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A Pension after retirement

Discussion in 'Retirement' started by stevyn, Nov 10, 2018.

  1. stevyn

    stevyn New commenter

    I'm preparing to retire next April. I've been told that once I am receiving a Teachers pension it may be a good idea to invest in a new pension (not a teaching one) as it is a good way to save or avoid paying tax. If this is true can someone explain it to me? Is it something I can organise myself or would I need to go via a financial adviser (who would want their cut!)
     
  2. harsh-but-fair

    harsh-but-fair Star commenter

    Don't believe everything you hear.
     
    border_walker and Startedin82 like this.
  3. Sundaytrekker

    Sundaytrekker Star commenter

    I don’t really know anything about this if it’s not an additional pension with TPS but I think anyone up to a certain age (70-75?) can invest in a SIPP. I think this has limits if you are not working and it is not earned income eg a child can have a SIPP up to about £3k invested per year. So I suppose you save £600 of tax on this amount of income. However, you are tying it up again in a pension scheme that you can’t readily access.

    So, will you have this amount of income that you want to tie up in a pension scheme? If so, then do some more research or get a financial advisor. Unless, my pension income was unusually high for a teacher I don’t think I’d want to commit it again. As I said, I don’t really know much about this so may be getting it wrong. Please check.
     
    Startedin82 and catmother like this.
  4. catmother

    catmother Star commenter

    I assume that would be a private pension invested in stocks and shares whose value can go up or down? If this was my money and my teaching pension was such that I had lots of money leftover every month,I would want to have my money somewhere where the original sum I'd put in could disappear overnight in a market crash.
     
    emerald52 likes this.
  5. jonnymarr

    jonnymarr Occasional commenter

    Try here:
    https://www.telegraph.co.uk/finance...Sipp-at-69-and-still-get-full-tax-breaks.html
    Management charges, potential exit fees, low limits on what you can put in, (some) tax, presumably, to be paid on the way out all muddy the waters. It's a bit like one of those Martin Lewis top tips - some of them are no-brainers and some are a fair amount of hassle for meagre gains. Personally I'm not sure I'd bother.
     
    border_walker likes this.
  6. Dorsetdreams

    Dorsetdreams Occasional commenter

    'Pension recycling' rules would apply. Whatever they are. Expert advice definitely required!
     
  7. mjfp509

    mjfp509 New commenter

    I think it would depend on your situation. Next year the personal tax allowance goes to £12, 500. If your TP is under that, then it might be a good idea to open a SIPP as you would get 'free money' back.

    For example, if your TP is £10,000 you could have an extra £2,500 tax free each year. If you invested into a SIPP £2000, you would get back £500 from the government, making £2500 in total, which takes you to your personal tax free amount for that year. In essence, £500 free !

    If your TP is already over the £12,500 then you won't get back this 'free money' from a SIPP as it will be taxed on the way out of your SIPP.

    Of course, if you invest in a SIPP and in stocks and shares your returns depend on market conditions, they could go up or down.
     
  8. jonnymarr

    jonnymarr Occasional commenter

    OK, having thought about it a bit more, maybe it isn't such a daft idea!
    If you already have a SIPP and have set up the initial draw-down process, perhaps they'd only take a £100/150 slice of it per year. The ongoing management charges - unless you pick the worst SIPP provider - aren't going to be prohibitive, so perhaps you can earn yourself an extra £600 or so per year ( ? ). Even if you then have to pay 20% income tax, the first 25% is still tax-free - so that leaves you with about £500 after tax, as mjfp509 says above. You wouldn't get anywhere near that return in interest in a savings account.
    So perhaps it is a no-brainer after all, especially when the other options for saving are currently so rubbish. My understanding of SIPPs is that you wouldn't even need to invest it - just let it sit in your account and withdraw it as soon as you are allowed. It's not as if you're investing for the long term or anything - just recycling a bit of cash. ( & I'm pretty sure it's totally legit )
    Can anyone see any flaw in this plan? What am I missing?
     
  9. jonnymarr

    jonnymarr Occasional commenter

    Schoolboy-type error. 20% tax on the principal ( for most people ) on the way out as well as the £720 that you're 'up'. I'm back to not being impressed by the idea unless your pension is quite low and yet you still have an extra 3k spare to play around with ( or perhaps a partner who will be below the personal allowance threshold? ).
     
  10. Dorsetdreams

    Dorsetdreams Occasional commenter

    Surely there comes a time in life when one should stop saving for the future, and instead worry about making the most of the money and time you have?

    Obviously that time comes well before the last day of your life. Could it be the first day of your retirement?

    Oh, wouldn't life be easier to plan if we knew the day of our demise!
     
  11. diddydave

    diddydave Lead commenter

    As ever I'd say you should get proper advice but this is my take on it.
    1) There are pension recycling rules (max £4000 can be put into one once you start taking a pension)
    2) The rules were created because it was too *good* - read into that what you will
    3) If you are being taxed then the £4000 put into the new pension will not be taxed
    4) When you take it out 25% will be tax free - so £3000 will be taxed (so you will have benefited on your tax rate of £1000 - i.e. £200 for a 20% tax payer)
    5) If the amount you take out pushes you into a higher tax bracket then the benefit is reduced (unless you were already in the higher tax bracket - in which case your benefit it 40% of the £1000.)
     
  12. Ivartheboneless

    Ivartheboneless Star commenter

    You'd be better off, if you think your pension income is too much (who would!?) putting any excess in a ISA. Having said that you can receive up to 1000 quid in interest and not pay any tax on it (effectively killing ISAs as their interest rates are rubbish). All savings interest rates are rubbish unless you agree to put it in for one, two, five years (even then the rate is still below inflation). If you had 80,000 at 1.25% (best I can find at the moment on instant access) you would get 1000 quid interest in a year (but any interest from an ISA is not counted). All savings rates, insurance rates, investment rates are loaded in favour of the big companies and small investors get FA (unless they are willing to gamble on stocks and such). No doubt someone will jump down my throat now about how they made half a million on stoat equities or some such.
     
  13. diddydave

    diddydave Lead commenter

    I don't think there's any reason you cannot do both as I'm not sure how long you have to leave the £4000 that you put into your new pension before closing it down and taking it all out again, but if you suppose it is a year then the return on £4000 in a recycled pension would be £200 for a basic tax payer and £400 for a higher rate one. A return of 5% for the basic and 10% for the higher rate. If you can put it in and out on the same week then you can grab the 5% (or 10%) and then stick it all in an ISA until next year when you can do it again. (NOTE: I am not a financial adviser and don't know if this is allowed - there are rules, the prudential has a page that attempts to explain them: https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/pensions-recycling/# )
     

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