Indeed!
Do you believe in using a pension plan?
rolanddeschain
#42
DaveTMG
#45
If you pay the same rate of tax when you draw the money out as when you put it in, the tax relief cancels out.
For the ISA:
You are paid £10, taxed at 20%, so you put £8 in. Say it grows 10x over the investment period. You can spend £80.
For the pension:
you put £10 in, it grows 10x, you then have £100. When you take it, you pay £20 in tax leaving you with £80.
Pensions are great if you contribute as a higher tax rate payer and withdraw as a standard rate payer.
You also gain slightly because of the 25% tax free lump sum. But you do not gain because your tax relief is growing, you are simply deferring the tax.
rolanddeschain
#46
Just dropping in MSE’s notes:
For most people, accessing pension cash at 55 will be too early, so it can just be left where it is. Yet, if you want to, you can also access all your pension cash at once - the first 25% is tax-free and the remaining 75% will be taxed as income at your marginal rate (so, 20% if you pay basic-rate tax, though watch pension cash doesn’t take your income over the 40% tax threshold).
Assuming you’ve not taken all your pension out, the remaining options are:
Option 1: Leave it invested in your pension for when you need it. Do this and it’s important to understand when you withdraw cash you get 25% of each lump sum you withdraw tax free. Eg, if you had £100,000 and took £20,000 out you’d get £5,000 of it tax-free, the rest would be taxed at your current rate.
Option 2: Take 25% tax free, then buy a flexible income drawdown product. This is a product you buy that keeps the rest invested so it can still hopefully grow, but you can also use it to take income when needed.
The tax here is different, you get the first 25% you withdraw tax free and then the rest is taxed when you take it – which could be useful if you’re likely to be in a lower-tax bracket once you’re older.
Option 3: Take 25% tax free, then buy an annuity. This gives you a guaranteed income each year for the rest of your life.
rolanddeschain
#47
Would it be:
For the ISA:
You are paid £100, taxed at 20%, so you put £800 in. Say it grows 10x over the investment period. You can spend £800.
For the pension:
you put £10 in, it grows 10x, you then have £1000.
You take 25% tax free, £250.
You pay 20% on the remaining, leaving £600.
In total you have £850 to spend.
uncle_fungus
(Andrew Schofield)
#49
Not quite, because draw down is taxed as income tax, so you still get your personal allowance (+ your 25%) before any tax is charged (assuming your pension is your only source of income).
i.e. when withdrawing from a pension, it isn’t necessarily all taxed.
LifeofRiley
(Richard)
#51
Hi guys,
So I’ve been reading this thread with interest as I am in my early 30’s and my debt is now dwindling down so I want to look towards my pension.
I am already enrolled in one with work (Smart Pension, crap contribution scheme though) and logging in and taking a look around I have noticed the different options that I can invest my money in.
There are 16 funds to choose from, now I have currently less than £1k in my pension so I am aware that I need to build it up which eventually I will. But right now, should I set a default option of high, moderate or low risk and allow Smart Pension to invest for me or should I invest myself?
And if the latter, who is willing to give me some advice 
?
DaveTMG
#52
In general, the earlier you start, the more risk you can take. But in my view that means you go 100% shares rather than a share/bond split.
To choose where you invest, I recommend reading “Investing Demystified” by Lars Kroijer and “Smarter Investing” by Tim Hale. If you digest those, you will know more about investing than most, and almost certainly more than any pension advisor.
But my TL:DR is the same as Warren Buffett’s - invest in a market tracker.
SC95
#53
Pensions are long term investments essentially and most pensions are invested in stock markets. In long-term view markets always go upwards so I would say choose High/Adventurus option and when you are near 50 you might want to change to mod or low risk.
LifeofRiley
(Richard)
#54
Thanks @DaveTMG and @SC95. The books in particular look interesting, I may give them a go once I am completely debt free and have money left over.
Apparently, this is what they are investing my pension into, if anyone can shed light on how well these investments are doing at the moment?
Rat_au_van
(Is Santa here yet?)
#55
Quite a good balance. Trackers for U.K., US and rest of the world. Gilts are like loans to the Government (or governments) and tend to be more secure
Eden
#58
@LifeofRiley Its a tracking code to stocks and similar options
http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0000WAHE
DaveTMG
#60
it’s the code to buy vanguard’s world tracker - in my view it should be the mainstay of every sensible portfolio.