Starting a pension

[Pieces_of_Eight]

I take your point, but if you died 1 year after you retired and it does happen a lot, the remainder of your pension goes straight to government

Not sure I agree on that.

https://www.ft.com/content/400622bc-e82f-11e4-894a-00144feab7de

If I die aged under 75, my pension pot can be inherited tax-free. If I die aged over 75, my pension pot can be inherited subject to tax.

On one hand, the contents of my pension pot will be the least of my worries once I'm dead & buried, however I am keen to provide for my wife (because she will most probably outlive me but have a much bigger pension pot...)

Tax relief on buy to let mortgages is rapidly progressing down the pan, so a private pension seems to be the best way to avoid tax.

My employer contributes nicely to my pension, they are unlikely to contribute towards my [hypothetical] buy to let mortgage.

 

[Deutzdx3]

Not sure I agree on that.

https://www.ft.com/content/400622bc-e82f-11e4-894a-00144feab7de

If I die aged under 75, my pension pot can be inherited tax-free. If I die aged over 75, my pension pot can be inherited subject to tax.

On one hand, the contents of my pension pot will be the least of my worries once I'm dead & buried, however I am keen to provide for my wife (because she will most probably outlive me but have a much bigger pension pot...)

Tax relief on buy to let mortgages is rapidly progressing down the pan, so a private pension seems to be the best way to avoid tax.

My employer contributes nicely to my pension, they are unlikely to contribute towards my [hypothetical] buy to let mortgage.

Ahh, different that you’re employed. I work for my self. Being employed is a very different situation.
Houses allow pretty decent wage and tax allowance on renovations, my folks don’t look to make off the monthly rent but with the amount of houses they have now can’t avoid it. They look to the capital once sold.

I stand corrected on the pension. I still think for what you pay in the return is dismal compared to having a large savings pot or property or some thing you can sell off.

 

[Pieces_of_Eight]

Agree, If I suddenly had £20K plus to invest, I would be buying property rather than throwing it all into my pension.

 

[Deutzdx3]

Agree, If I suddenly had £20K plus to invest, I would be buying property rather than throwing it all into my pension.

They are for all intense and purpose the safest savings, even if the market drops and the house is worth less than when bought, that only matters if you’re looking to sell. I don’t think the return on a pension is as good as it should be compared to the cost of living now.

 

[Sonoftheheir]

How do you stand regarding tax if selling property to fund retirement?

 

[Pieces_of_Eight]

How do you stand regarding tax if selling property to fund retirement?

There would be capital gains tax unless it is a house which is your home.

https://www.which.co.uk/money/tax/capital-gains-tax/guides/capital-gains-tax-allowances-and-rates

 

[Sonoftheheir]

There would be capital gains tax unless it is a house which is your home.

https://www.which.co.uk/money/tax/capital-gains-tax/guides/capital-gains-tax-allowances-and-rates

So probably the least tax efficient way to do it then? If your buying to let then sell.

 

[The Agrarian]

As I said in another thread, as you pay capital gains on a house, you can actually be taxed on the inflation as well as the growth. To me, that's a horrendous thought.

The other thing to consider here is liquidity of an asset. Houses are relatively illiquid, as many buy-to-letters found to their dismay during the financial crisis. Almost overnight, everyone was a seller, and there were no buyers until the houses had halved in value. Ouch. Timing is important, and you need to be able to push a button in my opinion and generate cash when you want it. So it's also even important to think about where you are in the market cycle if you own a stocks based pension. No point in taking your pension when the market has crashed, as no doubt some people did, and crystallise those losses. Diversified assets allow you to generate cash when it is suitable for some of them, and not for others. Dad took his annuities shortly after the tech bubble burst in 2000. The market had dropped some, but if he had waited another two years til he was 65, it could have been half. He didn't need it, but he could see his pot value was evaporating and it needed withdrawn from the market.

 

[Robw54]

Ahh, different that you’re employed. I work for my self. Being employed is a very different situation.
Houses allow pretty decent wage and tax allowance on renovations, my folks don’t look to make off the monthly rent but with the amount of houses they have now can’t avoid it. They look to the capital once sold.

I stand corrected on the pension. I still think for what you pay in the return is dismal compared to having a large savings pot or property or some thing you can sell off.

Any gains on a property other than your house will be subject to CGT - and that includes the value increase that has arisen due to inflation.

Any gains on your pension will be 25% tax free and the rest at your marginal rate, after the personal allowance which will be tax free (assuming no other income).

 

[SRRC]

Agree, If I suddenly had £20K plus to invest, I would be buying property rather than throwing it all into my pension.

House to Let Income @ 4% ............... ISA at 4% return 4%
Initial sum £20,000 £800 ..... . £20,000 £800
Year 1 £20,000 £800 ...... £20,800 £832
Year 2 £20,000 £800 ..... . £21,632 £865
Year 3 £20,000 £800 ....... £22,497 £900
Year 4 £20,000 £800 ....... £23,397 £936
Year 5 £20,000 £800 ....... £24,333 £973
Year 6 £20,000 £800 ........ £25,306 £1,012
Year 7 £20,000 £800 ......... £26,319 £1,053
Year 8 £20,000 £800 ........ £27,371 £1,095
Year 9 £20,000 £800 ........ £28,466 £1,139
Year 10 £20,000 £800 ........ £29,605 £1,184
Year 11 £20,000 £800 ........ £30,789 £1,232
Year 12 £20,000 £800 ........ £32,021 £1,281
Year 13 £20,000 £800 ........ £33,301 £1,332
Year 14 £20,000 £800 ........ £34,634 £1,385
Year 15 £20,000 £800 ........ £36,019 £1,441
Year 16 £20,000 £800 ........ £37,460 £1,498
Year 17 £20,000 £800 ........ £38,958 £1,558
Year 18 £20,000 £800 ....... £40,516 £1,621
Year 19 £20,000 £800 ....... £42,137 £1,685
Year 20 £20,000 £800 ....... £43,822 £1,753
Total return after 20 yrs £16,800 ........ £25,575

Your fairy Godmother has died leaving you £20k. You put it into property and at the end of 20 years that money has returned you £16,800. Your fairy Godmother also left your brother £20,000 and he put it into an ISA, now he's got £25,575!
Are you still sure you want to buy property?
It's probably worse than that because every year when the £800 rent came in you spent it in the pub.
Just say that you kept it going for 40 years (about a normal working life) then you will have gained £32,800 and your brother nearly £80,000.

Sorry, can't seem to make the columns stay aligned.

 

[Robw54]

As I said in another thread, as you pay capital gains on a house, you can actually be taked on the inflation as well as the growth. To me, that's a horrendous thought.

The other thing to consider here is liquidity of an asset. Houses are relatively illiquid, as many buy-to-letters found to their dismay during the financial crisis. Almost overnight, everyone was a seller, and there were no buyers until the houses had halved in value. Ouch. Timing is important, and you need to be able to push a button in my opinion and generate cash when you want it. So it's also even important to think about where you are in the market cycle if you own a stocks based pension. No point in taking your pension when the market has crashed, as no doubt some people did, and crystallise those losses. Diversified assets allow you to generate cash when it is suitable for some of them, and not for others. Dad took his annuities shortly after the tech bubble burst in 2000. The market had dropped some, but if he had waited another two years til he was 65, it could have been half. He didn't need it, but he could see his pot value was evaporating and it needed withdrawn from the market.

Same with my Mum - agreed her annuity in 2007 when markets high and rates was v good. I'm not sure of her equity exposure prior to taking the annuity but coupled with the drop in rates/pot value I would suggested she might have been looking at half of what she got a year later.

ISA and pensions tend to be invested in similar assets, whilst the tax treatment is different the underlying risk of a market fall could hit twice.

However, you never need all the cash at once - so you can now remain invested, unlike the example where my Mum had to buy an annuity. Anyone that rode from 2007-2017 without needing to eat too much into their pot would be sitting pretty now.

That too me suggests a reasonable pot of cash 3- (yr?) to ride out turbulence or other income generating assets.

 

[Lazy Sod]

Anyone who thinks that pensions are a bad deal because they, or somebody they know, has had one and it has performed badly, are mistaken. The poor performance is not due to the fact that it is a pension, but because the money has been poorly invested within the pension.

 

[Frank-the-Wool]

The problem with cash ISA's is that interest rates are very low. The best cash ISA at the moment is only just over 1% for easy access and around 2% for long term fixed rate.

Any talk of 4% is cloud cuckoo land.

 

[The Agrarian]

Stocks have been the place to be for return since the crisis. It's precisely because of those poor rates. Central banks pushed borrowing costs down to save the indebted, and to hope to stimulate growth and further lending. Poor return on government debt left investors with little option but to buy higher risk for growth and return. So yes, cash has been pathetic and a total non-starters for years.

 

[SRRC]

Quite right too, assuming you are in it for the long haul, which you need to be for a pension, then a cash ISA is poor. A stocks one will do 4% even now.
Regardless, my post above was intended to show primarily the effect of compound interest on savings and the benefits of starting early, choose any % that fits.

 

[Haydn G]

I started a SIPP 10 years ago and it’s the worst thing I have done, so say to save tax but the management cost have been huge. Not worth it IMO. Use your to cash buy land or borrow whilst it’s cheap

 

[Woolly]

House to Let Income @ 4% ............... ISA at 4% return 4%
Initial sum £20,000 £800 ..... . £20,000 £800
Year 1 £20,000 £800 ...... £20,800 £832
Year 2 £20,000 £800 ..... . £21,632 £865
Year 3 £20,000 £800 ....... £22,497 £900
Year 4 £20,000 £800 ....... £23,397 £936
Year 5 £20,000 £800 ....... £24,333 £973
Year 6 £20,000 £800 ........ £25,306 £1,012
Year 7 £20,000 £800 ......... £26,319 £1,053
Year 8 £20,000 £800 ........ £27,371 £1,095
Year 9 £20,000 £800 ........ £28,466 £1,139
Year 10 £20,000 £800 ........ £29,605 £1,184
Year 11 £20,000 £800 ........ £30,789 £1,232
Year 12 £20,000 £800 ........ £32,021 £1,281
Year 13 £20,000 £800 ........ £33,301 £1,332
Year 14 £20,000 £800 ........ £34,634 £1,385
Year 15 £20,000 £800 ........ £36,019 £1,441
Year 16 £20,000 £800 ........ £37,460 £1,498
Year 17 £20,000 £800 ........ £38,958 £1,558
Year 18 £20,000 £800 ....... £40,516 £1,621
Year 19 £20,000 £800 ....... £42,137 £1,685
Year 20 £20,000 £800 ....... £43,822 £1,753
Total return after 20 yrs £16,800 ........ £25,575

Your fairy Godmother has died leaving you £20k. You put it into property and at the end of 20 years that money has returned you £16,800. Your fairy Godmother also left your brother £20,000 and he put it into an ISA, now he's got £25,575!
Are you still sure you want to buy property?
It's probably worse than that because every year when the £800 rent came in you spent it in the pub.
Just say that you kept it going for 40 years (about a normal working life) then you will have gained £32,800 and your brother nearly £80,000.

Sorry, can't seem to make the columns stay aligned.

That assumes the rent doesn't go up in 20yrs? Surely it will and so will the value of the property.

 

[agrotron]

House to Let Income @ 4% ............... ISA at 4% return 4%
Initial sum £20,000 £800 ..... . £20,000 £800
Year 1 £20,000 £800 ...... £20,800 £832
Year 2 £20,000 £800 ..... . £21,632 £865
Year 3 £20,000 £800 ....... £22,497 £900
Year 4 £20,000 £800 ....... £23,397 £936
Year 5 £20,000 £800 ....... £24,333 £973
Year 6 £20,000 £800 ........ £25,306 £1,012
Year 7 £20,000 £800 ......... £26,319 £1,053
Year 8 £20,000 £800 ........ £27,371 £1,095
Year 9 £20,000 £800 ........ £28,466 £1,139
Year 10 £20,000 £800 ........ £29,605 £1,184
Year 11 £20,000 £800 ........ £30,789 £1,232
Year 12 £20,000 £800 ........ £32,021 £1,281
Year 13 £20,000 £800 ........ £33,301 £1,332
Year 14 £20,000 £800 ........ £34,634 £1,385
Year 15 £20,000 £800 ........ £36,019 £1,441
Year 16 £20,000 £800 ........ £37,460 £1,498
Year 17 £20,000 £800 ........ £38,958 £1,558
Year 18 £20,000 £800 ....... £40,516 £1,621
Year 19 £20,000 £800 ....... £42,137 £1,685
Year 20 £20,000 £800 ....... £43,822 £1,753
Total return after 20 yrs £16,800 ........ £25,575

Your fairy Godmother has died leaving you £20k. You put it into property and at the end of 20 years that money has returned you £16,800. Your fairy Godmother also left your brother £20,000 and he put it into an ISA, now he's got £25,575!
Are you still sure you want to buy property?
It's probably worse than that because every year when the £800 rent came in you spent it in the pub.
Just say that you kept it going for 40 years (about a normal working life) then you will have gained £32,800 and your brother nearly £80,000.

Sorry, can't seem to make the columns stay aligned.

Not quite right. If you invest the £800 from the profit each year your will get the return on that as well. Invest that in stocks and shares and your spreading your risk.

If you were to buy an annuity now with your pension pot 33k buys you 1k a year. So 330k buys 10k per annum. Think I would prefer to take the 330k but you get taxed on your pension when you take it out.

 

[bosses son]

SRRC. Surely if you bought a house for £20000 twenty years ago it would be worth a lot more now. At a gues double.

 

[brigadoon]

That assumes the rent doesn't go up in 20yrs? Surely it will and so will the value of the property.

Nor does it make any allowance for property repairs, insurance or any otherwise of doing business.