Private pensions

[Seany88]

There's a lot of directors of ltd companies on here so this is more to you - what pension arrangements do you have? I'm guessing you can adjust things to be quite beneficial with regards to the contributions from the company?

As it stands I have no pension that I know of and I think it may be time to start, plus I keep reading about how beneficial it is (tax-wise) to save for a pension. Any thoughts?

[Wings]

If you were a standard rate tax payer, and made a Pension contribution of £3600, then after basic rate tax relief, your net Pension contribution £2880, apply the same principle of tax relief on/for a higher rate tax payer, then that is the tax advantages of contributing a private Pension.

The disadvantages are that I started contributing some 30 years ago to various Pension schemes, some with Equitable life, that lost me a considerable amount of money, and although now retired, but still a higher rate tax payer, the benefits of all my Pensions will never be enjoyed by myself.

[kryten]

As long as your income is <150k then it can be quite tax efficient, however remember you can't get at this money until you are 55 years old.

If you have spare profits in the company then might be worth a look but do check with your accountant/IFA...

[Seany88]

I am a standard rate tax payer, so if I put in £2880 then it gets bumped up to £3600 because of tax relief? What about employer contributions - can I do this?

Wings said:

The disadvantages are that I started contributing some 30 years ago to various Pension schemes, some with Equitable life, that lost me a considerable amount of money, and although now retired, but still a higher rate tax payer, the benefits of all my Pensions will never be enjoyed by myself.

This is why initially when I started up the company I didn't want to bother with a pension as I didn't know what new rules etc would be imposed in the future that could wipe out the benefit!

Wings why will you never enjoy the benefits? Because you contributed as a higher-rate tax payer and still have to pay tax on your pension income? Would it still not have worked out better because of empolyer contributions?

[Wings]

I always thought that if someone can make money out of your money, then why can’t “you” make more money out of your money, I suppose a bit like working for yourself rather than for someone else.

I have a portfolio of BTL properties, so with the rental income that comes from the same, the Pension monies is not really required, especially as they would be taxed at a higher rate of tax. If the Pension funds are left for my three adult children, then the funds fall outside of my estate, so free of Inheritance Tax.

My general advice would be to spread your savings, investments around, some in a private pension, in your business, in property and ISAs.

Two advantages in contributing in Pensions, one tax relief , two funds untouchable until pension age.

[NoelWatson]

Seany88 said:

There's a lot of directors of ltd companies on here so this is more to you - what pension arrangements do you have? I'm guessing you can adjust things to be quite beneficial with regards to the contributions from the company?

As it stands I have no pension that I know of and I think it may be time to start, plus I keep reading about how beneficial it is (tax-wise) to save for a pension. Any thoughts?

I have a SIPP

[NoelWatson]

kryten said:

As long as your income is <150k then it can be quite tax efficient

I think it is down to 130k

[Jespin]

Wings said:

If the Pension funds are left for my three adult children, then the funds fall outside of my estate, so free of Inheritance Tax.

Except for that to happen you will need to rely on dying before you reach age 75. Otherwise HMRC will be getting their dirty mits on your funds after all.

[Wings]

Jespin said:

Wings said:

If the Pension funds are left for my three adult children, then the funds fall outside of my estate, so free of Inheritance Tax.

Except for that to happen you will need to rely on dying before you reach age 75. Otherwise HMRC will be getting their dirty mits on your funds after all.[/quote

The advice I have so far been given is as follows (confirms the point you made);

"In the government's view, pensions are not to be used for estate planning or IHT mitigation. Therefore, the rules mean that punitive rates of tax exist to discourage people from failing to draw down their pension in the hope that they can pass the capital sums to dependents. Whilst it is possible to ensure that capital passes free of IHT before the age of 75 (with careful planning) once you reach 75 a transfer to anyone other than a charity, dependent relative or a spouse would trigger a combined IHT & income tax charge of 82% on the funds transferred.

I would be happy to look at your pension arrangements in more detail to address the issue of IHT after the age of 75."

[Jespin]

Wings said:

"In the government's view, pensions are not to be used for estate planning or IHT mitigation. Therefore, the rules mean that punitive rates of tax exist to discourage people from failing to draw down their pension in the hope that they can pass the capital sums to dependents. Whilst it is possible to ensure that capital passes free of IHT before the age of 75 (with careful planning) once you reach 75 a transfer to anyone other than a charity, dependent relative or a spouse would trigger a combined IHT & income tax charge of 82% on the funds transferred.

I would be happy to look at your pension arrangements in more detail to address the issue of IHT after the age of 75."

Yeah that's spot on, the reality of an 82% tax charge will be enough to deter most people from bothering to try and pass their funds onto their families. Another point will be the fact that post-75 regulations will force you to take a fair proportion of the fund as income in any case.

[Wings]

So Jespin, the scenario is that you have just reached your 60’s, (although you don’t look it), you have a fair amount of money in the Pension pot, and although recently retired, you have regular investment/rental income from BTL properties.

Your 3 children are all grown up, in fairly secured professional employment, with their own mortgaged paid properties, you yourself having no mortgage and free of all other debts.

With state pension age some 4 years away, what do you do with your private pension, do you now take the 25% lump sum tax free together with a taxable annuity, do you wait until you reach the age of 65, or nearer to the age of 75?

[Seany88]

NoelWatson said:

Seany88 said:

There's a lot of directors of ltd companies on here so this is more to you - what pension arrangements do you have? I'm guessing you can adjust things to be quite beneficial with regards to the contributions from the company?

As it stands I have no pension that I know of and I think it may be time to start, plus I keep reading about how beneficial it is (tax-wise) to save for a pension. Any thoughts?

I have a SIPP

Noel I follow your advice quite often, as you seem quite bearish and possibly aligned in my own inner bearishness...

But given my recent poor performance on the markets I'm not sure I trust myself anymore to build a SIPP! I mean it requires possibly a different, more cautious approach with attention to safe, growth stocks rather than dividend payers right? How do you choose yours?

[NoelWatson]

Seany88 said:

How do you choose yours?

Boring blue chip dividend payers - mainly FTSE 100. So for example - BP, GSK etc. I hold forever, and will live off the divis when I retire (assuming pension law doesn't change)

[Seany88]

NoelWatson said:

Seany88 said:

How do you choose yours?

Boring blue chip dividend payers - mainly FTSE 100. So for example - BP, GSK etc. I hold forever, and will live off the divis when I retire (assuming pension law doesn't change)

How confident are you that the law won't change though? I am not old enough to be annoyed about Gordon's pension raid but it does send worrying thoughts through my mind...

Out of interest I know you used to hold LLOY before the whole HBOS thing, did you sell out before they tanked or have you held on? (from shareholder who got out, then back in, watched them plummet, held held held, bought OO and still waiting for my money back)

[NoelWatson]

Seany88 said:

NoelWatson said:

Seany88 said:

How do you choose yours?

Boring blue chip dividend payers - mainly FTSE 100. So for example - BP, GSK etc. I hold forever, and will live off the divis when I retire (assuming pension law doesn't change)

How confident are you that the law won't change though? I am not old enough to be annoyed about Gordon's pension raid but it does send worrying thoughts through my mind...

Out of interest I know you used to hold LLOY before the whole HBOS thing, did you sell out before they tanked or have you held on? (from shareholder who got out, then back in, watched them plummet, held held held, bought OO and still waiting for my money back)

Seany88 said:

How confident are you that the law won't change though?

Not very, but you can only play what is in front of you at the current time! Things are already changing, with tax relief going (IIRC) if you earn more than 130k. I guess you need to make sure the pension is just one of your income streams in retirement.

Seany88 said:

Out of interest I know you used to hold LLOY before the whole HBOS thing, did you sell out before they tanked or have you held on? (from shareholder who got out, then back in, watched them plummet, held held held, bought OO and still waiting for my money back)

Still hold. Way underwater, but I reckon in 30 years from now will hopefully have recovered and will be paying divis again.

[Seany88]

I hope your joking re 30 years!! I'm hoping 2 or 3!!

So are you heavily invested in stocks then? This year i've used my ISA allowance in stocks as the cash rates are awful at the moment, but in the short-term I still want to build my cash ISA to a decent rainy-day level (plus future tax breaks of having cash outside of personal income tax) so next year I'll probably split it evenly.

[Jespin]

Wings said:

So Jespin, the scenario is that you have just reached your 60’s, (although you don’t look it), you have a fair amount of money in the Pension pot, and although recently retired, you have regular investment/rental income from BTL properties.

Your 3 children are all grown up, in fairly secured professional employment, with their own mortgaged paid properties, you yourself having no mortgage and free of all other debts.

With state pension age some 4 years away, what do you do with your private pension, do you now take the 25% lump sum tax free together with a taxable annuity, do you wait until you reach the age of 65, or nearer to the age of 75?

It really depends on whether you need the income / tax-free cash at the moment or not. If not, you could leave the fund untouched ensuring that upon death the entire fund passes to your family tax-free. If you could do with the tax-free cash then take it and move the remainder into a drawdown arrangement and still take no income.

If you require both lump sum and income then you could still do a drawdown scheme but withdraw an income after withdrawing the lump sum. With both drawdown options you retain increased death benefits of current fund value less 35% tax.

I wouldn't be looking to annuitise until much nearer age 75 as you want to avoid making definite, unchangeable choices regarding the income that you take for as long as possible. Post age 75, the rules change and get a lot more complex.

[Workshy Fop]

Seany88 said:

There's a lot of directors of ltd companies on here so this is more to you - what pension arrangements do you have? I'm guessing you can adjust things to be quite beneficial with regards to the contributions from the company?

As it stands I have no pension that I know of and I think it may be time to start, plus I keep reading about how beneficial it is (tax-wise) to save for a pension. Any thoughts?

Back to pensions. Company contributions come straight off your corporation tax bill.
e.g. if you were taxed on £50k profit but had paid £10k into a pension, your year end tax bill would be on £40k
Taking this as pension obviously leaves less in the company for you to "get your hands on" via wages or divvies. I think it's worth doing as the problem for me is getting the money out of the company. If additonally you pay in to a pension from your own income then you get tax relief at whatever rate prevails for you.

[Seany88]

Workshy Fop said:

Seany88 said:

There's a lot of directors of ltd companies on here so this is more to you - what pension arrangements do you have? I'm guessing you can adjust things to be quite beneficial with regards to the contributions from the company?

As it stands I have no pension that I know of and I think it may be time to start, plus I keep reading about how beneficial it is (tax-wise) to save for a pension. Any thoughts?

Back to pensions. Company contributions come straight off your corporation tax bill.
e.g. if you were taxed on £50k profit but had paid £10k into a pension, your year end tax bill would be on £40k
Taking this as pension obviously leaves less in the company for you to "get your hands on" via wages or divvies. I think it's worth doing as the problem for me is getting the money out of the company. If additonally you pay in to a pension from your own income then you get tax relief at whatever rate prevails for you.

Thanks, just what I wanted to hear. So i'm assuming you have your own company as well, how do you administer your pension scheme and who does it? Is it available to all your staff? Should I be talking to my accountant about this?

[Workshy Fop]

Seany88 said:

Workshy Fop said:

Seany88 said:

There's a lot of directors of ltd companies on here so this is more to you - what pension arrangements do you have? I'm guessing you can adjust things to be quite beneficial with regards to the contributions from the company?

As it stands I have no pension that I know of and I think it may be time to start, plus I keep reading about how beneficial it is (tax-wise) to save for a pension. Any thoughts?

Back to pensions. Company contributions come straight off your corporation tax bill.
e.g. if you were taxed on £50k profit but had paid £10k into a pension, your year end tax bill would be on £40k
Taking this as pension obviously leaves less in the company for you to "get your hands on" via wages or divvies. I think it's worth doing as the problem for me is getting the money out of the company. If additonally you pay in to a pension from your own income then you get tax relief at whatever rate prevails for you.

Thanks, just what I wanted to hear. So i'm assuming you have your own company as well, how do you administer your pension scheme and who does it? Is it available to all your staff? Should I be talking to my accountant about this?

Yes own company. I just pay into a stakeholder pension as these have the lowest charges - charges are the killer on pensions. That and the collapse of the global economy

Basically at year end if there's a chunk left it goes into the pension, that or the taxman gets it. You can self-adminster if you like. I've just got a medium-risk range of broader funds in mine that I can swap out as I like e.g. International, gilts, Ftse tracker, small caps etc.
Your accountant could advise and probably recommend a nice scheme he's affiliated with Look at the charges very carefully.