Listener Questions – Episode 60

Questions Asked

• Question 1
  Thank you for a great podcast. I have been listening to your podcasts diligently since 2014. Even then I made sure to catch up and since then it’s been my weekly listen wherever I am. It’s so great and I have been a great advocate. The simple rules of saving putting enough money aside thinking about your future and ensuring bad times are fundamental truths that should be taught at school. Don’t get me started on the power of compounding. Well done and keep going.

  I wanted to discuss the previous episode about what Roger said about the recent changes in pensions due soon and which Pete alluded to. This is regarding the new taxation that the government is introducing on remaining pension pot. It was argued that it is fair to tax the remaining pot as was the case before.

  Before the pension reform, pensions would be DB style pensions and either the government or the employer would pay the pension. In such a case you can argue that whatever is left should be taxed as the pot is expected to be fair across those who live longer and those who died earlier. But they were guaranteed a pension.

  However when pension freedom arrived the state washed their hands in providing a pension to people and it was up to the individual to secure its own pensions. Rightly so the state gave tax incentives to encourage people to save for their pension. As the state has outsourced the pension provision to the individual not taxing the remaining pot is fair. But now the state want to tax what remains in the pot.

  I think it’s not fair for the state not to provide a decent pension, ask individual to cater for their own and then tax what remains. Despite pension reform, studies have shown that people are under saving for their pension. We have an under saving crisis in the UK and taxing the pension pot will further aggravate that situation.  I don’t think it’s fair for government not to provide a decent pension, delegate pension savings to individuals and on top of that tax any remaining parts.

  Thank you.
  Avi

• Question 2
  Hi folks. Both Roger and Pete are doing a sterling job.

  My question/observation. Given there is a good probability of myself entering a rest/retirement/nursing home, and we know how expensive these are. Also, there is now not the carrot of passing on DC pension pots free of IHT (from April 2027). Would not be best strategy be to max out the Basic rate income from ones DC pot, moving it say into an ISA (£20k p.y. as I write). The reason being, the expense of the retirement care and accommodation may be such that any income needed at that time from the DC pot, should funds allow, may be subject to higher rate income tax, in order to meet the bills.

  I was therefore wondering if there would be any milage in deferring taking my state pension in order to maximise the amount of Basic rate pension I could remove from my DC pension pots? i.e. use this to fully fund my ISA and provide £30k income for living The object being to remove as much as possible from my SIPP so that, should I need care at the end of my life, this could be funded without maying higher rate income tax.

  Just a thought

  Best regards

  John

• Question 3
  Hi. Fantastic podcast, I've learnt so much and will continue to absorb as much information as I can.

  Apologies this is a long question.
  I worked for a company that enrolled me in a Nest pension whilst I was employed by them.

  I decided to carry on contributing when my employment ended. My logic was
  I pay in £80.    Tax relief £20.  Pot £100
  Take money out.  25% tax free =  £25
  £75 taxed at 20%  =  £60

  My £80 becomes £85 without taking into consideration of pension fund growth.

  Have I got this right?

  Then 1.8% charge on contributions if I'm right to deduct off the calculation above.

  My final question is?

  Should I stop contributing now and hypothetically the fund stays exactly the same value am I right in thinking the annual charge of 0.3% would eat into my gains?

  Overall my thoughts are that every pension podcast drills into the listener's how great pensions are and I agree if the employer is paying in also. If not,  the fund performance becomes even more critical.

  Hopefully you haven't fallen asleep yet.

  Best wishes and keep up the brilliant work.

  Kind regards
  Sean

• Question 4
  Hi Pete and Roger,

  I’m part of a Workplace Pension Scheme that my employer and I contribute towards. I’m exploring the possibility of doing a partial transfer out of my workplace pension into a SIPP. My reason for this is to have more investment options than my current scheme, whilst still receiving my employer match. Could you explain the pros and cons of this move and things I’ll need to consider?

  Thanks, and appreciate you folks.

  Tom

• Question 5
  Hi Pete and Roger,

  Very new listener to the podcast while on garden leave and think it may be a regular on the new commute to my new job in the city!

  I have a question about the tax position for said new job and how to get the most from my salary, which is on a base and commission basis.

  My base salary is in the basic tax bracket, but commission will more than likely push me into the higher tax bracket but not by much.

  Given my monthly income is going to fluctuate due to the commission, how can I best mitigate the tax hit that comes with going into the higher tax bracket?

  I'm aware of the ability to salary sacrifice X percentage into pension, but given the fluctuations I'm not 100% sure how to navigate this.

  If it's not too much to ask, how best would you advise investing/saving this besides the usual ISA routes?

  All the best from a soon to be regular listener,

  Liam from Surrey

• Question 6
  Hi chaps, love the podcast, thank you for investing the time to create it and keep it running, I've recommended it to many people and its been a source of great information to me and my lovely wife; well done.

  My wife and I have been full time residents in Spain for around 20 years (pre-Brexit so I fall under the withdrawal agreement terms) and my wife is an Irish passport holder. I am 58 and my wife is 57 this year.

  We have no debt and our mortgage is paid off, I have a small DC pension, not yet crystalised (around £210,000) and my wife has a small DB pension that she will take at age 60 (around £7000 a year).

  We have £118000 invested in global tracking ETF's and we will both be entitled to full UK state pensions if and when we get to the relevant ages – fingers crossed! In addition, I will be entitled to a reduced Spanish state pension from the age of 65 which is forecast to be around the same value as my UK state pension.

  We know that we will have more than enough income when we get to state pension age, we live frugally but well, we've never wasted money and always been savers and we have a very good handle on our monthly costs (I'm addicted to Excel and have recorded our household expenditure and income for more than the past 5 years!)

  We're semi-retired now and live off of passive income built up from my career in Spain as a self-employed IT guy, we are able to live within our means, however we also plan to run the business down over the next 2-5 years and fully retire, my question is in relation to which of our savings to draw on first – I guess it's a cash flow ladder question.

  Given that I am not going to be taking the 25% tax free portion of my UK pension (as it will be taxable in Spain), are there any advantages or disadvantages to crystalising it, I will plan to draw down as and when we need the money. I believe that once I crystalise my pension I can continue to have it invested much as it is at the moment but I will be able to apply for an NT tax code to make withdrawing money easier at that point. We will certainly need around £100000 to see us from now'ish until we get to state pension age, should we take this from my pension or investments and pay the relevant Spanish tax on it or is it better for us to take it from the NS&I accounts as there will be no tax implication this way.

  Kind regards and thanks

  Richard

Send Us Your Listener Question

We’re going to spin out the listener questions into a separate Q&A show which we’ll drop into the feed every 2-3 weeks or so. These will be in addition to the main feed, most likely, but they’re easier for us to produce because they require less writing! Send your questions to hello@meaningfulmoney.tv Subject line: Podcast Question

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The post Listener Questions – Episode 60 appeared first on Meaningful Money – Making sense of Money with Pete Matthew | Financial FAQ.

* This article was originally published here

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Listener Questions – Episode 59

Questions Asked

• Question 1
  Hi guys,

  Financial infrastructure and policy in the UK is built around to support (and likely encourage/enforce) the “standard” life of consistently working for 40 years and then stopping altogether. State and private pensions accessible around age 60, Lifetime ISAS, compounding growth of stocks etc.

  For various reasons, my wife and I (both 32) don’t want to do this. We are in the fortunate position where we can take months or years off at a time and plan to do this several times throughout our lives. We know this means our earning potential and growth will be lower and that we may not end up with as large a pension as we could have. But we may also end up having some sort of income until we’re much older.

  Question: what if anything can people do with today’s accounts/tax advantages/schemes to enable this type of lifestyle?

  Hypothetical question: what type of infrastructure could the government introduce to enable this? How about a “pension” you can take at any time up to some cap per year and only for X years in a row? Given fewer jobs now require physical use of our bodies (and hence 60 may no longer be a necessary stopping point), could we see more people “working” off and on until 70 or 80?

  Tom

• Question 2
  Hi Pete and Roger

  First of all, thank you for the valuable conversations you bring to listeners.

  I’m a 32-year-old with a strong interest in personal finance and investing, and I would describe myself as financially literate and proactive in managing my own money.

  I currently feel I’ve been underestimating my potential and would like to pivot into financial services. I’m considering self-funding qualifications such as the LP2 (Financial Services – General Route) as a starting point, followed by the RQF Level 4 Diploma in Financial Planning.

  Do you think starting this pathway at 32 is realistic, or have I left it too late to successfully transition into the industry?

  Thanks,

  Darren. G

• Question 3
  Hello Pete and Roger,

  Firstly, I very much enjoy listening to your podcast whilst doing my weekly walks. I currently live in Australia and will be returning to the UK in 6 months to live near my family and will be turning 55 at the same time.

  My question is:

  I have a Defined Contribution pension, valued at 70K with a GAR. I am legally required to get IFA before I can drawdown, UFPLS, lump sum etc. There appears to be an exception to this mandatory requirement if I take an annuity. Is this correct? If it is, would this also apply to a fixed term annuity?

  Secondly, what options do I have to access my pension if no financial advisor is keen to take me on as a client and sign the ‘advice taken' form that is required by my pension provider. My provider (Royal London) has said that the advice doesn't have to be positive or negative to what I want to do, I just have to show that I at least went through the procedure.

  Thanks for your help.

  Regards

  Brett

• Question 4
  Dear Pete and Rog,

  Thank you so much for the wealth of wisdom you share with us all – it has helped my family towards a more secure and planned future.  I'm not an expert but as the future recipient of a few small DB pensions I have a question.

  You often infer Defined Benefit pensions are “solid gold”, implying they should be preserved at all costs. I want to challenge your strong preference to avoid taking the 25% tax free cash (Pension Commencement Lump Sum (PCLS)).

  Isn't it “dangerous” to not clarify the commutation rate more explicitly?  On one hand, with a poor commutation rate isn't the member effectively “selling” inflation-linked, guaranteed income far too cheaply?

  On the other, with an attractive commutation, by taking the 25% tax-free cash “off the table,” a member can:

  1. Eliminate mortality risk: If they die early, that cash stays with the family; the DB income disappears.
  2. Manage Tax Drag: Using the PCLS to bridge to state pension age can keep a retiree in the basic rate band rather than being pushed into higher rates by a full DB payout.
  3. Seek Outperformance: While DB is index-linked, a well-allocated ISA can historically outperform inflation over the long term.

  Why do you treat the PCLS as a “loss” of income rather than a strategic “de-risking” of the pension asset?

  Thanks for clarifying – because I think I must be missing something.

  Gareth

• Question 5

  Hi Pete and Roger,

  I started listening to the podcast when I began Couch to 5K, and it’s been really helpful. It also makes me feel quite virtuous, like I’m improving both my health and finances at the same time!

  I’d value your thoughts on managing money for a child who is approaching financial independence.

  I’m the trustee for my 16-year-old daughter, who inherited directly from a relative. She has £140k in total, with 42% in cash savings, 46% in investments (mainly low cost global tracker) and 12% in a junior SIPP (also in global trackers). I'm moving as much as possible into ISA wrappers annually. I don’t currently plan to add further to the SIPP.

  She is aware that there is a “good amount” of money saved for her but not actual figures yet and it is referred to as money for a house deposit. I plan to start involving her more directly in managing it from age 17, although we already talk regularly about money and financial habits.

  She's academic and likely to go to university although also considering degree apprenticeships. She wants a high paying career but has no idea what career yet!

  A few things I’d really value your perspective on:

  How should I think about asset allocation? I'm not risk averse and feel like there's too much in cash but mindful that she will be in control in 2 years and may want to use some of the money in the short term, e.g. for university, car, travelling etc.

  Would you lean towards encouraging her to fund university costs rather than taking out a student loan if she goes, given that under the new plan around 80% are expected to repay their loans in full? At least there would be less available to fritter away or spend on a red Lamborghini!

  Or keep it invested and position it more clearly as a future house deposit?

  And finally I have an 11-year-old in the same position. Given the longer time horizon, would you do anything different now in terms of structure, investment approach, or how and when to involve them?

  Thanks so much — I’d really appreciate your thoughts.

  Beth

• Question 6

  Hi both, hope you're well. I am 28 , working full time in the NHS. My partner and I bought our first home just before Christmas.

  I have an emergency fund in an easy access account as well as putting 10% of my salary into a S&S ISA each month which I plan to use to bridge the gap between retirement and access to my NHS Pension. I also recently moved into the 40% tax bracket and so opened a SIPP which I put another 5% of my salary into each month. Any other savings go into high yield interest accounts/ISAs.
  I just wanted to ask, is there anything else I should be doing with my money or is it simply a case of keep at it now?

  Thanks a lot, Joe

Send Us Your Listener Question

We’re going to spin out the listener questions into a separate Q&A show which we’ll drop into the feed every 2-3 weeks or so. These will be in addition to the main feed, most likely, but they’re easier for us to produce because they require less writing! Send your questions to hello@meaningfulmoney.tv Subject line: Podcast Question

---

The post Listener Questions – Episode 59 appeared first on Meaningful Money – Making sense of Money with Pete Matthew | Financial FAQ.

* This article was originally published here

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