not2old

That is what I gathered.

I will write to DWP about this & report back by the end of 2015, because things can & do change

nun

You can go blue in the face trying to maximize retirement income. The assumptions you need to make about taxation, life expectancy and investment returns often make it all a bit academic. I start by budgeting and then I make sure I have sufficient funds from guaranteed sources to cover as much of the budget as possible, so I'm reluctant to ignore a Government guaranteed inflation linked return. Also deferring is only possible for those people who have access to other funds and I would not defer if those funds depended on stock market returns. This is a conservative attitude, but one that has allowed me to sleep well through this month's 1000 point decline in the DOW. So while it's worth while looking at your options remember to look at any additional risks as well as potential returns.

Editha

Not2Old.

Apart from comparing poorly with deferring the state pension, your stakeholder pension scheme has the following flaws:

Firstly it is only available for this tax year, not the following two. It will be abolished next year when the new pension rules come into affect. This limits your investment, as a non-taxpayer, to £2,880, made up to £3,600 by the government.

However, the pension will actually cost you more than £2,880, since you will need to arrange it through a financial advisor and there will be fees to pay.

You will not be able to buy an annuity with a small pot of £3,600. Most annuity providers will not pay annuities on such small sums. You will be forced to withdraw the remaining £2,600 as cash, which will be treated as taxable income. You will be able to do that in the next tax year.

Moreover this is a stock-market investment. Given that the market is in turmoil at the moment, you have no guarantee that your £2,600 will still be there in a year's time.

Editha

We all have different circumstances. As it happens, my own funds are not invested in the stock market. Personally, I take the old fashioned view that only people with money to lose should make stock market investments. I do, however, have substantial cash savings.

not2old

post #77 makes some sense, yet - how many people on here live or will live to have only social security, government pensions and/or pension credit income?

Seems many on BE have several sources of potential income in their old age - and not limited to one, two or more Government pensions, other invested private pensions, company pensions, as well as none retirement investments & those with a castle or a farm they can sell when they retire to have even more liquidated wealth

For those 'having enough money to live a lifestyle of choice' in retirement years is not an issue for some, or should they have a nest egg of buried treasure they can count on - WHY on earth would an average healthy individual want to be paying additional NIC class 3A's that its known the straight line payback is 17 years ... and I'm not including deferring the UK state pension, any foreign old age security or pension pot not yet in an annuity?

My take is that its personal, that each plans accordingly the best they can to do whats best for them for their personal lifestyle choices.

I wish to each of you to look forward to a long, healthy & happy 100 years of life & to have enough money to get you through it all.

Its only when there isn't enough money to live that comfortable lifestyle which is yours

Life has many twists & turns

nun

While I would also describe myself as a conservative investor I don't ignore the stock market. Cash is good to have as part of a portfolio, but having too much in cash opens you up to the risk of inflation and running out of money in the future. IMHO a well diversified asset allocation minimizes risk. Personally I have 5% cash, 35% in fixed income/bonds and 60% in stock funds.

not2old

didnt know that - thanks for finding it. Can you link it for me?

can be bought directly from the provider & folks do not need to go through an FA. I checked that already with the bank & insurance company

good to know, so consider it cash it in two separate pensions [based on the earlier posts] when the cash is needed, withdraw one at a time, the tax hit would, be small if one generally has no taxable income

The net result was the earlier illustration a 30% top up ROI for 3 years going the stakeholder pension route ... now the bubble has burst on that one.

one provider gave me a guaranteed no loss of principle investment.


My last point & post to this thread ...its been an interesting topic

The current 2.5% annual increase to your state pension the government is giving you may not always be there. A change of government, a change of the economy, in/out the EU whatever could leave you with little, or even, to 'a no cost of living pension increases', just as they are closing loopholes on a lot of things like increasing the state pension age & moving around the welfare & pension pot rules.

Editha

I know you said it was your last post, but can you tell me which pension provider was guaranteeing no loss of principal investment? I'd be interested in investing.

Editha

Ok.

My information for the first point was the article from MSE linked by Rebs back on page 5 of this thread.

I was wrong that you need an IFA to make an investment in a stakeholder pension, but most funds will deduct an admin charge, so there is some administrative cost.

I was also wrong on the point I made about stock market investment because you can also invest a stakeholder pension in cash funds.

Finally, thanks for the tip. I happen to have a low income, but am cash rich. So I'm going to invest £2,800 in a stakeholder pension with a cash fund, see the government increase it to £3,600, withdraw £800 this tax year, then the rest next year.

Good advice. Thanks again.

nun

If I was in the UK I would definitely look into this, but because I'm a US citizen I think the tax advantages would be minimal and I'd be taxed on any UK Government "top up" as well. However, I have a fair bit of money in ROTH IRAs and those are tax free in the US and the UK so those are part of my tax mitigation planning.

not2old

and thank you - now may I leave the thread

consider also, if it turns your interest to take some of any cash under the mattress to buy a 'sheltered housing apartment' I mentioned up thread in Torquay or somewhere close to where you live (go to a realtor & find out what is available) - then rent it out to an over 60 senior on an assured lease to get a net ROI of approx <10% guaranteed as a hands off investment.

Maybe buy two - one cash, the other 50% LTV gets the mortgaged one paid off in less than 5 years

footnote: I was fortunate that I could spend half my working time at my office in the last seven years of my working life at work, then nights & weekends in the cold dark long Canadian winter nights looking at all the possibilities. Retirement planning came late. In the end it all worked out thank you very much.

nun

I'd be careful buying what is essentially a condominium and letting it out. Being a landlord can get complicated, you need to understand all the costs and exactly what any management fees cover. But rental income is certainly nice to have. I bought a two family home 20 years ago and now that I'm mortgage free the rental income from the downstairs apartment covers a large fraction of my expenses. But there are added taxes and expenses that I have to cover too.

dunroving

Wouldn't £2,800 after-tax be equivalent to £3,500 pre-tax? (£2,800/0.80)?

Editha

Yes.

My typo. You pay in 2880, not 2800

Editha

Thanks for people's comments and pms.

There is a discussion forum on the 'loophole' on MSE here: The Pension Loophole article discussion - MoneySavingExpert.com Forums

One of the contributors suggests using the loophole together with deferring the state pension, so that is what I intend to do.

It works like this:

First of all you have to be a cash-rich non-taxpayer, which I am; I have substantial savings and property but my pension income is below the level of the personal allowance now that it has been raised to £10,000 (expected to be £10,500 next year).

Secondly, my income only remains below the tax threshold until I claim my state pension. I reach state retirement age in March next year.

But, I can keep my income at the non-taxable level indefinitely by deferring the state pension. (There is the risk that my income will rise because of inherited wealth, but at that point I'd just have to give up on 'the loop').

So, this year I use £2,880 (thanks Dunroving) to take out a stakeholder pension. The government tops it up to £3,600.

I then take the money out at the first opportunity. MSE seems to think that can be in the same tax year. (Not2Old thinks I have to wait until the next tax year, but that would just mean I could only do the loop for 2 years not 3).

I can take the whole lot out as cash. I don't have to take an annuity. 25% of it is 'tax free', but the rest is taxable -- except that as a non-taxpayer I'm not liable for any, so I get the full £3,600.

I do that for the 14/15 tax year and if possible, that is if the loophole is not closed, repeat for the 15/16 tax year, and 16/17 tax year (but for 16/17 it will only work if I am able to take the cash out in the same tax year).

In Sep '17 I take my state pension, now increased by 26% and enter the world of the taxed.

Most pension plans seem to charge 1% admin fee per annum, so I have to take that into account, but I still make a handsome profit.

Assuming I can do the loop for three years. Each time I make £684 (£720 from the government less £36 admin fee). The cash is currently making 1.4% in my ISA, so that is about £640 better than leaving it there.