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Jason

Starting A Pension (To Avoid 40% Tax)

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SIPPdeal run by AJ Bell will do the SIPP wrapper for free each year

AJ Bell provide the Barclays SIPP service (though I think you pay slightly more for the pedigree branding). My only point being if they are good enough for Barclays, I expect they are good independently as well.. plus low cost :)

You don't avoid tax with your pension. Instead you just delay the taxation till you retire.

True.. though if you don't hit the 40% tax bracket (or if you move abroad) when you retire you will still make a significant tax saving.

Edited by libspero

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I thought about doing this for a bit when I tipped the threshold but the amount wasn't enough to make it worth my time to investigate.

Not sure I get the child benefit arguments, I get my £20 a week even though I tip the threshold. I understand this will change in 2013, so no rush? There is a little to gain in childcare vouchers if you joined after April 2011. But those on the old scheme save more by being a high rate payer.

What is actually lost by going over the threshold?

Personally, I think I'd rather have the money in my pocket.

For what it's worth, Id suggest starting a pension sooner rather than later, I'd also suggest diversifying investments. Who knows whether it will be property, gold, or tulips that will be booming in 40 years time. I just don't want all my eggs in one basket.

The point is that after 2013 if you earn 3-4 grand over the threshold, you won't get the money in your pocket. I think I could last a couple of years put with cost inflation and ambitions to one day buy a house, I don't think I'll be making sizeable AVCs (3-4 grand) for long. Will soon have to bite the bullet and lose the CB. Shame as my 4 year old has the 4 grand saved but my next one, due Xmas won't be so lucky.

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If I opted for a SIPP is it likely my employer would not contribute? I realise you can't answer for sure but in general...

Almost certainly not. My experience has been that the employer tends to be on extremely good terms with the pension provider, and will just say no.

When I was young and foolish, I told my then employer "this pension is exploitatively-priced junk, so either you give me the employer contribution in cash, or I explain to everyone who will listen just what a rip-off it is". Amazingly, I got the money rather than getting fired with extreme prejudice (safe for the employer in the first year). That pension would have been with St James's place, and really was a shameless rip-off. We are talking a tracker charging 1.65%, and a slimy salesman wanting to mis-sell insurance that the employer would also pay for. It turned out that the insurance was a horrible waste of money even at just 40% of the sticker price, so I canceled it in the cooling-off period (it turns out that caused him inconvenience well beyond just not selling the policy would, so perhaps something to do when you are in the same situation). There was poetic justice to it all, since the employer somehow managed to sell our completely worthless shares to one of the slimeball salesmen.

Another employer said "no". The situation was that I could choose the gym where I would spend the employer-funded membership, but not the pension provider to invest the employer contribution. It was not all bad because the advisor was so greedy he ensured I got all the contributions I could, and then backdated to before a point I sort of thought I would have been sacked at (so it was helpful to postpone the decision). I am now free to transfer that pension somewhere else, and probably will.

Basically, if you want a SIPP then the easiest way is to let the employer-funded pension build up for a couple of years, then transfer the lot. There should be nothing to stop you immediately rejoining the scheme with a fresh pension account. They will grind their teeth, but I would expect to succeed. This is assuming you don't have a final salary pension, though this is not because transfers are not possible but because they will typically give you a fraction of your fund as the transfer value.

How much would you say you need to be earning to make a SIPP worthwhile?

I think what really matters is the size of the fund, not your earnings. My advice would be to switch to a SIPP when the costs of running it are below a unit-linked plan. You can get the latter for 0.5-0.8%, and the former for £50-£500 a year. So depending on what you choose, you are looking at a break-even fund size between 6k and 100k, assuming your time is free. Either way, as long as you choose carefully the difference will be under £200 a year initially and then move in your favor, so it's not exactly a life-changing decision.

The employer contribution is valuable, but remember that interest you don't pay is tax-free and fee-free. Hence it's probably not advantageous to put additional money into a pension if you expect to need a mortgage or have any other borrowing. It effectively gives you tax-free growth, which may turn out to be a better deal than a pension unless you don't pay tax in retirement.

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Half-true. They rebate 100% of the up-front commission to you, their income comes from the trail commission. And that's only for unit trusts (and a few specialist assets like VCT new issues) - there's no trail commission on regular equities or bonds.

It's part of the charging structure built into unit trusts, and H-L have done a lot to bring those charges down from the outrageous levels of a generation ago. That's how they built the business: by bringing the costs to clients down, they attracted lots of clients. Now of course they're one of a number of low-cost providers.

Would you rather they lived off trail commission, or gambled your money on their own account like a bank?

Nope, if you look at their financial results and their AUM - its way too high for them to just be getting trail commisions

I would expect they are getting kick-backs from the fund management groups in all sorts of ways to peddle their managed fund crap

Ultimately the consumer pays (as always)

As for this £16pm / £192pa thats not the cheapest SIPP on the market by a long chalk

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Basically, if you want a SIPP then the easiest way is to let the employer-funded pension build up for a couple of years, then transfer the lot. There should be nothing to stop you immediately rejoining the scheme with a fresh pension account. They will grind their teeth, but I would expect to succeed. This is assuming you don't have a final salary pension, though this is not because transfers are not possible but because they will typically give you a fraction of your fund as the transfer value.

I did this at one employer, it works pretty well

I think what really matters is the size of the fund, not your earnings. My advice would be to switch to a SIPP when the costs of running it are below a unit-linked plan. You can get the latter for 0.5-0.8%, and the former for £50-£500 a year. So depending on what you choose, you are looking at a break-even fund size between 6k and 100k, assuming your time is free. Either way, as long as you choose carefully the difference will be under £200 a year initially and then move in your favor, so it's not exactly a life-changing decision.

These days there are quite few SIPPS which you can run with administration and dealing costs of maybe £150 a year max. An index tracker fund charge probably 0.25% on top

Conventional unit trusts have charges of 1.5% pa on average generally and this is what the typical company scheme will stick you in. They will probably have an upfront charge as well

Once you have £20,000 or more in your pension scheme you need to be getting out of that company rip-off scheme

To put it another way, if the best you can expect from a balance managed fund is 6% in capital and income growth per year - a conventional unit trust manager steals 25% of it every year

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True.. though if you don't hit the 40% tax bracket (or if you move abroad) when you retire you will still make a significant tax saving.

Aye, this is the second part of my cunning plan

Even in the EU tax treatment of retirement income from pension schemes and insurance company annuities varies hugely from country to country...

...and of course just as Europeans can live and work freely in the UK...

...Estonia here I come...

Edited by Neverland

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  • 317 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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