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Stocks and shares ISA

Discussion in 'Retirement' started by grumbleweed, Jan 20, 2019.

  1. grumbleweed

    grumbleweed Star commenter

    Hi. I'm looking ahead to retirement in the next year or two, and also looking at making a small investment with some money left me by my mum.
    I've been looking at stocks and shares ISAs as well as one of those 'health checks' that employers often offer, so have all sorts of 'we can do this n this for you etc'. But I'm just not very clear about whether you can choose who you actually invest in. So if I go for a stocks n shares ISAs by myself, can I choose which companies I invest in?

    Thanks, I know tessers will have hugely more experience of this than me!
  2. phatsals

    phatsals Senior commenter

    You can open a stocks a shares ISA with a fund supermarket, eg Hargreaves Lansdown, Bestinvest, AJbell etc.

    You can choose your own funds/shares/investment trusts/ etf to put in it. HL and Bestinvest have the best research on funds and are ok for charges. I think they are both around .45%pa fee paid monthly. Funds are free to buy and sell but there is a charge for Investment Trusts/ETFs and shares.

    Have a look on their websites and get a feel for them, You can hold cash in the accounts and drip feed your buys to even out peaks and troughs.
    phlogiston likes this.
  3. phlogiston

    phlogiston Star commenter

    If you want to invest in specific companies, then you probably have to buy the shares yourself, but this may be outside the ISA envelope.
    If you want a fund manager to do all the fiddly stuff, then you lose the flexibility of choosing which companies, but hopefully gain through superior inside knowledge and speedy transactions, as well as the benefits of ISAs.
    This precise moment is probably not a good time to "go it alone" on the Stock Market. I don't know what's going to happen in the next few months, but the possibility of calamity would lead me to not put extra money in.
    Having said that, I'm not proposing to cash in my ISAs.
    Startedin82 likes this.
  4. diddydave

    diddydave Lead commenter

    I feel I may be banging the same drum somewhat across a number of threads (I don't work for Prudential - Honest!) - but if you are still teaching and coming up to retirement you might consider the Teacher AVCs instead, the tax treatments are different but getting 25% of the lump sum tax-free gives them a big head start.

    With ISAs you are limited to £20,000 a year.
    With the AVCs you are likely to be allowed more than this (max £40,000 per year - but does include pension payments already made through TPS etc)

    Money put into ISAs is treated as though tax on it has already been paid. You get the interest tax-free.
    Money put into AVC gets tax-relief - you pay no tax on it going into the AVC. You are charged tax on 75% of it when you take it out.

    AVCs allow you to choose 'types' of market but not individual shares I think.

    For a numerical comparison, I will assume the following:
    - You are earning £35,000
    - Growth in AVC and ISA is the same (they both use market investments).
    - After charges you gain 1% (growth)
    - You have income in later years that means any money taken out would be taxed at 20% (AVC only as ISAs are tax-free)
    - You invest £20,000
    - You are over 55

    £20,000 after one year gets you £200
    You cash in and get £20,200
    You pay the tax man £4000 income tax on £20,000 of your earnings.

    £20,000 after one year gets you £200
    You cash in and get £20,200. Of this 25% is tax-free: £5050. Tax is worked out at 20% on £15,150
    You pay the tax man £3030.

    Over 1 year the AVC route would come out ahead by £970.

    The tricky part about the AVCs is deciding when and how much to take out.

    If you can time it so you withdraw them when you have no other income then you don't even have to pay the £3030 (say in a year between giving up work and claiming your pension).

    If you take out too much in one go could raise you into the 40% tax bracket.

    ISAs work well over longer periods of time where the compound interest becomes a more significant part of the total, but even so catching up with the tax benefit of the AVC is unlikely.

    AVCs only work if you are currently earning more than you put in and you have to be 55+ to take money out.

    There is nothing to stop you doing the AVC and then taking out portions in appropriate periods of time to fund your ISA - the tax benefits of the AVC are about how much you are earning when you put it in and again when you take it out.

    Taking money out of an AVC triggers the end of big payments INTO a pension fund so you need to be careful about when you start removing the money.
  5. Prim

    Prim Occasional commenter

    I'm guessing that your whole AVC drawdown could be tax free if you take the lump sum at 25% in the first year and do not draw any other income as long as you draw down less than the annual allowance per year and live off any savings you have alongside this?
  6. diddydave

    diddydave Lead commenter

    I did also assume that withdrawals wouldn't take place until there was no other income...taking £20k out whilst earning £35k would definitely make a difference, an extra 20% on £5,000 would cancel out the £970 advantage. One of the other biggest consequences is that drawing money out of an AVC stops you making significant deposits into a pension. Your max drops from £40k to £4k.

    There are two versions of the drawdown scheme. As someone pointed out the other day, the one where you take 25% of the whole amount up front does mean you have to set up the rest in a special drawdown fund and there are charges for that (£1000 was mentioned). If you take the second drawdown version you get 25% tax free each time...this is what I am currently doing.
    This year its £15,800 that is all tax-free.
    Next year it will be £16,666 that is all tax-free.
    To put that in perspective that's just a few thousand less than I will get when I can draw my pension at 60.
    Prim likes this.
  7. Prim

    Prim Occasional commenter

    Thanks diddydave, the second version sounds much better.
  8. diddydave

    diddydave Lead commenter

    Swings and roundabouts though - it depends if you can juggle your income and when you need the money. If you need a big lump sum at the start to clear debts then it may be best to do that. If it wasn't for the setup charge they'd be virtually the same.
  9. Prim

    Prim Occasional commenter

    Exactly, I guess if you can you use the remaining (working) years to clear off any debt e.g. mortgage etc so you can take advantage of this when you retire.
  10. grumbleweed

    grumbleweed Star commenter

    Thanks for replies. I'm in local government but planning to retire early in the next year or two, so didn't think I could gain much from AVCs.
  11. diddydave

    diddydave Lead commenter

    If your plan doesn't have AVCs you can always start a private pension as well as your local government one. The basic maths regarding the tax boost would still apply.
    ISA returns are not guaranteed to be better than a pension scheme's growth and if you can work the tax system in your favour I don't believe have a chance of outperforming the tax boost that the pension gets in the short-term. (WARNING: any investment that is based on the stock market can go down as well as up)

    If you can move the tax charges from the next two years to a time after that you get taxed on 25% less - of course in the future the tax rates may be altered so again....no guarantees.
  12. Startedin82

    Startedin82 Established commenter

    I've got a stocks and shares ISA with Scottish Widows. Had it for years. It's done OK. I chose them because they're an established name. They manage it - I don't think you can choose who they invest with.
  13. lindenlea

    lindenlea Star commenter

    The stock market is valued highly at the moment, despite the chaos it has only dipped slightly. That makes investments made now, more at risk of losing value if there is a further downturn. I have done well out of mine but put money in some years ago when the market was less valuable and have benefitted from the rise.
  14. davidmu

    davidmu Occasional commenter

    Take the plunge and drip feed money into an ISA run by a company such as Fidelity. They offer a wide range of funds.
  15. phatsals

    phatsals Senior commenter

    Fidelity is limited in scope. The widest choice is via HL or Bestinvest and you can choose stocks or Funds or Investment Trusts or ETFs, it's up to you. You can also choose their own collective funds, based on your risk choices.

    FWIW you can do the same with their SIPPs, which whilst benefitting from tax relief, are then tied with all the rules and charges around pensions. These charges can be really quite high.

    The benefit of ISA's is you can take your money out as and when you choose, untaxed.
  16. davidmu

    davidmu Occasional commenter

    In what way is Fidelity limited in scope? Virtually all investment companies are available through their website and some of the very best funds are with Fidelity. My best fund, initially purchased in 1982, has made an annual return of well over 10%.
  17. phatsals

    phatsals Senior commenter

    On that we will have to disagree. I have been with Fidelity in the past, along with many others. Some good funds are with Fidelity but not necessarily the best. I would have to say that the 'best' funds change regularly.

    I have held a number of funds that have annual returns of over 10%, some more and many less. It changes along with good managers.
  18. binaryhex

    binaryhex Lead commenter

    If you are looking to retire in the next year or two, I really wouldn’t be investing in the stock market. They are not for the faint hearted, and if it crashes, you could lose a lot. Even a downturn can leave you seriously out of pocket, and you will be constantly watching your shares as the price goes down, and you’ll usually follow the herd if you don’t have balls of steel - expensive! They are a good idea for medium to long term I.e. 10 years or more, at the start or middle of your career, but not the short term. Besides, why are you investing? The money you are likely to make will be small.

    Your mindset in retirement should be preserving what you have, and planning to spend it, not investing. There are quite a few one, two and three year bonds paying close to inflation now (search ‘best savings accounts’) backed by the regulators up to about £80k with each company, so spread your money amongst them.
    Gainingcontrol, Prim and richest1 like this.
  19. Prim

    Prim Occasional commenter

    Couldn't agree more, focus on throwing caution to the wind and having the time of your life when you retire. You can't take it with you.
  20. Gainingcontrol

    Gainingcontrol New commenter

    Yes. Don't risk your hard earned pension and lump sum speculating on stock market related 'investments'. The teaching pension is index-linked to some degree. It is a lifetime income that should set you free from financial worries, not give you sleepless nights. Invest any lump sum by clearing any remaining debts, updating and future proofing your home, and then enjoy 'spending their inheritance' with your children and grandchildren by investing in their lives, giving pleasure, easing pressures and creating memories.

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