother gets nothing. If he had put the money in to a savings account there would still be money in there . ?
Things have changed, Thank goodness. I’m sorry for your loss. Pensions are far more transparent now.
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
The problem with a pension is that you can't touch it until 55, whereas an ISA is always available. So if you are in your 20's an ISA is the way to go until you have enough set aside to be secure and then start to contribute to a pension, or as you approach 55 (as this is when you can take cash out of your pension. In fact, one could take cash out of the ISA when you are close to 55 and put that in the pension and get tax relief on it. So you could have put cash in when on tax rate of 20 and then put that into the pension and get 40% tax relief on it. That's my theory anyway, would this work??
Yeah but the good thing about a pension is the fact you can’t touch it and it’s allowed to grow over a long period of time. If you just put money in an ISA you could be tempted to spend it all.
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.
When you say pension contributions are grossed up by 20%, the actual amount in the pension is 25% higher because the calculation is to divide by 0.8
Yep, it’s the same maths. With pensions you always think in gross terms so if tax relief is at 20% and you pay £80 in it gets grossed up to £100.
While the £20 tax relief is 25% of the £80, it’s 20% of the gross amount of £100. That’s why anyone who talks about pensions talks in terms of 20% and 40% relief, because those are the income tax rates being relieved.
Make sense?
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
One important factor which you seem to have missed is the effect of pension admin charges. I duplicated your model and added in an admin fee of 1.5%. From age 45 the pension was worth less than the ISA. Even reducing the fee to only 0.75% led to the pension being worth less than the ISA by age 62.
Pension and ISA fees are usually the same these days, and should certainly be cheaper than that. I’m interested as to why so many commenters think that ISAs are somehow cheaper than pensions? Of course I’m talking about stocks and shares ISAs, not cash ISAs.
@@MeaningfulMoney my Stocks & Shares ISA with ii costs a fixed price of £9.99 per month (or approx £120 per year). Aviva's current boast is that currently "We charge just 0.70% each year for managing your pension". The Independent newspaper recently did an analysis and found that many pensions were charging up to 2% per year! I have just checked my pension with Countrywide Assured, and they are charging me 1.9%.
Even worse... and I'm not sure how they justified it... I had an Aviva pension (which I had stopped paying into several years ago). It's value was only £790 but they were charging £24.64 per month for admin! That's around 37% admin fee. Once I spotted this, I closed down that pension, as it was just losing what little value it had every year.
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
Great information. Question - As retiree not paying tax atm, if I withdraw £20k from my crystallised pot to deposit into my £20k ISA UK Tax allowance, is the £20k taxed automatically on withdrawal at the basic tax rate of 20% = £4k, thereby leaving £16k net. (having already taken my TAX free allowance of £12,570 for the year). The only benefit I can see is faster access to the ISA cash v Pension withdrawals which takes up to 3 weeks!
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.
@@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?
I added some money to my private pension recently and the tax relief was added automatically. No forms, no nothing. Very satisfying 😊
Very insightful video. However, if we did take into account inflation with price increases in rent/food and general living costs in the future when we retire; i think we'll be forced to take out higher sums out and thats when alot of tax will be applied. And thats when ISA's really shine out. Also with ISA's you can take money out anytime any not have to wait until you 65 to enjoy your hard earned money.
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?
I think ISA is better for more flexibility. You can withdraw before retirement age and use the money for other investments or emergencies. Plus in this day and age moving out of the country is becoming more norm.
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.
If you already own a home and well settled (probably 40yr old) , pension is the way to go. If you still don't own a property it makes more sense to save in a ISA for the deposit instead of Pension
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
the pension figures seem to assume you'll live long enough to collect the pension. Plus, the downside of a pension is you have to wait until your old to get access to the money. If you die of cancer in your 50s or early 60s like many of my relatives then a pension might not be as valuable to you as an ISA
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!
Great advice, great audio, great production. Think I've just found my favourite new YT channel.
Great to have you here!
Sorry, most of us are paycheck to paycheck so no ISA? Also the pension will be our paycheck replacement so the draw down will target running out of money at 90. Hoping the care home will still exist for the destitute?
Best of all is LISA .it is free tax with benefits of 25 percent extra added
I’ve been in a work pension for 3 years ( my age 59)
I contributed 8% of my salary matched by my employer.
The fund lost £520 last year ! Compared with previous year
Who is your pension provider
And what risk have you chosen ? (High medium or low risk ? )
Pete, I'm a big fan of your videos. I remember watching this particular video when you first released it and thought it was great. Unfortunately, now that I understand tax and pensions much better, I am less sure it's as helpful as I thought it was when I first watched it. Multiple people have pointed me at this video when I've tried to correct their understanding of the advantages of a pensions vs ISAs. To be clear, I'm not arguing that there aren't plenty of compelling benefits in lots of circumstances, but there's some people who are confused about what these benefits are and seem to have picked up some misunderstandings from this video and other TH-cam content creator videos on this topic.
Firstly, I love the idea of lettings the maths do the talking, but I believe that there are mistakes in the calculations. For example, the amount of money accumulated in the pension looks to be wrong. The pension number in the video is 20% more than the ISA number, but I think it should be 25% more. You could argue that using the large pension value would tip things further in the favour of pensions so the mistake doesn't matter much in video in which you are advocating for pensions. But it does risk undermining confidence in letting the maths do the talking if the maths looks to be wrong.
The comparisons of ISA vs pension values during retirement (e.g. at age 100) are comparing net value (in the case of the ISA) with the gross pre-tax value (in the case of the pension). I think saying "So they are more than £500,000 better off" is very misleading given this. If this particular comparison use the net values for both (apples to apples) and if the maths didn't have errors in it, then the ISA and pension would have exactly the same net value. This is because this example is assuming zero tax free cash and base rate of tax both at contribution and withdrawal time.
It's the tax free cash and any difference between the effective tax rate saved at contribution time vs the effective tax rate at withdrawal time, that makes pensions perform better than ISAs in the pure numbers game.
Given this, I think people could easily reach the wrong conclusion given this part of summary: “Yes you are taxed on the back end with pensions, but the growth and compounding on the tax relief is so so valuable. Really doesn't take that much to reach this critical mass so that you really can't undo the benefits of that growth.”
On the other hand if you have an employer who is happy to match contributions in a salary sacrifice scheme (in a sense converting reduced NI into contributions) then that is really free cash in my mind. Though I realise that's beyond the scope of this video where it was keeping things simple.
The IHT benefit is likely a huge deal for many people. But I think the video distorts this somewhat by comparing the net value of the ISA with the gross pre-withdrawal value of the pension. The video does mention there will be potential income tax to pay but brushes this aside as not wanting to muddy the waters. It might have been more helpful to assume beneficiary withdrawals would be subject to the basic rate of tax as a reasonably representative lower estimate of the tax they might incur.
A couple of benefits of pensions compared to ISAs that are not related to better tax treatment which are often overlooked: 1) I believe that ISAs are included in means tested benefit calculations, so while an ISA gives you that emergency fund, you might end up having to spend it in circumstances you didn't expect to have to (such as illness or redundancy); 2) you generally get better annuity rates and more annuity escalation options when purchasing using a pension rather than cash purchase (e.g. you can't get a money purchase index linked annuity).
I hope this feedback is helpful. I really like the content you produce and have learned a lot from your videos. If you are ever developing a v2 of this video, hopefully these ideas are something you can consider and are useful. I know you've done a couple on the abolition of the LTA and new tax free cash rules. But perhaps a v2 of "pensions vs ISAs" might still be useful? Who knows it might even get another 500k views?
Hi Alex - I spotted this comment a couple of weeks or so ago, but have only now had chance to sit down and pull out the spreadsheet I used for the video calculations. Imagine my horror on realising that I had actually understated the contribution to the pension vs the ISA! I can't actually believe that it's taken three years for anyone to spot that, but you're right - even though it makes the pension look worse that it will in fact be, it doesn't engender confidence. I don't think I've ever made such a maths blunder - a bit worrying, but I'll blame it on brain fog from hormone-induced chronic fatigue at the time...
I think the death benefit comparison is a bit more subjective. I've yet to have any beneficiary of a post-75 drawdown plan take the lot out in a lump sum, incurring potentially higher or even additional rate income tax in doing so, so I think the comparison stands in this case.
I'll also stand by the critical mass statement, for now at least! As I was talking in the summary about the pension holder's point of view rather than that of any future beneficiaries.
You just know I'm going to revisit this video now! And I'll seek to address some of your other points in that, too. I'd like to thank you for the gracious nature of your feedback. Plenty of people would be snarky, but you haven't been and for that, I'm very grateful.
Now I'm off to self-flagellate to punish myself for incorrect maths, which I really can't quite believe...
Great video and I admit that the results surprised me but there is one interesting parameter in your model that you didn't play with and that is the 6% growth rate. The pension is building up its "head start" prior to starting to draw income because it has not only the money that the investor explicitly puts in but also the extra funds from HMRC's tax breaks. How much benefit is derived from the extra HMRC funds depends on the assumed annual growth rate so another interesting example to try and tilt things in favour of the ISA would have been to assume some lower growth rates to see what that did to the numbers. I might try to build a spreadsheet model myself, make sure it can reproduce your examples so that I know that I've got it right, and then plug in a few different assumptions for growth rates myself to see what happens.
I confess that I now have the opposite of buyer's remorse, I have "non-buyer's remorse". I have assiduously put the maximum into my ISA each year ever since ISAs were launched but after taking early retirement I have mostly not made use of my ability to still contribute £2,880 each year into my currently-still-untouched SIPP and have HMRC gross that up to £3,600 for me. I'm 64 now and there have been something like 12 years when I could have made those contributions but didn't. I suppose it's not the end of the world but it would have been an extra £8,640 in my SIPP, inflated by whatever return I would have got on those additional investments over the years they were in the SIPP.
Oh well, I can't rewrite the past but thanks to your video I will change my behaviour from now on.
This is all without taking employer pension contributions into account, tipping the balance even further towards pension as the #1 option
I have both but I weight payments, by a significant amount, in favour of my pension for the reasons you’ve given.
With a company pension scheme that is salary sacrifice type, the effective relief is 30% for a basic rate taxpayer (20% income tax, 10% NI), and the compounding of this relief over a long time period within a pension will be significant.
However, an ISA is also essential for immediate access requirements prior to taking a pension say for instance protection against redundancy etc.
A useful strategy would be to move monies out of an ISA into a pension a few years (5 yrs ?) prior to pension commencement to max out annual pension contribution.
So best option would be a combination of both, the only question being what % of excess income is placed in either.
Not sure there’s a definitive answer to that question, each person will need to settle on a figure and split for themselves.
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.)
You know what your ISA grows at, you do not know what you're going to get from the pension investment. In the past 6% would be a bit low but these days including management fees my pension hasnt grown at all over the last 4 years its gone backwards and its a lot easier to use the ISA switch to change providers.
Wow, I was waiting for that information in the last part. Having a Pension and ISA.
Got there in the end, eh?!