[Misc] Retirement

Eric the meek said:

We are indeed all different. For my part, I would not have accepted what the IFA told me, without evidence to back it up. I would have still wanted to see the numbers in various scenarios, especially my own scenario. I'm not talking about the advantages and disadvantages of SIPPs (20% tax relief upfront, only available after 55, taxed on way out) vs. ISAs (20k limit, no tax relief on way in, but no tax taken on way out). I'm talking about the relative capital growth over different periods and different growth rates, and different marginal rates of income tax.

In short, does the 20% effective hike in money going into a SIPP at basic rate tax, outweigh the tax payable on money you take out, years or decades later, when your circumstances, and possibly your marginal rate of income tax, will have changed?

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Eric the meek said:

We are indeed all different. For my part, I would not have accepted what the IFA told me, without evidence to back it up. I would have still wanted to see the numbers in various scenarios, especially my own scenario. I'm not talking about the advantages and disadvantages of SIPPs (20% tax relief upfront, only available after 55, taxed on way out) vs. ISAs (20k limit, no tax relief on way in, but no tax taken on way out). I'm talking about the relative capital growth over different periods and different growth rates, and different marginal rates of income tax.

In short, does the 20% effective hike in money going into a SIPP at basic rate tax, outweigh the tax payable on money you take out, years or decades later, when your circumstances, and possibly your marginal rate of income tax, will have changed?

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Weststander said:

On your last point/question, could it be looked at with the following comparison?

Both 15 years, monthly contributions and 5% annualised growth, net of charges:
ISA - £1k invested per month = a pot of £267k, sitting there tax free.
SIPP - £1.25k invested per month = a pot of £334k, 25% also tax free, 75% might be taxed.

Subject to pension restrictions not suiting some, shirley the compound growth over 15 years of investing 25% more into funds etc, swings the argument in favour of SIPP over ISA? Have I missed a key point?

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timbha said:

Depends what your other income is and marginal rate of tax. Basic rate favours SIPP but of course you can adjust what you withdraw to minimise tax payable. With an ISA you can draw the full amount in one go for a major purchase, eg a property abroad without any tax implications.

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Shropshire Seagull said:

He did run some simple numbers. The key one I can't see mentioned in your response is the 25% tax free you can take from your SIPP. Lump sum not always the right choice. Example, assuming no other income, you can be drawing down £16,760k - so tax only due on 75% which keeps it to £12,570 threshold, so tax free. With a partner, you can thus get out £32.5k income without paying a penny in tax.

In regards to whether an ISA or SIPP investment performs best, I couldn't say. I also don't know what charges are made for S&S ISAs either.

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Guinness Boy said:

I assume you retirees that are enjoying it have decent pensions and paid off mortgages?

I've just turned 50 but am looking at trying to get higher up the greasy pole again because I'm seeing my energy bills and mortgage payments growing like Topsy. Without wanting to dig into anyone's real personal data is there anyone out there who thinks they know what sort of size pension pot allows for a comfortable retirement?

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dazzer6666 said:

How can you get pension income from your pension (drawdown) to your partner tax free ?

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PILTDOWN MAN said:

Read it again.

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Weststander said:

On your last point/question, could it be looked at with the following comparison?

Both 15 years, monthly contributions and 5% annualised growth, net of charges:
ISA - £1k invested per month = a pot of £267k, sitting there tax free.
SIPP - £1.25k invested per month = a pot of £334k, 25% also tax free, 75% might be taxed.

Subject to pension restrictions not suiting some, shirley the compound growth over 15 years of investing 25% more into funds etc, swings the argument in favour of SIPP over ISA? Have I missed a key point?

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Eric the meek said:

Those are useful figures which highlight the uplift in the size of the final pot, that an upfront tax giveaway can make. On that summary, the SIPP wins hands down.

But, it isn't quite as simple as that*

What I asked was 'does the 20% effective hike in money going into a SIPP at basic rate tax, outweigh the tax payable on money you take out, years or decades later, when your circumstances, and possibly your marginal rate of income tax, will have changed?'

It was an impossible question to answer of course (too many scenarios, ifs, buts, rules, shifting circumstances, other income*, tax rates etc). So I'm going to answer it myself.

I've just taken a modest payment from my drawdown SIPP. I took a gross payment of £1500, with a PAYE tax deduction of £257. So the tax paid was 17.133% of the gross. So I can categorically say, based on my sample size of one, (one retiree, one tax code, one pension payment) that the tax take on money in drawdown is less than the 20% uplift the government kindly allowed me to add to er, my money, whenever it was I paid it in.

****Folds arms, satisfied with himself****

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dazzer6666 said:

…………that assumes the tax code applied to the SIPP drawdown is correct. Mine never is for some reason and my overall tax gets adjusted every year (even though my drawdowns don’t change). For example I usually take a 12k lump sum from one pot around this time of year to use up the nil rate band (and it does have the right PAYE code) but that still gets taxed anyway as the system assumes there will be further drawdowns during the tax year so only gives me quarter of the annual allowance when I make the drawdown

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Questions said:

Is it possible to bequeath your estate to a child to escape the whole nursing home/taking your estate away ?

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A mex eyecan said:

Mrs and I are just redoing our wills. Our solicitor has also suggested one of the ‘lifetime interest trusts’ that as you say once the first of us turns up our toes their share of the house goes into trust for the kids and is supposedly untouchable for care home fees etc that may one day be needed by the survivor.

It sounds tempting, but like all things it sounds too good to be true. There must surely be pitfalls, or am i just being my normal overly suspicious self?

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dazzer6666 said:

How can you get pension income from your pension (drawdown) to your partner tax free ?

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A mex eyecan said:

Mrs and I are just redoing our wills. Our solicitor has also suggested one of the ‘lifetime interest trusts’ that as you say once the first of us turns up our toes their share of the house goes into trust for the kids and is supposedly untouchable for care home fees etc that may one day be needed by the survivor.

It sounds tempting, but like all things it sounds too good to be true. There must surely be pitfalls, or am i just being my normal overly suspicious self?

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The Clamp said:

I’ve been looking at property in Tuscany.
Very quickly coming round to the idea of early retirement there.
I am in the process of renewing my Irish passport so living there should not be an issue.

Lots more research to do beforehand but retirement in the U.K.? No thank you.

Abandoned my boat idea after spending some time on one. Too much like hard work.
Nice holiday, no good for sustained living.

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The Clamp said:

I’ve been looking at property in Tuscany.
Very quickly coming round to the idea of early retirement there.
I am in the process of renewing my Irish passport so living there should not be an issue.

Lots more research to do beforehand but retirement in the U.K.? No thank you.

Abandoned my boat idea after spending some time on one. Too much like hard work.
Nice holiday, no good for sustained living.

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Herr Tubthumper said:

Good work. Also. The idea of maybe paying 7k a month in care home fees is scary when you can get it for free in other counties.

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