Pension fund performance - do you monitor yours, how is it doing, do you actively change it?

[413x]

Having a difficult year this year thinking about all this stuff and finding a spend/save ratio. Family loss sparked the thoughts.

Im currently bouncing around how much I should be saving vs spending. I naturally like saving. But it's also hitting home about spending "life is short".

I'm absolutely not doing the FIRE thing. As it's waaaay to high risk, and tbh I don't earn enough anyway.
But seeing/hearing about more and more people passing away younger I do question more "am I saving too much".

Most people would say (on OCUK especially) I probably need to over save/over contribute to pension vs what I am.

But it's a bit tricky when you don't heavy kids.

Inflation is rife too. The least couple of years has shown how much today's pension pot can be devalued so quickly.

I'll probably keep contributing like I am.

I've even chatted to older more senior people at work and many don't even think about! My boss said "I don't really know, Ive never really looked at it" which surprised me!

 

[413x]

I think they could at some point remove the 40% tax break, it costs a lot an generally only benefits the more well off. Also SIPPs and how they are inherited will change at some point I think, its basically just a massive inheritance gift for the rich.

The 40pc break you get for paying in portion of your salary above the 40pc 50k threshold?

I guess problem there is it would cause people to put less in their pensions. I've only upped mine as it falls in that band. But yeah. Massive boob for the rich.

 

[413x]

I should know this already really but how does the tax free lump sum work? Don't you simply hit the personal allowance limit as soon as its in a "normal" account and therefore start paying tax on it?

The one in talking about is being able to take 25pc (I think) out at pension age tax freem

So if you have 1,000,000 in your pot you can remove 250,000 and pay no tax.

 

[OldKitMan]

I think they could at some point remove the 40% tax break, it costs a lot an generally only benefits the more well off. Also SIPPs and how they are inherited will change at some point I think, its basically just a massive inheritance gift for the rich.

It's not really a 'tax break' though as in theory you pay the tax when you receive your pension. If you change the rules then all you'd get is people putting the money into their ISA so probably not a massive amount of difference when played out.

 

[Zatoichi.uK]

The one in talking about is being able to take 25pc (I think) out at pension age tax freem

So if you have 1,000,000 in your pot you can remove 250,000 and pay no tax.

Thanks yep I got that. What I mean is, for example if you took £250'000 out of your pension and put it in a current account you would be earning over £1000 per month in interest @5% which would immediately take you over the tax threshold of £1000 per year. You could put £20'000 in an ISA but you're still left with £230'000 of taxable savings aren't you? Perhaps it's flagged as pension funds somehow and is exempt?

 

[danlightbulb]

It wasnt that long ago the government was consulting on completely flipping the tax on pensions on its head and making contributions taxable, but pension taken later as tax free.
There is a massive benefit for the government here in that it increases the tax take right now, quite noticeably.
The step after that, reintroduce some tax on pensions IMO. It wouldn't be the full amount I would say, but some small amount.

Yeah if they did that I don't think people could ever trust that it wouldn't be reversed again later. Start paying tax now, then when come to retire they've changed the rules again and you pay tax again. I think the way around we have it now is right, you pay tax on income when you receive it, and so the tax on pension income is paid when we eventually start recieving it.

 

[danlightbulb]

Thanks yep I got that. What I mean is, for example if you took £250'000 out of your pension and put it in a current account you would be earning over £1000 per month in interest @5% which would immediately take you over the tax threshold of £1000 per year. You could put £20'000 in an ISA but you're still left with £230'000 of taxable savings aren't you? Perhaps it's flagged as pension funds somehow and is exempt?

You would pay tax on the interest yes, this is different from paying tax on the lump sum.

 

[413x]

Thanks yep I got that. What I mean is, for example if you took £250'000 out of your pension and put it in a current account you would be earning over £1000 per month in interest @5% which would immediately take you over the tax threshold of £1000 per year. You could put £20'000 in an ISA but you're still left with £230'000 of taxable savings aren't you? Perhaps it's flagged as pension funds somehow and is exempt?

Yeah after it's taken out you'd pay any tax on it just same as any other money.

 

[OldKitMan]

Thanks yep I got that. What I mean is, for example if you took £250'000 out of your pension and put it in a current account you would be earning over £1000 per month in interest @5% which would immediately take you over the tax threshold of £1000 per year. You could put £20'000 in an ISA but you're still left with £230'000 of taxable savings aren't you? Perhaps it's flagged as pension funds somehow and is exempt?

you don't need to take the tax free cash element of your pension in one go. You could take the £250k out in chunks of £20k a year and stick it in an ISA. The remainder would remain invested and hopefully grow AIUI.

 

[slinxy]

I think something needs to be done about tax and pensions... correct me if I'm wrong, but currently pensioners are reasonable for managing their own taxes once they retire, they may palm it off by purchasing an annuity and then the annuity company does the paperwork.

So in theory they are asking people the majority of whom have never managed their taxes to start managing their own taxes, to complex matters; withdrawing from certain fund pots uses up the tax allowance before other pots...

It may get simplified once/if there is a central pension system.

 

[Mercenary Keyboard Warrior]

Pension income is treated like wages in that the company making payments needs your tax code.
If you have multiple pensions it gets a bit more complicated like having multiple jobs.

 

[200sols]

It's not really a 'tax break' though as in theory you pay the tax when you receive your pension. If you change the rules then all you'd get is people putting the money into their ISA so probably not a massive amount of difference when played out.

Ok tax giveaway. ISAs are great but only 20k, no employer contributions and no government top up. 20% would still be very attractive, still the best investment choice for most people.

 

[slinxy]

Pension income is treated like wages in that the company making payments needs your tax code.
If you have multiple pensions it gets a bit more complicated like having multiple jobs.

in this day and age there won't be that many people without mulitple pensions... most people will have two, the state pension and their work pension. I'm currently have 5 and that's after moving two into a single one.

 

[Mercenary Keyboard Warrior]

in this day and age there won't be that many people without mulitple pensions... most people will have two, the state pension and their work pension. I'm currently have 5 and that's after moving two into a single one.

State pension uses up most of the tax free allowance, one small one will use up the rest, any other pensions will just functions with no tax allowance, ie 20% rate in effect.

If anyone is higher rate on pension income then they would likely be doing a plan from an advisor rather than leaving them scattered. Or unless they really understand they should be.

I think its likely the basic state pension will hit the lower tax threshold pretty soon. Would make sense to align them IMO.

 

[EvilRob]

in this day and age there won't be that many people without mulitple pensions... most people will have two, the state pension and their work pension. I'm currently have 5 and that's after moving two into a single one.

Unless I somehow get a DB pension (unlikely) I can't see any reason why I would have any more than one personal pension + the state pension (if it still exists/isn't means tested) when I retire.

 

[slinxy]

Unless I somehow get a DB pension (unlikely) I can't see any reason why I would have any more than one personal pension + the state pension (if it still exists/isn't means tested) when I retire.

not that hard to get a job working for a place with a DB pension, the hard part is taking the paycut. I would like to return back to the public selector before I retire just so I can merge my DB pension funds.

DC pensions can be merged but you may lose some legancy benefits by doing so...

 

[Uther]

Unless I somehow get a DB pension (unlikely) I can't see any reason why I would have any more than one personal pension + the state pension (if it still exists/isn't means tested) when I retire.

Yep, every time my son gets a new job he transfers his old work pension into his SIPP. If there are no benefits involved, which would be unusual these days, then leaving them scattered over what could be a 40+ year work life is just unnecessary expense and complication.

 

[EvilRob]

not that hard to get a job working for a place with a DB pension, the hard part is taking the paycut. I would like to return back to the public selector before I retire just so I can merge my DB pension funds.

DC pensions can be merged but you may lose some legancy benefits by doing so...

Yep, very unlikely. I wouldn't be interested in that pay cut - it would be about 70%! I have legacy benefits in my SIPP already - it's better for me to move anything new there when I can.

 

[danlightbulb]

Pension income is treated like wages in that the company making payments needs your tax code.
If you have multiple pensions it gets a bit more complicated like having multiple jobs.

Do they take tax at source then like PAYE, even if you're in a drawdown arrangement? Not looked into it but isn't a drawdown entirely flexible, I could take £10k one month and nothing for the next three etc?

 

[Mercenary Keyboard Warrior]

Do they take tax at source then like PAYE, even if you're in a drawdown arrangement? Not looked into it but isn't a drawdown entirely flexible, I could take £10k one month and nothing for the next three etc?

In simple terms yes they do.

Its a bit more complicated than that however.

I think this vid was linked but its got some useful stuff in it.
If you skip to the second half (first is about investing pre retirement) you see some examples of him showing options on how to drawdown and from what, assuming you have savings etc as well

The 3 Big Tax Mistakes EVERY Retiree Makes (Real world examples)

Financial PlanningI am a Chartered Wealth Manager and Partner in a financial planning practice based in the UK. If you would like to find out more about our ...

www.youtube.com

Edit, this may explain it a bit easier as it even mentions the emergency tax which can catch people out.

Emergency tax on pensions | PensionBee

Emergency tax can sometimes be charged on lump-sum pension withdrawals. Find out how it works and how you can reclaim overpayments from HMRC.

www.pensionbee.com