Pension

[SilliamWhale]

Just for a bit on context on pension growth.
I actively manage my own pension by moving units.
My lowest performer cash down 0.2% on the year.
Next worse bonds up 8%.
Best North American up 28% (a bit of a currency play too)
In the last 5 years the fund overall has moved up just shy of 60%.
If at retirement age could sell all tomorrow and get 1/4 tax free lump sum.
Or if I die before retirement it goes tax free to beneficiaries, a kinda life assurance.
Could you do that with a house or farm?
Not going to burden the business post active work.

It is fair to say you really need to be thinking of a fund of circa 350000 if you want a reasonable retirement rather than an existence.

Can you manage mine!

 

[farmerm]

You can put a lot of money away each year tax free with a Cash ISA or Stocks & Shares ISA. This is tax free but then again you will have probably had to pay tax on the money you invest. Pensions are tax efficient so worth considering. Why not do 50% pension and 50% ISA. At least with the ISA you can take it out at any time and the good thing with the pension is that you can't spend it before you retire!

Money paid into an ISA is from taxed income. Say you earn £100, £20 then goes in basic rate tax and you only have £80 left to invest in your ISA. However if you put the same £80 into a pension the fund increases by £100 as the government give you your £20 tax back.

If you are a higher rate tax payer the difference becomes even greater. For you £100 income , £40 goes in income tax leaving you only £60 to invest in your ISA... but if you put your £60 into a pension your pension fund increases by £100 as you are given the tax you have paid back.

Which is more value to you.. £60K in an ISA or £100K in a pension?

 

[farmerm]

Dad said the best pension was land

Land is a hopeless pension for the generation that buys it, the poor return on capital makes the interest on a current account look good! It will however make a very significant contribution to the pension fund of a future son in law, daughter in law, grandson in law or grand daughter in law when they walk away with 50% at some point in the future.

 

[Derrick Hughes]

Land is a hopeless pension for the generation that buys it, the poor return on capital makes the interest on a current account look good! It will however make a very significant contribution to the pension fund of a future son in law, daughter in law, grandson in law or grand daughter in law when they walk away with 50% at some point in the future.

Now perhaps but when you think the most we paid for land was a £1000 acre 20 years ago , at todays value would a pension have given me that return

 

[SilliamWhale]

Land is a hopeless pension for the generation that buys it, the poor return on capital makes the interest on a current account look good! It will however make a very significant contribution to the pension fund of a future son in law, daughter in law, grandson in law or grand daughter in law when they walk away with 50% at some point in the future.

Yes!!

 

[capfits]

Can you manage mine!

No you are alright, it could go tits next year(hence why cash and bonds)
Besides according to some, I would then have to wear a cheap suit, rather than the boiler suit. (and pull myself away from the wenches... )
Just go with instinct for the most part.
A wee bit of research here and there.

 

[farmerm]

Now perhaps but when you think the most we paid for land was a £1000 acre 20 years ago , at todays value would a pension have given me that return

I must be mis remembering but I don't recall any land around here for £1000/acre in 1999, probably still above that in 1989? That aside, are you going to cash in the land when you retire so you can take advantage of the gains?

 

[Derrick Hughes]

I must be mis remembering but I don't recall any land around here for £1000/acre in 1999, probably still above that in 1989? That aside, are you going to cash in the land when you retire so you can take advantage of the gains?

Im hopless with dates but milk quota year we bought a fully equiped dairy farm with substantial house for £1100 acre early 90ts two farms for £1000 acre also

 

[Lincsman]

I thought you could only draw 25% as a lump? maybe i,m wrong.

25% tax free when over age 55, the rest whenever you like but is added to your income in that tax year and taxed, within reason some of the 25% can be put back in to gain tax relief. (again!).. BUT do it with caution and after a good period... ask advice on the timing of this.

 

[farmerm]

Im hopless with dates but milk quota year we bought a fully equiped dairy farm with substantial house for £1100 acre early 90ts two farms for £1000 acre also

I guess in that part of Wales it must now be worth at least 100% of what you paid for it. If subs go, we start importing dairy products tarrif free and APR is abolished, what will the land be worth then?

 

[jimred]

Just for a bit on context on pension growth.
I actively manage my own pension by moving units.
My lowest performer cash down 0.2% on the year.
Next worse bonds up 8%.
Best North American up 28% (a bit of a currency play too)
In the last 5 years the fund overall has moved up just shy of 60%.
If at retirement age could sell all tomorrow and get 1/4 tax free lump sum.
Or if I die before retirement it goes tax free to beneficiaries, a kinda life assurance.
Could you do that with a house or farm?
Not going to burden the business post active work.

It is fair to say you really need to be thinking of a fund of circa 350000 if you want a reasonable retirement rather than an existence.

Don't get carried away with those levels of gain. Stock markets have been on a one way upwards trajectory since crash of 2008/9 values have trebled or more. Almost all investments have ridden on the back of this. When the next inevitable decline comes there will be years when it will be more about limiting losses than making major gains.

 

[Lincsman]

Land is a hopeless pension for the generation that buys it, the poor return on capital makes the interest on a current account look good! It will however make a very significant contribution to the pension fund of a future son in law, daughter in law, grandson in law or grand daughter in law when they walk away with 50% at some point in the future.

Not always, I bought at £1,100 acre in 1985 and sold in 2015 for £14,000, It had a slight premium for where it is and who bought it, but would sell for £11,000 to anyone.

 

[thesilentone]

My basic take on pension is:

1) annuities are a waste of money
2) Generate a fund that will give you 25% draw-down (tax free) and as much a month as you need, bearing in mind the max earnings tax free (£12,500)
3) Base these calculations on life expectancy (currently 80 for men and 83 for women)


EXAMPLE

So, retirement at 66, life expectancy (men) 80 = 168 months X (say) £1000 month = £168,000

+ 25% tax free = a fund of around £230,000 at retirement.

+ Government pension

Let the increase in tax allowances and fund growth, look after the rest.

if you tun up your toes, will any balances to your family

 

[Lincsman]

My basic take on pension is:

1) annuities are a waste of money
2) Generate a fund that will give you 25% draw-down (tax free) and as much a month as you need, bearing in mind the max earnings tax free (£12,500)
3) Base these calculations on life expectancy (currently 80 for men and 83 for women)


EXAMPLE

So, retirement at 66, life expectancy (men) 80 = 168 months X (say) £1000 month = £168,000

+ 25% tax free = a fund of around £230,000 at retirement.

+ Government pension

Let the increase in tax allowances and fund growth, look after the rest.

if you tun up your toes, will any balances to your family

What about Inflation? will the price of a bread loaf stay the same for 20 years?

 

[it's not over]

My farm business is Ltd company. I've 3 way to get the money out,
Wages,looking at 40%,ive maxed out my allowances
Buy machinery, depreciation and poor return,I've all the kit I need
Pension,as it's a company pension it saves me 20% tax in this current year, can max it out to 40k/ year. Down side it ties up alot of finances although I've only 3 years to wait till I'm 55. Problem with taking 25% of the pot tax free is it can only be done once, do I wait another year so the 25% is larger,wait 10 years,it bigger but I'm older,not fit etc. It is a puzzle
Buying more land will not reduce my tax bill

 

[Red Fred]

Yes but its foresight we need not hindsight ,what is the next County Tractor?

I have it on good authority that the Case Stockman Special 895L is the next "must have" in the classic tractor world. As it happens,I have a nearly complete one available, and can give details when I return from my Sunseeker in Monaco after Christmas.

 

[The Agrarian]

To me it's a no brainier Z if you're only three years away. Means if you really really need the cash, you'll be able to get it. I'm 15 years away. It's tax you're looking to save, so I'd go with the notion of building a lump up in it.

It also depends on what you expect your income to be in retirement before pensions. I know you don't know if you'll have a child farming yet or not, which obviously makes a huge difference.

There can't be much harm in splitting it half between Isa and pension. Splits the risk. You are too old now for capital growth, so it's all about the tax benefit. Beware though that stocks are in late cycle, so wherever you put it, be prepared to be nimble when the drop comes.

For younger folks, it's also worth noting that you also have compounding growth on the money you save from tax, which you can't get from an ISA.

 

[capfits]

Don't get carried away with those levels of gain. Stock markets have been on a one way upwards trajectory since crash of 2008/9 values have trebled or more. Almost all investments have ridden on the back of this. When the next inevitable decline comes there will be years when it will be more about limiting losses than making major gains.

Of course.
I am not a financial whizz. I could never knowingly sell at the top or buy at the bottom.
The FTSE 250 has been where the big gains have been made not the The FTSE 100 and that old caveat of your investments may go down as well as up always holds true, and I am thinking the chances of a correction go up everyday at the moment, hence cash and bonds.
If I remember correctly 2015 was pretty grim for stock markets but also a buying opportunity if the cash was ready to go.
Not all eggs in one basket.
Like I say gutinstinct plays out, if stock market goes up 15% yet wages only rise 3% and interest rates only are 0.75% and household debt is rising anyone should see things are a bit shaky....

 

[Bloders]

Money paid into an ISA is from taxed income. Say you earn £100, £20 then goes in basic rate tax and you only have £80 left to invest in your ISA. However if you put the same £80 into a pension the fund increases by £100 as the government give you your £20 tax back.

If you are a higher rate tax payer the difference becomes even greater. For you £100 income , £40 goes in income tax leaving you only £60 to invest in your ISA... but if you put your £60 into a pension your pension fund increases by £100 as you are given the tax you have paid back.

Which is more value to you.. £60K in an ISA or £100K in a pension?

BUT
once youve paid the tax and its in your ISA whatever it becomes through growth, is tax free.
The way I see it, and im by no means an expert, or very clever, is that you pay tax now (ISA) or pay tax later (Pension) either way, you pay tax once, it all depends when that is.

 

[The Agrarian]

Yes, but your effective tax rate should be higher when earning full-time, than when a pensioner. An earner on 42k and a pensioner on 16k both pay 20%, but at very different overall rates.