ISA vs Pension - Don't Pick the Wrong One

[@ranuby-ps7wu]

one more thing which might be a consideration is that workplace pensions are usually done with providers which are not very efficient e.g. nest etc. where as with private pension or isa you have flexibility to invest the way you like and it can be giving return lot more than usual providers. happy to hear if there are pension providers which lets your choose etf etc.

[@peterwstacey]

Just had a look at Aviva, who do my workplace pension, and whilst they don't do ETFs, they do do 100% Equity options, e.g Global Equity has the same shape as the Global Equity ETFs, with a charge of 0.32%, similar to ETFs. They also do a US version etc. Finding their exact performance relative to S&P500 ETFs is tricky though!

[@sopissedoff]

Ok ,A lot of auto enrollment providers provide for you to choose were u want it invested ,L&G do , Aagon do , some let u choose from 5 risk levels , infect most do

[@DrJohnners]

@@peterwstacey I switched my default L&G workplace "lifestyle" fund to its own "FTSE tracker" a couple of years ago, it tries to follow the index within +-1%. It's easily outstripped the performance of the default fund, and it's at 0.12%. 0.32% seems awfully high though. Hopefully I can continue pumping in the full 60k per year for the next 7 years until retirement!

[@funlovincriminal2052]

Very good video Toby as usual!! One point to mention , If you are a higher rate/Additional Tax Rate payer you don't need to submit a self assessment form (Unless there are other reasons) .You can ask for a statement of account from your pension provider for the whole tax yr (HMRC wants a printed one), call HMRC mid-July and afterwards ,at which point they will tell you where to send the pension statement. Once you send the pension statement, it usually takes 2-3 weeks for HMRC to make the computations and provide you with a hefty tax refund !!

[@siheath3648]

I have a work place pension, a SIPP and a stocks and shares ISA. The workplace pension has a 10% contribution from my employer. The majority of my savings plan goes into the SIPP for the tax saving going in and the flexibility of how my money is invested, which my workplace pension doesn't offer. The ISA is to have liquidity, in place of over paying my mortgage because my interest rate is only 1.26% so I make far more from investing.

[@panathasg13]

Thanks for this message. I came across Chris Palmer youtube video about SIPP. I thought as PAYE i couldnt have SIPP. I put all my money on etoro and recently opened SS ISA on T212. However, since i am investing my NET WAGES then it makes sense to put it in SIPP to get tax relief!!! And for liquidity to have the SS ISA in case i need emergency money. (I keep emergency fund separate to everyhting) Save before spend, upgrading my skills to earn more...but some think I AM THE Rich !!! with less than 60K salary. enough taxation !!!!

[@WoodyWoahzay]

This is the correct way to do it - at least, it is exactly what I do too :) Every 6 months I transfer from my workplace pension to my SIPP.

[@annaforrest7204]

@@WoodyWoahzay Could you confirm how you do this please? When I've enquired about moving my workplace pension into my SIPP I am told that that would stop my employers contributions and I'd have re-enrol into my workplace pension, losing months worth of their contributions

[@ChrisShawUK]

I invested in ISA since their beginning but was late to the sipp game. I only started to max out sipps when George Osbourne changed the rules back in 2014. If i was starting today, I'd do sipp first followed by ISA for financial independence goals (shorter term saving goals would be isa)

[@Ker2046]

Thank you for the great info. Question: re cash ISAs. Does the FCA guarantee 85k as for banks etc or is it higher & can you contribute to 2 cash ISAs per tax year upto the max? Sorry if you covered this & I missed it.

[@TobyNewbatt]

The £85k FSCS guarantee is per person, per firm. you can open as many ISAs as you like there is no limit on the number of accounts. The Limit is only how much you can contribute in This means you could have £300k across 4 different accounts with separate banks/ firms and this would be protected. E.g. £80k in bank X, £80k in bank Y, £80k in bank A and £60k in bank B. Remember some banks have more than one company they own, so the firms MUST be different please read the rules on the FSCS website for the details :)

[@grantmclaren5197]

Another workplace pension caveat is that you may not have much control over where your money is invested. Nest for example, who a lot of people are tied into, have recently done away with the one fund they had that gave 100% exposure to equities. Returns on their other funds have been massively underperforming the market. Added to the ridiculous fees, I'd be wary of anyone assuming a fair returns comparison to the other accounts available to them.

[@TobyNewbatt]

Yes! For sure, this is a hidden area of pensions that needs more light shone on it. Default allocations absolutely suck, and some providers are having your pants down. I'll be doing more future videos on this and what you can do.

[@slude7133]

@@TobyNewbattI usually just do partial transfers from my workplace pension every so often into my vanguard sipp

[@robgriffiths8755]

Nest dant let you do partial transfers so sharia fund is performing well. You can change from nest default to that one

[@grantmclaren5197]

@robgriffiths8755 the sharia one is no longer 100% equities as of Nov 1st. It's now 70%, same as the supposed high risk fund. They changed it to lower the risk, cos you know us grown adults can't be trusted to determine our own risk tolerance with our own money..

[@TheAnonyy]

Sharia has changed to investing 30%in sukuk not the rest of it though I'm sticking with it

[@UKGeezer]

I'm just waiting for the government to throw a spanner in the works and change the rules. They really should leave this stuff alone as it makes future financial planning a bit of an unknown if you never know for sure where the goalposts are. I use both a workplace pension and stocks & shares ISA to hedge my bets a bit, but also so I can drawdown more tax efficiently when I come to retire - whenever that will be.

[@Stuart-f2m]

They want to means test the state pension but the elephant in the room is what this would do tother incentive to work & save. Pretty dam obvious that if your punished for working & saving you are probably not going to work & save to deprive yourself of the state pension. Maybe that's why Ge.n Z are all on the sick. Incentive to work is zero.

[@DrJohnners]

There was huge pushback from various ministers regarding any changes to tax relief/thresholds due to Reeves having just given the public sector big payrises. Lowering or creating a flat rate of relief would have seriously crippled their own pensions so Reeves abandoned it....thank goodness.

[@pm5095]

Amazing video 🎉❤ one question when you said private pensions for the higher rate tax payers you mean sipp?

[@richsmart321]

Great video again as ever Toby! For all the rubbish on the TV like cash in the attic etc, the BBC would be doing a public service running a series of you providing information rather than mindless rubbish we have to watch! On that note, would you consider providing a video on the "how you reclaim the additional tax relief" - using the current forms/online process from HMRC. How easy is this? Tax forms are so confusing (they really don't need to be!)

[@TobyNewbatt]

Thanks for the kind words and nice future video idea :)

[@ushmaamin5585]

Another great video, thank you! I work at a large corporate and instead of matching my pension contributions for example, I get a 20% flexible benefits allowance (based on my base salary) that I can use towards my workplace pension or other benefits offered by the company. In this instance, would you still recommend putting the full 20% into my workplace pension? (I understand this isn't financial advice 😊). Thanks!

[@seamus7054]

Another good video, Toby. This is what I do monthly... 1 - Pay into high interest Nationwide account (6.5% - max £200 per month for 12 months). 2 - Pay into SIPP / Stocks & Shares ISA 3 - After 12 months I transfer the balance (point 1) into a Cash ISA. This is my emergency fund/future expenses fund. Notes for context 1 - Aged 54 2 - No mortgage (paid off last year, after 19 years). 3 - My only household income is my salary + overtime (approx 35K). 4 - Workplace pensions x 3 (same employer) - Can access these at 60, 65 and 67. 5 - Started investing into SIPPS/ISAs in 2018 with 5K 6 - My portfolio (ISAs, SIPPS) has just reached £100K after 6 years of regular investing. Why am I posting this? To show that anyone can increase their wealth over time, but it takes A PLAN - and lots of patience. Good luck to everyone.

[@johndoh539]

Well done. The first 100k is the hardest. You will find that if you keep going with your investments and keep adding as you are, then the next 100k will come around much quicker. Its the power of compounding and those dividends added to your monthly instalments. Charlie munger was right when asked what the best advice was for investing, “ Get the first 100k under your belt asap, even if it almost kills you”. He was right, because now the magic starts to happen. Keep disciplined and be patient.

[@seamus7054]

@@johndoh539 Thanks very much.

[@davidr7819]

I’m in a very similar position. Not married, no kids, 59, inherited some money last year, started a private pension 29 years ago, but in the last year have opened 2 isas, a smart save account and a monthly saver. Discovering how money can grow has been a real eye opener, with all the information online it’s not that hard

[@seamus7054]

@@davidr7819 Definitely. KZbin is a great source of content.

[@leesbian]

Hi Toby. I don’t think you’re correct about workplace pension contribution matching. There’s no requirement that an employer matches your contributions - I think the rule is that between yourself and the employer, there must be a minimum 8% contribution Anything beyond that is discretionary, and usually forms part of your employment contract - often, it will be something along the lines of equal matching between 7% and 12%. My employer does this, and anything beyond that they’ll contribute half of the NI savings

[@TobyNewbatt]

I'm not sure I said that an employer matches you whatever you put in - there is the legal minimum and after that it is up to them :) It would be pretty funny if an employer had to match whatever you put in with no limit :P

[@leesbian]

@ you literally said that for every £1 you put in, your employer *must* put in £1. You never mentioned any limits to this, and even said there’s nowhere else you can get a 100% return Go watch it back

[@TobyNewbatt]

@@leesbian In my example that is true - for every £1 you put in your employer must put in their share. I also was very specific in the video I can't cover all the details. I never said it was unlimited :) Would you rather I did a video that was 3 hours long that doesn't help anyone? Why not make a video yourself too :)

[@mikerodent3164]

Small but significant point missed here: if you are a DIRECTOR of a company (as opposed to a non-director employee), the SIPP cap is 60k regardless of your income, known as a "director's contribution". However, there are various very complicated rules: on the negative side, you may fall foul of the "wholly and exclusively" test ... but on the positive side, you can also use up previous years' unused entitlements.

[@TobyNewbatt]

Yes indeed a great little tip - but check with your accountant to not fall foul of the rules :)

[@ARW.7]

@@TobyNewbattDirector tips certainly welcome! Great video btw

[@jamietaylor1664]

Great work as always Toby. My company are penurious with regard to the workplace pension. They offer only the bare minimum and the pension company they are invested with is a generic low performing one. No choice in what you get to invest in. I pay the government requirement into that and instead opt for a SIPP with Vanguard as the main source of pension. No guarantee of course with any of this but feel like I have a better chance of good returns and more on my own terms.

[@steve6375]

Do you ask the pension company to transfer most of your workplace pension into your SIPP every year or so?

[@jamietaylor1664]

@ I wish that was an option. The only way I’m allowed to remove funds from them is if I stop contributing into it or when I leave the company.

[@steve6375]

​@@jamietaylor1664That stinks. Maybe you should petition your employer to change their pension provider to one that allows you a choice or one that allows transfers. It should be made law!

[@ed.o5991]

Very helpful video .The ten year return example makes it even clearer.

[@TobyNewbatt]

Glad it was helpful!

[@pmason6076]

Spot on video again Toby. I was fortunate enough to work for a company that contributed 8% of my salary as long as I contributed 2%, then it ratcheted up depending on whether the employee added more % of their contributions. I maxed this out to the highest threshold which was 8% from my side and 15% from the employers side so had 23% going in each month (but granted it wasn't a very high salary). I was then also lucky enough to change employers where they gave a 9% non-contributory pension contribution from their side, and moved companies yet again where they offer a 10% non-contributory pension contribution. It could have been worth a mention on the video that non-contributory pension benefits exist with some employers as these are great too.

[@Kenzag454]

Thank you! Really appreciate it

[@Abdul_Rahman86]

I just went straight to a SIPP!!! Stops me impulse selling and spending my gains in whetherspoons!!

[@annab4402]

Great video, what about people who are not employed and have no pension at all? What would you advise to do at 40+ years old? Thank you for any advice.

[@TobyNewbatt]

You can make your own SIPP if you want - you still have an allowance even with no employment at £3,600 a year. Other than that the ISA still applies

[@Riaan3108]

The pension OR iSA, vs pension AND ISA is probably the biggest mistake most savers make.

[@thomasneedham3342]

My concern is they can change the goalposts of when you can draw your pension, in my ISA I can grab that if I want to pack in at 45

[@TobyNewbatt]

Yes it's true, rules can change (and they always do!) So I try and balance using a combination of both :)

[@wl660]

I agree, ISA are flexible. But you have already paid tax on your investment, so will miss years of compounding from the missing “tax relief”. ISA are tax free on the exit though. Pensions are taxed as income on drawdown. In reality, most people will have more cash at the end of their working life (mortgage paid, career highest salary etc) - and this is when they are close to 55/57 - so locking ALL savings into a pension in the later years is not an issue - you will be able to get to it soon enough. So ISA early on, SIPPs later on. Work place pensions all the time.

[@ChrisShawUK]

@@thomasneedham3342 why do you think only SIPP goalposts could be moved? Caps on ISA could also be introduced. In essence, the best financial outcome is to play the cards currently in front of you. If the rules change, you'll have to adjust your game.

[@tels7]

This is a great way of looking at it @@wl660 , thank you! I have a DC workplace pension (which I max out with my contributions, & my employer pays in double), and all my other savings go into a S&S ISA, and I have far more money tied-up in S&S ISA's. I'm just wondering if I should create a SIPP and pay some into that, instead of all my savings into a S&S ISA? I'm nearly 50 (no mortgage). Have I worked this out correctly: Using Toby's Investing Example, after the 25% tax free, and tax at 20%, the Workplace Pension & SIPP could potentially be worth £86,971 & £54.356 respectively?

[@Steve-qw2el]

They could also change the ISA rules as well, the government can move the goal post on anything at any time.

[@ricardo-c4l7l]

Toby, at 3.50, you forgot to mention stakeholder pensions. They are fairly simple to operate, have capped charges but with limited investment options. Good for people who may not be financially savvy to maintain a SIPP (e.g. a 6 year old child).

[@leopoldogonzalez2090]

The problem with workplace pension is that they choose your provider and tbe investment vehicles are limited and conservative. So despite the match, your growth is quite low as opposed to more aggressive vehicles you can find with a sipp provider

[@leopoldogonzalez2090]

Also every time you change jobs you need to consolidate it into an account if you don't want to have 10 different accounts open and potentially paying higher fees. Why can't we choose a provider and an investment and the employer just put the funds in our accounts as they do with our wages

[@grimgamerxd3817]

I’m 21 and I have been maxing out my stocks and shares ISA every year since 18 now have a portfolio of £110k I absolutely love ISA’s.

[@markturner6755]

Wow. How did you manage to get a salary that good at age 18 that allows you to save £20k per year?

[@patelkamdar1554]

Hi Toby, Great video. What I’m trying to understand is if I’m a 40% tax payer and earning 60k and I have work place pension paying into my pension will save me the full 40% and NI ( assuming so as it’s a SMART pension my work place provides) Now say I’m also self employed and I open up an SIPP account if invest into there while still being a 40% tax payer, vanguard will top it up by 20% and you say the remaining 20% will come into my bank account when doing a yearly self assessment (so reduction in tax). Silly question what I’m trying to understand is why are they giving me the choice to do whatever I want with that remaining 20% that should be owed to the tax man if not invested into a pension? Do I simply use that 20% saving place into SIPP ( but then won’t it it get topped up by 20% again) sorry just a bit confused there…

[@issiewizzie]

This is the best explanation on KZbin. Thank you very much. Many blessings

[@TobyNewbatt]

Glad it was helpful!

[@Dan-ix3ik]

Hi Toby, great video as always. Could you do a video about how all this works with being self employed, I’m on around 25k and trying to figure it all out. Thanks

[@geosu]

Hi Toby, fellow Mancunian here! Thanks for all the useful content you’ve shared over the years. I’m in the higher-rate tax band, and my employer offers a pension scheme where they match contributions up to 5%. I’m 43 years old and currently have savings in a stocks & shares ISA and a regular savings account. I know it makes sense to contribute at least 5% to my employer’s scheme to take full advantage of their matching contributions. My plan is to also keep maximising my ISA allowance each year with the extra savings I have outside the ISA. But I’m wondering if I should focus more on increasing my pension contributions instead. Any advice would be much appreciated! Do you think it’s worth contributing more to my employer’s pension to reduce my taxable income at 40%? Or might a SIPP be a better option for additional contributions?

[@uglyducklingako4989]

All content creators I've watched says Pension first before ISa

[@TobyNewbatt]

So my personal view is to take advantage of employer match (up to the max) first as this is a no brainer. Secondly, as a higher rate tax payer a SIPP becomes extremely attractive because you can claim back additional tax relief - 20% in your case for any amount above the basic rate of tax. However it's really up to you - remember pensions can't be touched until retirement, so that lack of flexibility might be the deciding factor. Personally, I like to use a mix of both pensions and ISAs

[@geosu]

@@TobyNewbatt Hi Toby, thanks so much for the insight. I’m definitely planning to make full use of the employer match, but I’m still unsure about the potential benefits of a SIPP over my workplace pension scheme. Since my workplace pension uses salary sacrifice, I wondered if it might offer a similar advantage. With salary sacrifice, even without additional contributions from my employer, I save on both income tax and National Insurance, which seems like a strong benefit. Would there still be any advantage to a SIPP beyond the control it offers over investment choices? Thanks again for your advice.

[@ian_md]

I fall in that middle area where I've always run my own businesses so contributing to a pension as well as the company is a double hit. The only way I see it working in my situation is using the company profits each year to contribute meaning I save a significant amount in corp tax, and any spare personal funds go into the ISA. You missed out a point about pensions, they are great for locking away money avoiding temptation, some will find that useful.

[@TobyNewbatt]

Yes great point Ian - that locked away money stops itchy fingers!

[@stozy1959]

Clear info as usual. One problem with isas is a decent interest rate is usually reduced dramatically at the end of say 12 months and requires transferring to a new isa with more favourable rates. Perhaps a video on this Toby?

[@TobyNewbatt]

Yes this would apply to Cash ISAs specifically not the other types :) - always good for some more content ideas!

[@wl660]

Once you have 3-6months salary in Cash ISA, stick the rest in Stocks & Share ISA’s.

[@PaulB-q3d]

Fixed rate savings products are out there as ISA but so are variable - Trading 212 consistently offer higher cash ISA savings rates than the BoE's base rate. They are currently paying 5.17% on what was a 5% base rate - that's going to drop, probably Monday though as a result of the .25% cut - a fixed rate wouldn't reduce until the term expires. Swings and roundabouts.

[@pmason6076]

Cash ISAs wont build wealth, they will barely keep you above inflation. A Cash ISA isn't really an 'investment' as such. The only way for your money to grow would be investing it in equity. If you invest in single company shares, you have to know something about these companies and keep an eye on them, and make sure you're diversified enough not to keep all your eggs in one basket in terms of sector etc. This is why people often choose index funds, i.e. the S&P500 as its one fund which has the biggest 503 US companies contained in it. Your investment will go up and down along with the entire US market (over the short term) but will go upwards over the long term.

[@stozy1959]

As a pensioner with a sipp and due the state pension imminently I felt it prudent to have some of my portfolio in cash as they had been upwards of 5 or even 6 per cent for the last 2-3 years. My one regret is not investing the cash in stocks and shares isas when the cash rates were ridiculously low but you live and learn. There will come a time soon when this equation will return as interest rates reduce once again imo.

[@rampageashton]

Don't forget Directors of businesses like me have a company pension scheme where the company is allowed to pay 60k a year into my pension. I don't get taxed on the drawing and my company gets a 25% reduction in corporation tax for doing so. It really is the last benefit left of being a director. But in 10 years when I'm 60 I should have a 7 figure pension fingers crossed.

[@TobyNewbatt]

Yep pension contributions as a company director are brilliant - I do this personally into a Vanguard SIPP

[@SteveTurnbull666]

I have both isa and sipp, I also have a workplace pension but I just keep transferring chunks from that to my sipp each year and keep it at the minimum each time. It only takes around 3-5 days to transfer and goes as cash to then invest in what I want in my sipp. Sipp gives me a lot more options on what to invest in as the workplace one is quite limited in funds - not sure if this is a sensible choice but it’s worked ok so far - nice video thanks

[@nathenleelewis]

And you don't get penalised for transferring from yours works pension into a Sipp? 😊

[@d1ppaz]

I do this and found it to be beneficial, especially with the workplace pension fees

[@SteveTurnbull666]

@ not at all there’s no penalty for transfer and the fees in sipp tend to be a lot less than workplace pension

[@TaiwoOmotosho-m9v]

@@SteveTurnbull666 Is it NEST because to the best of my knowledge,they stopped transfers?

[@SteveTurnbull666]

@ no it’s not nest. Transfers are fine but you just have to watch out for how many segments are left. If the number goes to 1 and you transfer a partial amount it would actually close the pension as there would only be 1 segment left. Segments are a topic all for themselves really I don’t think many people understand them

[@dalemac89]

Great video. One thing I have been considering recently is, whether people about to hit the higher income tax rate can instead put more money into their pension as additional volentary contributions to not pay the higher rate of tax on that income?

[@minimad8793]

well, I thought this video was an old one as I was just refreshing myself and then noticed its a new one :) even better lol. Thanks Toby 😁

[@charrogate]

Pensions are to become treated as part of one's estare on death post 2027 (if the budget is passed) and thus will have 40% inheritance tax applied over one's IHT band allowance. Other than spending, dying before 2027 or gifting it (7 years tapered allowance to consider), any suggestions? Does emigration for 5+ years as with CGT escape this from the clutches of HM Treasury? 🤔

[@richardw2646]

I’d suggest using it for its intended purpose which is living in retirement…..

[@charrogate]

@richardw2646 Correct, however death usually beyond planning 🤔

[@Gurumister]

Really helpful as always Toby. Do you think you could do a video on investment options for your workplace pension? I have mine in an "Adventurous lifestyling" fund but the options are confusing to a layman!

[@jambon1664]

I am a contractor being paid via an umbrella company and have been enrolled with NEST. Am i better taking this plus old pensions and moving to a SIPP?

[@timcooper1841]

Also most workplace pensions are salary sacrifice this you also save on NI so its actually even better

[@leopoldogonzalez2090]

Ive never had the choice of salary sacrifice in any of my workplaces. They have only offered the standard match and nothing more

[@timcooper1841]

@ well it’s still the match , it depends if it’s before after tax . Mines is salary sacrifice so I pay no NI on the earnings I use in the pension as far as hmrc is concerned I don’t earn that money . The company also doesn’t pay ni on the cash ,

[@robertmackay7153]

With being self employed what's best Stock and shares ISA. or SIPP.

[@jabberwockytdi8901]

The "final" salary pensions that are left have been eroded to the point where they are of questionable value. Even if they are still based on final salary they have pretty much all been reduced from 40/60th schemes to 40/80th schemes , so 50% instead of 60% if you contribute the full 40 years - not so common any more . Add in the effect of career averaging in many schemes and you can be well under 50% of final salary. If you are in a badly watered down DB scheme topping that up with a SIPP is a must ( or employer DC additional contributions if that's offered particularly with any matching).

[@JulianFenton]

You just have to remember a 'watered down' final salary or career average scheme will still be massively more generous than an auto enrolment defined contribution scheme. You just need to make the comparison where employer contributions are 3% vs 15-25% 🤷‍♂️

[@richsmart321]

If I take out some of the 25% from the age of 55, does that mean I can still keep paying into a workplace pension or not? Im thinking of retiring at 62, but from 55 withdrawing £20k each year from my workplace pension (assuming I can take it as part of the 25% tax free withdrawal) and put that £20k straight into a stocks and shares ISA - so still investing that money, just never having to pay tax on it in the future (assuming ISA rules remain same!). So lets say my pot is £400k at 55 - does that then mean that my tax free allowance will ONLY ever be £100k (25% of £400k?) or do I get to increase the tax free allowance amount if the remaining pot grows to £600k at 62? At the moment, I end up paying 40% tax on the money I put into a stocks and shares ISA, so this seems a good thing to do considering that it means I get to put it in with 0% tax paid on it.

[@TobyNewbatt]

Hi Rich, if you start to withdraw your pension you trigger something called the money purchase annual allowance - so this means you cant just keep pumping money back in - your limit gets reduced see here for all the details. It's reduced to £10k a year FYI (that you can add to your pension) www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/money-purchase-annual-allowance-mpaa

[@mattsennett]

My understanding is once you start drawing on a pension you are limited to £10,000 per tax year that you can pay in. This will count towards you 25% tax free limit too.

[@mhskou]

​@TobyNewbatt only if you draw out "taxable" monies. If you take out only tax free cash the money purchase annual allowance isn't affected.

[@TobyNewbatt]

@@mhskou Yes thats right - the link I sent has those details so I don't have to write multiple paragraphs in response :)

[@chilloutcentral2097]

Thank you for the video Toby. Much appreciated

[@tonystevens4883]

Toby, if I'm employed, and paying my pension through my salary, will i still need to claim back anything using a self assessment? I just creep above 50k gross, possibly around 55k. Thanks

[@Captck]

Maths is certainly not my strong point, but aren't your figures wrong in the Investing example at approx 12.45? Surely the compounding effect would make the workplace figure much larger? The £200 month calculation is not simply doubled as the interest is calculated each month or year, meaning in proportion, it would be much higher.

[@TheZippyMark]

Yeah but it compounds at proportionally the same rate as your contribution, so it's just double 👍

[@TobyNewbatt]

As Mark has said the maths is correct you can check this on any compound calculator you like just google it 👍. I appreciate it might not make sense. The pint of compounding where it can make a difference is that more money can get you to a target faster than less money but there’s no free magic money 😎

[@daddystu7046]

Regarding AVCs - is it better to add those to your workplace pension or instead divert those funds to an ISA (or SIPP)?

[@gluki32]

Workplace pension: 7% (from me) + 14% (employer)=21% It is the maximum ISA: 70 of my saving SIPP: 30% of my saving What do you think that I do it well?

[@JackRalp96]

Most SIPP's have extremely expensive management or account fees, Id say ISA all day every day.

[@TobyNewbatt]

Not sure which SIPP you're using but that's not true at all :) You just need to use the right platform. You can also pay a lot for an ISA if you choose wrong. No excuse in 2024 to be paying high fees :)

[@SkarrGaming]

How about a video on how the US election results will effect the stock market? There was a huge increase in the value of stocks and shares the day after the results (apparently the 10 richest people in the world got $64B richer!) but what about long term?

[@dan3885]

Toby could you give us your take on jisa's I've been going through them and child savers and trying to find the right one for us is a bit of ball ache 😬

[@TobyNewbatt]

I did a whole video on them...not long ago search my channel :)

[@steve6375]

If you opt to receive 25% tax free pension lump sum (e.g. to pay off the mortgage) and amount is say 110k - does that 110k count as earnings and so put you in a high tax bracket for that year and thus other income incl. pension income is taxed at a high rate?

[@TobyNewbatt]

The tax free cash does not in any way count towards your income - that’s why it’s so good. After the tax free cash then it will count as income. So this is when you think smart with the money, most of it will remain invested for a long time and you’d then withdraw as you see fit. Don’t forget you can also take the tax free cash in multiple parts it doesn’t have to be in one big lump!

[@anthonybrown4874]

Toby worth mentioning if your employer scheme is via salary sacrifice., my employer provides this which saves me hitting the 40% tax band and saves both employer NI and employee so my employer is keen on it however they neither match contribution and only provide a 4% contributionand do not rebate any of their saving on NI as additional pension saving so mixed emotions on it.

[@TobyNewbatt]

Yep absolutely - no need to claim back any tax if your employer lets you do this - always worth checking what type of pension you have :)

[@anthonybrown4874]

@TobyNewbatt The advantage after the budget appears to be saving NI 8+15% now though it will vary if employers share their savings.

[@ISAmillionaire7789]

Great strategy but today’s living and tax systems kill savings and standards of living so savings is a very rare thing ….

[@Pandauno]

Do you think adding extra employee contributions even if there is no more employer contribution, is a good idea other a s&s isa or sipp?

[@boyasaka]

I'm paying 50 percent of my wages into my work pension and employer pays 11 I also put money into my s and s isa Remember you cant get your hands on a pension until your 55 This is rising to 57 soon And they may well raise that to 60 by the time your retire Hence I'm putting money into both pension and s and s isa So if I want / need money before the pension age I can access my ISA

[@MotoMark55]

Would there be any advantage to a 55 year old opening a SIPP? Retired from main career, claiming a DB pension, maxing out S&S Isa each year, being heavily taxed on savings each year, working 2 days per week to supplement DB pension 🤔

[@TobyNewbatt]

As long as you're under 75 you can pay into a SIPP. But once you start drawing it down you then are limited to paying in £10k a year because of the MPAA - you can google that on moneyhelper website if needed. Depends what you want to do with it I guess and at what point you'd want to draw from it.

[@paddy9021]

Is a SIPP worth starting if you are retired and in receipt of an occupational pension? Any thoughts?

[@lawrencelogan7086]

I suppose another aspect that is becoming more prevalent is the effect contributing to your pension has on your student loan payments. For DC pensions, typically Bigger contributions = Smaller % of income subject to NI contributions = smaller student loan repayments since this is based on your NI callable income. You can effectively save £££thousands on your overall university costs by increasing your pension contributions while also getting the benefits of the pension. Food for thought

[@jimbojimbo6873]

Rules on pensions can change on a whim The only benefit is your employer probably matched to some point, so after tax all of your contributions should be untouched. But again tomorrow the government might decide to just increase taxes on those to 70% some day

[@tonystevens4883]

I'm leaning towards pension. I've looked into lumping my two pensions together, which would give me a much larger pot to start with, so that my interest can compound quicker than my stocks and shares ISA, which is really low in value. Plus, I'll save on my tax by saving using my pension. I'm concerned about their fees, lack of investment choices, plus I can't touch it until my retirement age.

[@adrianl5899]

For most people not expecting to jump tax bands in retirement, pensions remain a super choice for retirement provision. Not sure why compounding would be quicker with one big pot over two smaller ones (£100k at 10% is same as 2 x £50k at 10%, for example) though sometimes it an reduce fees by having a bigger pot depending on the provider. But before combining pensions it's good to check nothing is being lost, such as a protected access age of 55 or valuable benefits. Best wishes.

[@tonystevens4883]

@adrianl5899 I hope so! 😂 I think I should go for it, but it's a little scary. It's amazing, how so few people really understand any of this, I don't have many people to 'talk money' with. I should have mentioned that my current Aviva pension lump sum is around 42k, and rising with my salary contribution every month. My deferred pension that I would like to consolidate into this pension is an old council pension, so it is a good pension, but predicted at paying out around 5k per year. I've asked what the lump sum would be, if I was to move it into my current Aviva pension, and it's saying 85k. I still have 23+ years left to work. So I'm thinking that if I now had a pot of 127k, it would compound greater, and hopefully give me a nice pension at the end. I would then also maybe use this instead of my stocks and shares ISA, which I only started this year. I would then add around £200 per month straight from my salary and save a bit of tax.

[@djkazc1818]

The question I always have is where to invest after maxing out employer matching contributions? Currently an ISA as I'm still a basic rate taxpayer, but if I eventually become higher rate, then a SIPP may make more sense for the extra tax relief at source

[@TobyNewbatt]

It's really up to you SIPP is great for extra tax relief..but ISA is flexible. Some people are fine locking away until retirement, others much prefer to have the option of calling it quits early! I think I prefer a bit of both, and there's no reason you can't do both :)

[@leeaedwards1]

Hi Toby So have you now decided to invest more each month in your SIPP / workplace pension rather than your ISA (based on your ISA vs Pension Investing example)?

[@TobyNewbatt]

I still invest in my isa but the SIPP is good for me as I run a Ltd company. I’m only ever going to invest more not less 👍

[@MrBillybob359]

I don't get tax relief on my workplace pension. They told me it's due to getting it before I'm paid or something. Didn't understand. Is that bad?

[@TobyNewbatt]

No that's fine :) - it means you are paying into your pension BEFORE tax so you don't have to claim any additional tax relief. Some pensions are like this but not all which is why you always need to check :)

[@MrBillybob359]

@TobyNewbatt Understood. Thanks for clarifying!!

[@valerienewbatt9678]

Great work again Toby

[@jonathanhowson6420]

With pensions, if you are self employed, can you just pay £60k into your SIPP from your business every year or do you also need to pay your self £60k as well in order to do that?

[@lawrencer25]

I pay £60K from my company to my sipp , which brings down my corporate tax. £20K into my isa ( not from my company). I still pay myself a wage too ❤

[@coderider3022]

If you have a higher salary, really need to put it into pension. It really depends of your stage of life , income etc.

[@skankbiz]

Thanks for all the vids Toby

[@TobyNewbatt]

Welcome and THANK YOU! :P

[@skankbiz]

Just wish I’d known all this stuff 20 years ago, making up for it now though 💪🏼

[@builder101-x9j]

how does this work if like me you own a limited company and take 12 salary and the rest in dividends Am I better off just putting in 12k and then using an ISA ?

[@G4GUO]

I was reading my SIPP providers guide to drawdown, it seems they take the basic rate tax off at source, so any tax over payment has to be claimed back from HMRC. I assume all pension providers do the same thing.

[@BritishBlaze]

Is it advisable that i transfer from my Workpalce Pension to my SIPP on a Monthly or Quarterly basis? As my Workplace Pension is quite restrictive on what i can choose to invest in.

[@TobyNewbatt]

This depends on what the rules are on your workplace pension being transferred out - some need a minimum to remain in there to stay open. The last thing you want is to lose the contributions from your employer. But yes, if you want to move your money out to invest in what you like that's up to you. I'll be making more videos in the future on workplace pensions and just how bad the choices are for some people - the default option IMO is awful.

[@wl660]

There are likely restrictions on this too.

[@anthonybrown4874]

You need to read your scheme rules my scheme has a minimum transfer of £10k and you have to leave £5k behind and understand what charges you are paying in the scheme and in your SIPP the cheapest platform scheme I know of is 0.15% plus fund fees so if your scheme charges 0.30% cost basis you might not gain much though your choice of investments us likely to be wider.

[@coderider3022]

Standard life only allows 1 partial transfer in a 36monty period but I can get vanguard funds.

[@nixebob]

Can you do a video comparing for some traders etc where they don't have a work place pension and no one else to contribute

[@lrac111]

Toby, you can earn 12.5k tax free allowance plus 5k in interest without paying tax that's 17.5k tax free, if you have a partner that's that's 35k earnings tax free plus what ever your isa makes, obviously you need to be cash liquid to get the 5k interest but that's what I've been doing and pay zero tax

[@TobyNewbatt]

Yes great way to be tax efficient! If you have the cash to get that interest thats a great way to do it :)

[@lrac111]

Thanks Toby, I sold some property and put some into ns&I bonds at 6.2% when they offered it and the other I've got 5% locked in. Not touched my sipp yet until I take 20k out each Yr from bonds into isa then I'll drawdown on my sipp, so long as I'm tax efficient

[@antmensah242]

Excuse my ignorance but how do get the 5k in interest?

[@TobyNewbatt]

@@antmensah242 So the £5k comes from savings allowance - every adult in the UK is allowed a tax free amount of interest from savings. If you earn £12,570 - you can get the maximum of £5000 in savings interest tax free. However to make £5,000 in interest you will need at least £100,000 (assuming 5% in interest this year) Once you earn above £17.5k you only get £500 savings allowance

[@dukey4771]

Would you say mortgage overpayments are a better idea vs an Isa or pension contributions?

[@bob1234881]

Do you grow your money faster than the interest rate? Do you prefer the security of paying it off vs. the increase in wealth? Personally, I've stopped overpaying, but I'm doing quite well. 😀

[@coderider3022]

Pay the mortgage if you’re young. You don’t want a mortgage after 45 ish.

[@PaulB-q3d]

There may be some benefit to overpaying if it gets you into a better LTV rate, but beyond 60% I suspect the money is better being invested elsewhere.

[@dukey4771]

Thank you for your responses and advice! 😊

[@bob1234881]

@PaulB-q3d you are right there, but if you invest and make more, you can then overpay between mortgages. 😀 Of course, I would aim for a 25-year mortgage. 😀

[@se3059]

The question isn't ISA OR Pension..... The strategy should be ISA & Pension.... The question then becomes "how much in each" and the answer is dependant on a lot of personal factors.

[@TobyNewbatt]

exactly what I do :P

[@marypricehilton449]

Very, very helpful. Thanks 🎉

[@tels7]

So, doing the tax deductions on Toby's investing examples (25% tax free, and then 20% taxed) the possible amounts you COULD end up with are: £51,159 for the S&S ISA (no change) £86,971 Workplace Pension, SIPP £54,356. Am I correct? Probably not, I'm bad at maths!

[@TobyNewbatt]

Tax is individual to you don’t forget. There’s no saying you HAVE to be taxed at 20% as you all have the tax free income allowance of £12,570. You could end up paying a marginal rate much lower between taking the pension and waiting for state pension age

[@tels7]

Thanks for the reply@@TobyNewbatt , but this is where it gets most confusing for me, and why I choose an ISA (after my workplace pension), not a SIPP!.

[@jaaguitar]

Was expecting this to be about the extra money after the match.

[@A190xx]

Buy gold. It may not always keep up with inflation, but the government cannot tax it multiple times.

[@jus2jase]

Im not working atm. Can i still put money in a SIPP?

[@adrianl5899]

Non-earners can pay a max £2,880 into a pension in a tax year. This will then receive £720 tax relief top-up in the pension.

[@cihancevizli2865]

I will never invest in pensions, most of it will go to inheritance (as it is in your estate from 2027) and income taxes!!! Good old Labour!!!!

[@StanStanman-o3e]

So what's your plan? As every savings would go to inheritance. Are you just going to live on pittance during your retirement because your kids (not you as you'll be dead) will have to pay a bit of tax on untaxed assets. Or here's an idea, pay into pension, retire early & enjoy it & get it spent before you're too old to do so. So no inheritance tax will be levied.

[@Caerdan]

I've hedged my bets and use both.

[@TobyNewbatt]

Both is what I like to do as well - make the most of what you can at the time if you can :)

[@PaulB-q3d]

Order to consider > Workplace up to match, SIPP for anything I've been taxed at 40% equivalent amount, LISA for anything I've been taxed at 20% (up the the limit), then ISA for anything else - plus some off the mortgage, some PBs and some Crypto to taste. Payday is my favourite day, getting to pay myself first across all these accounts is a great feeling.

[@TobyNewbatt]

@@PaulB-q3d Great thoughts Paul and a good video idea as well - the optimal order for investing :)

[@Caerdan]

@@PaulB-q3d That's a good strategy. My strategy is slightly different as I'm lucky to have a defined benefit pension. Of my investable income I spend around 28% S&S ISA (Vanguard - VWRP), 28% LISA (HL - FTSE All Cap), 28% overpay mortgage, and 16% SIPP (Vanguard). I'm just below the higher rate threshold but if fiscal drag pushes me into higher rate I will likely up the SIPP allocation.

[@DevineOne]

Wait as a higher rate taxpayer. Do you need to fill in a form with HMRC to get that extra amount added to your workplace salary sacrifice pension?

[@paulduncan789]

A video on this topic would be greatly appreciated. Last year I scraped into the higher rate tax payer category and figured that I was owed about £16 back. I looked into how to do it and found you can either do a tax return or simply write to HMRC with the relevant information. I found templates for letters and used one of them. But this was 6 months ago and I've had nothing back. No big deal for the sake of £16 but this will increase going forward. So I'd really like to know what a normal employee, who has their taxes done by a payroll department, should do when it comes to filling in a tax return. EDIT: I only just noticed that you mentioned salary sacrifice. I believe through this method that the the full rate of tax relief is applied at source, even for a higher rate payer. I can't swear to that, but I think it is so.

[@darrenb1522]

For a salary sacrifice pension the money is deducted before tax, therefore no need to fill out a self assessment. If you contribute any money outside of salary sacrifice e.g. personal deposits to your workplace pension (or SIPP) then you will have to. What is sometimes confusing is that if your employer doesn't use salary sacrifice and you are a higher/additional rate tax payer you are due a rebate on the overpaid tax and have to fill out a self assessment to reclaim this back.

[@DevineOne]

@@darrenb1522 thank you. That cleared it up.

[@SMARVEN]

Thanks for all the good videos Toby I’ve really got it together this year and moved my workplace pension to Vanguard invested in the all world etf

[@StevieH85-v1i]

hi Toby if im in a work place pension and im a high earner will my pension tax amount be correct? from what i can find and by doing a self service there is no need to try and claim for a work place pension.

[@juniorhornet1323]

Are they taking the pension contributions from your Gross Pay? If so you don't need to do anything

[@StevieH85-v1i]

​@@juniorhornet1323 yeah thats what i thought thanks

[@TobyNewbatt]

As commented below - if your salary is paid into your pension BEFORE tax then you are all good :) - worth double checking to be sure

[@StevieH85-v1i]

@ it is paid before tax and I have done a self assessment tax return £230 back. But when it asks about pension it says not to enter anything if you are in a work place pension so that was why I asked and your latest video didn’t mention if I should be claiming for it.

[@andrewhayes4914]

I don't have a pension, I'm self employed and have never set one up but I need to sort something out help !

[@TobyNewbatt]

Hi Andrew - I personally have a Vanguard SIPP and I contribute through my limited company but I have a limited company. If you are self employed (sole trader) you can setup a pension easily take your time and have a search around :)

[@andrewhayes4914]

Thanks for the advice, I recently inherited some money and I have some of my own to add to it it's something i should have done 30 years ago I'm 57 now have left it too late ?

[@adrianl5899]

​@@andrewhayes4914You can receive tax relief on contributions up until 75. ONS life expectancy of a male your age is 84, 1 in 4 chance if of 92. Unless planning to use pension for passing on wealth, post budget they remain an excellent tax wrapper for building retirement provision for most people.

[@kurumbaatoll9190]

There is a lot of information in this video. For example I didn’t know that the age you could get your pension is going up to 57.

[@adrianl5899]

If you have a pension that you were in pre 4th November 2021, it's always worth checking whether or not it has a protected age of 55. The rise to 57 was first announced in 2014 so there will have been 14 years before it's in effect (appreciate plenty did not know).

[@Black-Circle]

ISA all day. rather have the money now than 30 something years in the future. you cant invest quickly in the next tesla or nvida with your money locked up in some nonsense like a standard life work place pension.

[@martincowie4520]

An excellent video that should be watched by everyone's friends and family.

[@giridhart]

If someone puts full 60k into pension, can they still put money into SIP?

[@TobyNewbatt]

No - the £60k limit is EVERYTHING combined, contributions from you, your workplace AND the tax relief so it's why you need to make sure you stay under it.

[@domtaylor2271]

Defined benefit is only "also known as final salary or gold plated" by anti public sector Daily Mail readers. Almost no pension scheme these days is final salary. Even where the public sector has kept defined benefit, pretty much all of those schemes have been career average rather than final salary for new entrants for about the last 20 years. It may seem like a minor nuance, but it feeds into an unhelpful narrative that people use to justify poor pay in the public sector

[@yesno9834]

Correct. A lot of people incorrectly assume that “Defined Benefit Pension” and “Final Salary” go hand-in-hand, this is simply incorrect.

[@guitarsandcheesecake1632]

Great video. But my company pay in the absolute minimum. So the workplace pension will not be worth that much. Everyone be careful of that!!

[@TobyNewbatt]

Still free money though so always good to make the most of a 100% gain :P

[@PaulB-q3d]

The percentages used in the video are THE percentages, the legal minimum. The £100 per month example, well that depends on your salary. My company pays the "absolute minimum", which for me is £169.43 from me including the tax relief totalling 5% of qualifying earnings, and £127.08 from the company match at 3%.

[@ChrisShawUK]

@@guitarsandcheesecake1632 yes, your company is not responsible for all your retirement needs, just a portion. As individuals, we still need to consume less than we earn and invest the excess in ISA/sipp for a few decades to have a comfortable retirement.

[@guitarsandcheesecake1632]

@PaulB-q3d well of course

[@iCozzh]

Once you max out your match on your pension you should be shovelling everything you have into a stocks isa.

[@Gopher31]

LISA is still a very good vehicle for basic rate tax payers. Better than a SIPP in most cases.

[@TobyNewbatt]

Yes LISA is a bit of a gem if you wanted to use it instead of s SIPP

[@adrianl5899]

Unlike pensions, but like all ISAs, LISAs are taken into account for Universal Credit. LISAs are a valuable tool, but that's something those potentially needing UC should be aware of, as it doesn't take much (£6k) to impact an award and not much more (£16k) to lose eligibility. And that £16k is a single or couples's capital.

[@jimipet]

If you lets say make 60k (pre tax) and you contribute the maximum wouldnt that be your total salary of 60k minus tax relief of 12,570 so 47430, and not 48k? If you can contribute 48k then the 570 between 47430 and 48k you wouldnt have paid tax but you would get tax back? Doesnt make sense.

[@TobyNewbatt]

You can earn £25k (only pay 20% tax on the part above £12,570) and still put in £25k to a pension and get tax relief even though you’ve not paid tax on all of it. Same with kids…a junior SIPP gives them tax relief but they’ve not paid any tax ha.

[@minesadab]

Don't pick either. Just buy bitcoin and hold for at least 5 years.

[@Neddie2k]

Can anyone earning over 60k claim a tax return and how far back can you claim this.

[@TobyNewbatt]

The last 4 tax years - double check this I'm pretty sure that is the case. So if you need to get claiming!

[@johnhurrell9312]

With Labour in government I won't be putting a penny more into my pension. Gold baby gold!

[@liam-james]

Pensions are under attack. The rules change to much to plan for 40 years time this will be down fall of pensions. If state pension age goes to 75 then in my lifetime the age you can take a SIPP would have gone from 50 to 65. Now put on top that the UK is hell bent on borrowing money for ever more then it’s only logical tax will increase forever more. So what tax will be placed on your pension in 40 years time? Who knows. il get my workplace pension the rest I’m betting on the government continuing trading insolently and using pension for a incompetency get out plan.

[@JoeKing-t7l]

I am at 960k in my isa and just over a million in my pension due to LTA rules that I no longer apply. I am going to retire in 2 months at 47

[@MrWhoAmI57]

Wow, that’s an amazing achievement. How did you manage to do this?

[@TobyNewbatt]

Boom - huge achievement.

[@JoeKing-t7l]

@@MrWhoAmI57 I opened my isa in 1999 while living at home. The rules was that I had to put 50% of my wages in my pension and isa. I worked for my Dad. Over the yea4s it has just grown

[@TaiwoOmotosho-m9v]

@@JoeKing-t7l Were your wages six figures per annum?

[@JoeKing-t7l]

@@TaiwoOmotosho-m9v not initially but I would I have averaged around 130k but it was my dads business so I was paid in dividends as well, when it was tax efficient

[@VoiceOfThe]

I avoided pensions. Governments keep and will continue to move the goalposts with them so you can’t plan properly. Too complex with too many restrictions. I couldn’t use them due to the limits, likewise the ISA after receiving several six figure inheritances so I opened a GIA. Enacted a plan B. To avoid CGT I left the U.K. so no longer tax resident, so not liable. All I have to worry about is withholding tax on dividends at a reduced 15%. I’m looking into seeing if there’s a way of reducing this or not paying at the moment, although I don’t think there is.

[@andyonions7864]

why woukd anyone with 20k to 'invest' want to stick 5k in a cash ISA?

[@adrianl5899]

Dripfeeding into equities or maintaining a risk profile (rather than use bonds, for example) could be reasons.

[@andyonions7864]

@adrianl5899 cash isn't working for you. It's a hedge in a bear market. I guess. You can hold cash in a stocks and shares ISA, which is surely more flexible

[@adrianl5899]

@@andyonions7864 Absolutely. They're just possible reasons.

[@kingmoochoo]

You didn't mention people who earn minimum wage who save more into their pensions than the minimum amount so have to pay into their pension after national insurance and income tax so have to spend more money to get that £100 a month than someone higher than minimum wage but still a basic tax payer

[@ChrisShawUK]

People on minimum wage get the same pension tax benefit as everyone else. The 20% tax rebate applies to all contributions