The 3 Big Tax Mistakes EVERY Retiree Makes (Real world examples)

[@JamesShack]

CORRECTION: The ISA allowance was less than £20,000 before 2017. This means that if Lois started with £40,000 in her ISA in 2010, and maxed out her allowance every year since, she would have contributed ~£290,00 in total. Which suggests investment growth of £210,000. If Lois has instead invested in an index fund tracking the MSCI World index (assuming 0.5% fees): Investment growth of £396,544. Again, as I said in the video, this might not be a perfect benchmark to use, but it's an interesting data point.

[@11boy89]

Is there a tool, where user can enter drawdown from each bucket and it gives a projection. you did something like in an eralier video i think.

[@LoseMike-og9in]

I had initially planned to retire at 62, work part-time, and save money, but the impact of high prices on various goods and services has significantly disrupted my retirement plan. I'm worried about whether those who experienced the 2008 financial crisis had it easier than I currently am. The volatility of the stock market is a concern as my income has decreased, and I fear that I won't be able to contribute as much as before, potentially jeopardizing my retirement savings.

[@LoveFrank-cp7tv]

The increasing prices have impacted my plan to retire at 62, work part-time, and save for the future. I'm concerned about whether those who navigated the 2008 financial crisis had an easier time than I am currently experiencing. The combination of stock market volatility and a decrease in income is causing anxiety about whether I'll have sufficient funds for retirement.

[@VeraW.Talley]

This is precisely why I like having a portfolio coach guide my day-to-day market decisions: with their extensive knowledge of going long and short at the same time, using risk for its asymmetrical upside and laying it off as a hedge against the inevitable downward turns, their skillset makes it nearly impossible for them to underperform. I've been utilizing a portfolio coach for more than two years, and I've made over $800,000.

[@KateShawn-jv6wh]

Mind if I ask you to recommend this particular coach to you using their service?

[@VeraW.Talley]

Leticia Zavala Perkins, a highly respected figure in her field. I suggest delving deeper into her credentials, as she possesses extensive experience and serves as a valuable resource for individuals seeking guidance in navigating the financial market.

[@Henry-hp3kl]

Thank you for the lead. I searched her up, and I have sent her an email. I hope she gets back to me soon.

[@oliviaHill-w4e]

My original retirement plan was to retire at 67, work part-time, and save money. However, high prices for everything have severely affected my plan. I'm concerned if people who went through the 2008 financial crisis had an easier time than I am having now. The stock market is worrying me as my income has decreased, and I fear I won't have enough savings for retirement since I can't contribute as much as before.

[@j.ottinger]

I’m 62 and still working full time. I do enjoy my work, it provides me with purpose and has secured my financial future. Most people are too eager to retire as early as possible. Even if you do retire early, best to get a part time job for the reasons cited above, as well as following many if not all of the suggestions in this video.

[@speak2Gary]

Indeed, I did make use of a financial counselor. As I get closer to retirement, their advice has been really helpful. I thought compound interest on index funds wouldn't be sufficient because I started late. It's amusing how I've done better than colleagues who have more years of investment experience. I've profited more than $886k tax free.

[@PaulaCarbonell-n7j]

@@speak2Gary I appreciate the implementation of ideas and strategies that result to unmeasurable progress. Being heavily liquid, I'd rather not reinvent the wheel, thus the search for a reputable advisor, mind sharing info of this person guiding you please?

[@speak2Gary]

Annette Marie Holt, a highly respected figure in her field. I suggest delving deeper into her credentials, as she possesses extensive experience and serves as a valuable resource for individuals seeking guidance in navigating the financial market.

[@PaulaCarbonell-n7j]

Thank you for the lead. I searched her up, and I have sent her an email. I hope she gets back to me soon.

[@SomeoneSmarter]

This is way more complicated than I expected!

[@user-fv1576]

Adding a GIA confused the example- perhaps that was intentional 😉

[@Dunk1970]

@@user-fv1576 The whole video was freakily near perfect for me. I'm 53, with predominantly a pension and then ISAs. We're also (unfortunately) inheriting money which will need to go into something like a GIA as well, as we've maxed the ISAs for this year. Well, maxed barring any Brit ISA £5k uplift that may or may not be worth doing. Let's see after the govt info due in June.

[@MartynThomas1]

@@Dunk1970 I haven't (yet) inherited anything, but apart from that I'm also in a similar situation. If you have kids and there is the possibility of them going to university, one option, rather than keeping a potentially large amount in a GIA, you could pay some into Junior ISAs for your kids. Obviously this is giving your money away, which you might not want to do, but if they are going to Uni, you'll probably end up paying later anyway. Using a Junior ISA would allow you to tax protect some of the GIA money.

[@Dunk1970]

@@MartynThomas1 Yes, my 3 have all been through uni and come out the other end now, though #2 is finishing her PhD. Support if needed, is and has been provided. Two got on the housing ladder in their mid 20s and #3 is a recent graduate, so we're working on that. Still not sure how #2 managed to buy when she's never had a full time job (due to her PhD course). All media outlets keep saying it is impossible. LOL

[@jamesday426]

You might consider a deer of variation to move some of all of the inheritance to the children, delivering them money when property buying or their own investing might deliver greater benefit.

[@joemo2782]

This channel is amazing. You explain things so very well, I appreciate that..

[@shellylofgren]

The utilization of after-tax money and tax-free growth makes opening a Roth IRA very advantageous. Through a careful guidance of my FA, I did not pay taxes on my withdrawals of $2.86 million when I retired.

[@donna_martins]

I don't regret the numerous financial mistakes I've made in the past since I've learnt from them. But the biggest one was planning my finances without consulting with a licensed financial counsel.

[@Walter_hill_]

Indeed, I did make use of a financial counselor. As I get closer to retirement, their advice has been really helpful. I thought compound interest on index funds wouldn't be sufficient because I started late. It's amusing how I've done better than colleagues who have more years of investment experience. I've profited more than $886k tax free.

[@Trevor_Morrow_LTD]

I appreciate the implementation of ideas and strategies that result to unmeasurable progress. Being heavily liquid, I'd rather not reinvent the wheel, thus the search for a reputable advisor, mind sharing info of this person guiding you please?

[@Walter_hill_]

Vivian Jean Wilhelm a highly respected figure in her field. I suggest delving deeper into her credentials, as she possesses extensive experience and serves as a valuable resource for individuals seeking guidance in navigating the financial market.

[@Trevor_Morrow_LTD]

Thank you so much for your helpful tip! I was able to verify the person and book a call session with her. She seems very proficient and I'm really grateful for your guidance

[@christines5430]

This information is golden. Out comes my spreadsheet again😂

[@rich_in_paradise]

This information is useful and well communicated. But also it's a subtle pitch for why you need a financial planner to work this stuff out for you because holy heck it's complicated.

[@johndowds8264]

Hi James, as an NHS worker, would love to see some content with with examples of DB pension and retirement planning. Loving your work

[@uthikoloshe]

Me too. Both for band 8 and band 2

[@jamesday426]

DB can be harder to make tax efficient because much has to be paid as income & can't be moved into the ISA wrapper as pot-bassd pensions can. You might look into Venture Capital Trusts to see whether some limited use of their tax relief is useful. One of the main potential DB planning opportunities is taking it early to avoid 40% income tax at true retirement time.

[@steveparry9783]

Me too, as I am in receipt of a DB Pension and want to know how to most efficiently reinvest some of it

[@johndowds8264]

​@@jamesday426Thanks James, very helpful tip about the avoiding 40% income tax

[@hugheskevi]

A key mistake so many make is to assume that their DB pension is all they need, perhaps it is for some, but there is usually optimisation possible. DB and DC are extremely complementary, as they are opposites in so many keys - DB has certainty, DC has flexibility, DB is guaranteed for life, DC can be taken however you like, DC has great tax-free benefits, the NHS pension has such a terrible commutation rate the lump is effectively heavily taxed, DB is poor for inheritance, DC is great. The DB is a great foundation to build upon, along with the State Pension. Add to the DB pension some DC pension or LISA, and maybe enhance the DB with ERRBO or Faster Accrual options for more DB if desired. The DB pension can be flexed by early or late commencement (reducing or increasing annual pension respectively) - a very common error is that people are obsessed with Normal Pension age as they suffer from loss aversion from actuarially reduced pension, ensure you are making optimal decisions and not suffering from bias like that. ISAs are good for pre-55. Borrowing and repaying debt with pension may be better for funding pre-55 retirement (eg 0% credit card debt, carrying a mortgage past age 55, etc). DC pension or LISA are probably going to be best to smooth income by enhancing or even replacing DB income between 55/57/retirement and starting State Pension. Given a DB pension, aiming to fund retirement income post State Pension age solely from DB and State Pension may well be optimal to avoid any stress of DC in later life. If retiring pre 55, maybe taking time out of labour force earlier in life, eg to travel, may be very tax efficient (and can be a very good idea even if not retiring before 55) - take 6 months or so away across two tax years to avoid higher rates of income tax, as well as efficiently converting leave into cash through saving leave and using it in advance upon return. Perhaps even take a longer break of 20 months or so across two tax years and just use up Personal Allowance in those tax years. It is astonishing how much can be gained from saved leave, leave taken in advance, PAYE refunds, and rental income - quite possibly enough to cover all the travel costs and return with more than you left with. Remember your spouse - you can choose to reduce your pension in return for higher survivor benefits in the NHS. And don't forget State Pension deferral as a way to enhance pension if desirable (eg that could be used to effectively convert remaining DC pension into State Pension). And don't forget to use kids' allowances, as well as the £3,600 that can be put into pensions for anyone even with no earnings and get basic rate relief. For cash needs and derisking funds needed in near future, Cash Isas and Premium Bonds may well be appropriate if paying higher rate tax, savings accounts can be used once retired if a none tax-payer. Building an untouched DC pot may be a good option for inheritance if that is a motivation. Or planning early gifting from DB pension receipt to optimise inheritance tax. So many options to ensure HMRC get as little of the pie as possible!

[@TCJones]

If i made 90k a year i assure you i could save 20k a year.....

[@MarkCW]

One important factor you didn't mention: Once you take your first taxable income payment from drawdown, the amount you can pay into money purchase (e.g. personal, self-invested) pensions will be limited to £10,000 each tax year. This is called the Money Purchase Annual Allowance. So this would greatly restrict any future contributions to your pension if you have another source of income in the future.

[@JayBeebie]

I thought the MPAA was £10K if you are still earning from employment when you go into drawdown, but £2,880 if you have left work (or also earning less than the tax-free allowance, not sure...)? You can I suppose also come out of drawdown too and contribute up to your earnings (until you are 75?). Ooh, complicated.

[@MrDuncl]

James seems to think that everyone's ambition is to retire at 57. I'm watching younger colleagues retire, while with any luck £31K will go into my pension fund this year, at an outlay to me of less than half that. It will be going into a world tracker but the choices in the company scheme are very limited.

[@doriangray6985]

Is this still applicable if you have three different pension pots?

[@JonathanBakerBates]

@@doriangray6985 I think so (assuming they are all the same type). It's really just the tax position that matters. So every time he says "pension" you can just think of as many pension accounts as you have I think.

[@DonaldUrquhart-ds9ir]

Thanks James. A really good video and a lot to think about. I'll probably need to watch it several times to fully understand every nuance, but I get the overall gist of it. Please keep doing these videos. Your time and effort is very much appreciated. All the very best.

[@stuartridout8220]

Thank you James for another great video. Very useful and informative. I've just turned 55 and have prioritzed saving into my DC pension rather than paying into ISAs, so hearing your perspective and advice has validated my strategy, which is helpful. I had sometimes thought I should be doing more with ISAs etc. but kept coming back to paying as much as possible into my pension was the best, most tax efficient strategy for me. As a higher rate tax payer, using salary sacrifice to save into my company group personal pension, then regularly transferring my fund into my SIPP has worked well. My SIPP is currently worth about 800K GBP and is invested in 100% equity funds. 50% is in high risk funds and 50% is in medium risk funds across a diversified portfolio of 16 funds across different markets. Listening to your videos on retirement planning and the tools you have provided have also been very helpful, so thank you again. You make complex subjects very easy to understand with how you deliver your content.

[@JamesShack]

I'm glad it's been helpful, best of luck!

[@SusanC-c6z]

Glad to see you've posted another video. They are very useful thanks.

[@gavjlewis]

While I'm sure most people know that investing into your pension is likely the best option. But back in 2010 with Lois being 39 the safety of investing in the ISA give you more flexibility when retirement seems a long way off. Its all about a happy balance but the most importantly she has invested.

[@briandickie7264]

ISA allows you to retire before 55 too….

[@porschecarreras992cabriole8]

It makes no sense for ISA to be larger than pension as you miss 40% tax relief. James calculated how much better off she would have been in a DC.

[@jamesday426]

​@@porschecarreras992cabriole8 it's worth remembering that until Alternatively Secured Pensions were introduced by the 2004 Finance Act it was compulsory to buy an annuity with pension pots. Even then it wasn't until 2015 or so that the two subsequent changes broadening it caused mass market notice to be taken. I avoided pensions until 2004 changes, to avoid the costs and limitations of lifetime annuities. Even with ASPs there was then introduced in a later freedom the GAD limit which restricted the amount you could take out of a pension to such an extent that it largely barred pension use for very early retirement on a level income. In the consultation before the 2015 freedoms I submitted feedback the gist of which was "to get me using pensions more, stop forcing me to use non-pension investments to get a level income throughout retirement". Ignoring that, early retirement and contingency early retirement could and still can make ISA beat pension initially, accompanied by a switch from these other things into the pension as pension access age approaches. For some, a fair bit of VCT use can also be preferable. Still, the 2015 pension changes were a huge improvement. Lois would also possibly have been well advised to limit pension contributions because of the possible impact of the Lifetime Allowance Charge. It can be surprising just how little regularly invested can take a pension pot over the former lifetime allowance and cause a switch of some would-be pension money somewhere else. This could be particularly beneficial if much early income was taxable at 20% and later much 40% band income was anticipated, potentially favouring parking money outside a pension until then.

[@MrDuncl]

Yes. I had to buy a house in 2011 aged 48. My pension pot wasn't of any use for that back then.

[@johnwilkins2023]

As Sherlock Holmes said...This is a two pipe problem.....going to need to watch this again with one finger on pause to allow it to sink in.

[@thestoicsteve]

Thanks for another helpful video. The more we know, the better decisions we can make.

[@radiantinred]

James, love your videos. However, there are other factors. I am watching my fathers savings disappear at about £7.5K a month in care home fees. My planning spreadsheet needs an extra column on how to end up with "only" £23,250 by the time I am gaga. I am not seeing the benefit in being tax effecient and my pension pot paying for care home fees versus "pissing it against a wall" and getting the same care in a care home for free.

[@briandickie7264]

Pick a care home in a different country. 👍 Rip off Britain I’m afraid. Sorry that he needs such support.

[@mkdons22]

Focus on health to ensure you don't end up in a care home

[@jamesday426]

You might want to consider care need due to infirmity that can last much longer than the two to three years commonly needed in the dementia case. Of sound mind in the cheapest place isn't such a nice prospect. An alternative investigation is how you can retain enough capital to cover say five to seven+ years of good sound mind care.

[@iancford]

Aim to spend it all by 85 if you are lucky enough to live that long. After 85, if you are still around, you won't need much more than the state pension to cover a day of day-time telly + reading the papers. If you start losing your marbles and if we've not yet brought in a right to assisted end of life, then your dodgy balance might lead to an accident at the sea cliffs!

[@jra55417]

@@mkdons22found the cure for dementia have you?

[@martinbower2915]

A cool video would be how to achieve a £50k income paying as little tax as possible, using ISA's, Pensions, GIA, dividends etc. Then we could have a blueprint to aim for.

[@porschecarreras992cabriole8]

Indeed. Just before you hit the 40% tax threshold

[@jamesday426]

If you look further up you'll see a description of my nil tax on pension drawing via VCT use approach. Provided VCTs are suitable for you, income tax is optional & can be eliminated by buying them. In my case there's another circa £5,000 each of VCT dividends & IFISA peer to peer lending interest at about 10% yield. This thoroughly exceeds my spending with the excess ending up in the VCTs & ISAs with the VCT money eventually ending up in ISA equities. Some will have too much long term higher rate taxable income for it to be viable to use the VCT approach to get to nil.

[@jamesday426]

​@@porschecarreras992cabriole8it's not so much that tax threshold as arranging to get everything efficiently moved into tax free ISAs via a long term plan. In my case that temporarily uses VCTs to get money out of a pension with nil tax then eventually into the ISA wrapper.

[@jamesday426]

It's likely to be poor planning but nil income tax from age 18 is possible with VCT use. At a minimum getting employer pension matching is likely to be good. It only takes recycling around £100k in VCT holdings to eliminate all basic rate income tax for those of us with no higher rate bill. But you do need to be able to self-certify as a sophisticated investor to do it, possibly most easily done at present by joining a business angel network for £0 for six months, usually about £200 a year for that one. Or, assuming the old qualifying rules are back, 100k income or a quarter million in non-pension savings & investments will do it. Or in easier reach some unlisted company investing via assorted schemes, even more if loans rather than equity will do the job.

[@tonydonohue2727]

James the average uk pension is just £114k...... How about doing this with figures ordinary people would see.... I do wonder what % of the uk has pension pots of £770k....

[@colabottle3386]

Agree. Would be great to see what approach to take using different pension sizes.

[@stephenoverthrow2463]

Quite a few really. There's about 4 of us in a department of 7 who have taken cash equivalent transfer value from our old final salary pensions (which ended about 15 years ago, now on a DC pension). Most of us have between £500,000 & £600,000 + in a Sipp. By the way, we are all on or around the national average wage, £35,000 to £45,000.

[@blackadder1966]

​@stephenoverthrow2463 lucky you I worked for company and hundreds of staff on final income pensions and they are worth very little. I tried to cash mine and got a valuation of 50k, thought about it a few months and thought id go ahead. The valuation dropped to 30k! Because interest rates went up, silly me thought it would go up if interest rate was higher.

[@Gazmaz]

Because these channels want the big earners to come and use them directly or their services in the future, people like us with lower incomes and savings in pensions etc likely won’t use, however I think they may get many more views earning them better KZbin income. Missed opportunity?

[@ths4125]

Probably quite a few of his target audience, but would also be good for folks who also had to go part-time/take time out of the workforce for caring responsibilities

[@Gtbg641]

Great video demonstrating the earlier the better in tax planning. In this example after using up the GIA I would use up the personal allowance using ufpls. Then top up to level needed with isa. Apart from inheritance mentioned the other reason is that our expenditure tends to reduce as we get older in real terms. This means although we would be kicking the tax can down the road less expenditure later means less tax and I think you would never be paying more than 20% tax. Other reason is that the pension tax free allowance is also allowed to grow since you are pulling a relatively low % of pension portfolio. Just some thoughts.

[@user-lx6pk9os2d]

The benefits of the ISA route are that Lois has approx £30k a year tax free - plus her £12k (ish) personal allowance. So, potentially £42k pa tax free. If she pulled her pension down monthly and didn't take a lump sum, she could effectively recieve around £46k pa tax free. As we go forward and the age you can access a pension is pushed to 57 (and you just know they're aiming for 60) the ISA route appears to be a much better option, especially for those looking to retire early or maybe significantly reduce their hours and top up from elsewhere.

[@rl3799]

@@Dionysos640 this is not state pension age that is being discussed. It is the age at which you can access your personal pension (such as a SIPP).

[@annacomnena217]

​@rl3799 which is moving to 10 years before state pension age

[@tancreddehauteville764]

@Lookup2Wakeup People on very high incomes do. This is why ISAs should be pulled by the government - they're a tax fiddle designed to benefit the rich.

[@Dunk1970]

​@@tancreddehauteville764 They are also to encourage people to save. We put small amounts into them and then spent them to help fund our move up the housing ladder. I'm sure many first time buyers were doing the same thing to save up for their first deposit back in the day, before the help to buy schemes came in. As for the rich, a 20k a year allowance is not very much for the 'rich' that you mention. 8.75% tax on let's say 8% GIA fund growth for £20k, is only £140 a year. The rich are not even remotely worried about that bill. It essentially means that instead of getting £1600 per £20k they have invested, they instead get £1460. People get too hung up on how much tax the rich do or don't pay, when the reality is that it is a lot more overall than the lower and middle income people pay. Just on income tax, the IFS state that the top 1% of earners contribute 29% of the total UK income tax take. For reference, this percentage has increased every decade since pre-Thatcher, where it was 11% in 1979. The bottom 50% of earners paid 18% of the total income tax back then and now only pay 9%.

[@OneAndOnlyMe]

Yep, you are correct, this was broadly my thinking 🙂

[@DKNW62]

Brilliant James, the isa bucket may also be useful to reduce exposure to poor sequence of returns from Pension…. A tip from your other videos, also as I’m sure you have mentioned before it’s unlikely she will need a consistent £45k. Chuck in part DB pension and it’s a real maths challenge 😊. A topic you could maybe consider is, is it worth taking DB early ( at lower rate) in order to sustain a high salary sacrifice and enjoy that tax benefit … fairly close to retirement. Thanks for great and challenging content.

[@JamesShack]

Yes, that's a good point. If you have the option of paying tax now or later, later is likely to be preferable if you're in a drawdown. Good idea on the taking DB early content idea!

[@Guffy-Brother-of-Guffy]

Another great video James, I like this reply as I’m sitting on a DB scheme and furiously paying into a DC workplace scheme as well as saving in the short term in an isa, with the hope that it will double up as tax free options come retirement. In short adding even more complication to your calculations would be great for the 50-somethings who have this hybrid pension pots/options. Keep it up, solid content as usual.

[@neil8877]

​@@JamesShack I would also appreciate a video on investing a DB pension. ie can i take the money from my DB pension and reinvest it in a SIP? should i max my lump sum and put it in another pension or isa?

[@tiptoemouse]

​@@JamesShackI would also be interested in a video exploring the benefits/drawbacks of taking a DB pension early. And also whether to commute part of the DB pension to give a larger lump sum.

[@rabihah4119]

Excellent show. A lot more to consider that what I had planned ...

[@Gopher31]

One reason to use pension last is that it will pass to your beneficiaries free of tax. ISAs become part of the estate so you pay inheritance tax.

[@terrybrown3486]

As someone else said on comments, these numbers are extreme for 90% of people and so is the headache of IHT.

[@Gopher31]

@@terrybrown3486 at £500,000 IF your house goes to your children, the inheritance tax thresholds can be easily breached by a house alone in much of the UK. Any money you have beyond that is taxed at 40%. The pension is the exception.

[@bvqbvq]

@@terrybrown3486 I have seen people I know receive large unexpended amounts from a range of sources, so you can end up in the 10%. An unexpected inheritance, a medical negligence claim or fortunate investment gains and before you know it IHT is a serious problem. I guess that this becomes a nice problem to have.

[@jamesday426]

You never pay inheritance tax and your estate can avoid it if you do good planning. Pensions can be one part. Taking out a lifetime mortgage and making potentially exempt transfers can be another part, even tally removing the borrowed part & accumulated interest from the estate.

[@jamesday426]

​@@Gopher31the house can also be an exception because lifetime mortgages and potentially exempt transfers are available. So are lifetime annuities and gifts out of income. Closer to the end unlimited pension contributions into a pension at least two years old but without tax relief area available at any age & can allow you to retain control until just before death.

[@housetboy8605]

You can invest in premium bonds and any prizes are tax free. Also the pension tax free cash can be use to reinvest in the GIA to get more dividends. There are also interest tax free threshold.

[@davidwhiteman4649]

Good video that confirmed that my own retirement drawdown spreadsheet is correct. I’m planning to retire at 56 and according to my spreadsheet won’t pay any income tax until I’m 76.

[@marinaderosario]

All this information is so valuable. Thanks for sharing

[@robertmarsh3588]

Thanks for the video! This is a challenge that many of us face, especially given the freezing of tax bands, which is pushing many retirees into the 40% bracket. I'm coming up to 60 and likely to retire in the next 18 months. Not looking forward to juggling all these, or indeed getting used to taking out not putting into a pension, and seeing the funds slowly reducing. Also who knows what the next government will do, especially with the LTA and pension tax free allowances. Yet more of a worry after years of saving and investing..

[@MrDuncl]

A colleague retired last year, then despite not planning it earlier upsized his house. I guess the tax free lump sum was burning a hole in his pocket while any gains from it was being taxed.

[@MartynThomas1]

Last year I took money out of my ISA and paid it into my pension, in order to fully use the annual pension allowance for the past 3 years. I'm planning to use my ISA to pay off my mortgage. There is also the possibility that I will inherit a sizeable amount in the near future. I'm trying to work out how much I should put into my pension. I'm an upper rate tax payer and I'm hoping to retire in 3-5 years time (60ish - I'm 57). What I don't know is if there is any merit in leaving SIPP annual allowance unused, in order to retain some money in my ISA. I have a feeling that there isn't, but James, your videos have shown me that there is a lot of complexity, a lot of traps and it is very easy to get things wrong.

[@jamesday426]

Your pension tax free cash is available. There's no merit in not using ISA money to help fully use pension allowances to get extra tax relief. If you still can't fully use pension allowances consider three small lot pension withdrawals and/or some PCLS recycling.

[@TonySmithUK]

Hi James, bring more content like this, I recently stopped working with about 10 years before I’ll get state pension, so will be using a mix of savings/ISA’s and personal pension. It remains unclear to me, whether to take as much as possible out of the pension tax free, i.e. £12570 personal allowance, plus the 25% that would be tax free, or take even more and pay 20% tax, but reduce the amount taken from ISA’s, key benefit would be to delay paying 40% tax in later years as cash dwindles.

[@jamesday426]

Why pay any tax? I retired at 55 & last year made £3,600 in gross pension contributions, drew £53,070 at nil & basic rate from the pension, basic band increased to £53,870 by the pension contributions. Bought £27,000 of Venture Capital Trusts, gaining £8,100 tax relief & eliminating tax on the pension drawing. The pension tax free lump sum roughly matches the VCT buying cost. I expect to have emptied my pension before state pension age, leaving very little taxable income. Money moves from pension into VCT for 5+ years holding time & ISAs & ends up sheltered for the rest of life. Besides the typical 5% tax exempt VCT dividends you can sell after five years tax free when that's useful, say if you've finished moving your pension pot out. VCTs aren't suitable for everyone & around £100,000 will accumulate invested in smaller companies during the five year holding period before sales without tax cost are allowed.

[@jamesday426]

For some, part of the reason to draw close to or at the basic rate limit is to reduce or eliminate the chance of future 40% tax & previously the lifetime allowance charges either initially or on growth between crystallisation (taking the 25% or various other things) & age 75. Basic rate maximising & VCT buying coupled with early retirement can make this work.

[@Banthah]

Great video James thank you. The £16,760 is a gimme. Get that lovely tax free pension income. After that, for me, it’ll be further pension withdrawals at 20%, bond ladder and ISA…

[@Paul-uy9it]

Thanks James, really appreciate these videos, if only to get me thinking about my own strategy. Definitely no one size fits all approach but it's important to continue re-evaluating your own personal circumstances and adjust accordingly!

[@TheTestedTutor]

What about taking everything from pension, not taking anything from general account aside from £3000 capital gain allowance, and transferring it gradually into ISA? That would fully convert it to tax-free cash rather than take any taxable. Uses more pension but that cannot be converted anyway.

[@ianwall9152]

It depends on whether you are worried about inheritance tax

[@jamesday426]

That can work very well & even better when combi ed with VCTs. Inheritance tax planning can include gifts out of income, potentially exempt transfers, lifetime mortgage, lifetime annuities and assorted other methods that work well with a pension drawing first approach. Total wealth and things like desire to keep control can influence what is the best fit for each person.

[@simonwl]

Great video! I'm coming up to retirement in a few months and the last part is very interesting! I've chosen to move around 3 years of living expenses into high interest accounts - instant access and different fixed term bonds, just in case of a market downturn. Tax efficiency is important in drawdown and you present the different strategies really well. Thanks for that.

[@gonnahavemesomefun]

Another mind blowing video. I've been watching James for some time now and I can actually feel my brain growing lol. I've been dumping £60k into my pension since we've been allowed. As well as hoping for a comfortable retirement I hope to have enough so that James can justify having me as a customer!

[@Bracebarian]

Paused: £16760 from SIPP, Use the £5k SRT, £1k SA, £3k CGT allowances from GIA and then ISA for rest.

[@JamesShack]

Pretty much.

[@Chills124]

ISA is way better when you are younger though, especially if you want to retire and you want control over the money i.e. the Government stops you taking your private pension until 55 (58) and they are locking this in 10 years behind the state pension, for me state pension age is probably going to be 70+ when I get there meaning I could have £1million in there at 50 but not retire until 60+ years because I cant access it... I just refuse to do this, cant buy time and the Government wants people to keep working and are likely to mess around with pension age/access in the future. Makes sense if you havent done anything until you are 40 and you crap yourself, pension makes more sense as if you dont start properly until 40 you probably wont have enough until you are 58+ anyway.. FYI its not all about tax avoidance its about what your goals and what you want to do in life, id happily skip some tax benefit of paying extra into a pension if it meant I can retire at 50 compared to 60+

[@rlamacraft]

Yeah, if you want to retire in your mid-40s you need about half in pension and half in ISA. To achieve that, you almost certainly have to pay some high rate income taxes, and so be it. But this case study was way too heavily invested in an ISA given they're now in their 50s.

[@Dunk1970]

@@rlamacraft Exactly this. Lois should now be going hard on the pension and only putting any excess that she can't get into the pension into her ISAs. I retired last month aged 53, so I'm bridging the gap for 21 months before I can touch my pension. Lois only needs £70k to bridge a 2 year gap, as her outgoigs are £35k a year. She certainly doesn't need £500k to bridge the gap. As a higher rate tax payer, she's missing out on a 67% instant rate of return on the pension investment more than she would get by putting that money in an ISA. She's throwing thousands of pounds of post retirement (after tax) income away. She can help to reduce the problem by throwing £60k into her pension each year she remains on that salary. She will also have 3 years of backdated allowance she can use to pay in even more. Sure, she'll then start getting only 25% instant RoI tax savings on some of that, but it is still better to invest in pensions as a basic rate tax payer before putting money into ISAs. That's the case in general and is certainly the case in her current situation where she is of an age that qualifies to get at her pension aged 55.

[@hugheskevi]

Minimum pension age is increasing to 57. There is no legislation for any increase beyond this. The Conservative Party said it planned to keep the minimum pension age 10 years behind State Pension age, but that will be irrelevant if they do not form the next Government. The State Pension age is legislated to increase to age 68 between 2044-46 with no further increase beyond that legislated for. The Labour Party has not announced any plans for State Pension age or Minimum Pension age so the future is unclear. Carrying debt past age 55/57, eg, mortgage or 0% credit card borrowing that gets repaid from a pension can be a tax-efficient way to finance retirement prior to age 55 but keep the tax benefits of a pension.

[@Chills124]

@@hugheskevi when looking at any legislation it can change tomorrow, however when looking at pretty much all western economies they have ageing populations, combined with increased life expectancy and increased demand in care costs (this has skyrocketed and will continue to grow) and increased welfare payout in the state pension as people live longer, in the meantime you have a shrinking working age population who has to pay for it all, the maths dont work out and any future Government in 20+ years will have pressure to cut spending and knocking back the pension age saves a hell of a lot of money so personally I find it highly unlikely in 30 years that the age will still be at 57. Can I tell you when, no but it will. The Government has already tried to get all of those early retirees from Covid back who are in their 50s and not working to boost the economy and fill job shortages but its not working but if you stop those people from accessing their largest asset then its a mighty motivator to continue working well beyond you need to. David Willets did a very interesting talk about future Governent spending and the outlook due to ageing population in the UK, very interesting watch.. In any case I am pro pensions but not beyond the employer match, my bulk will be in ISA and I will be sipping my cocktail on the beach to celebrate my early retirement (hopefully..)

[@Dunk1970]

@@Chills124 There is of course the fact that with each year going forward, the number of retired people with decent private pensions will rise higher and higher and the taxes raised by them paying income tax and VAT will help support the country spend. And these will be people that the government will not need to provide jobs or unemployment benefits for. And the number of people paying higher and higher inheritance tax will also rise. This will be because of all the people who entered the housing market from the 80s onwards when the huge shift from renting to buying kicked in. If the average age of those buyers was 30 around 1984, then they are hitting 70 now. It is still monetarily better for anyone looking to retire before the age that they can draw down a pension to invest in pensions more than ISAs. I've just retired at 53 and have more than enough non-pension savings to bridge a ten year gap. I would recommend working out your target retirement age, focus on predominantly pension saving to get all that income tax back and working for you. As you get closer to that date, you'll have an even higher salary (usually), with lower costs and will be able to schedule the ISA build up to hit the target retirement date.

[@TheBoringInvestorMan]

Thank you James, this provides great food for thought, I'm only 37 so quite a few years off retirement yet, I am paying 10% towards my pension with my company matching 7% of that though I didn't start paying into a pension until I was 25 and am very behind though in the last 4 years it's grown really well and currently sitting at £42k but feeling like I need to be more aggressively saving for retirement, as well as balancing that into an ISA, reason being is I want to save enough for retirement but I also want to be able to pull money out if we want a holiday, I do have an emergency fund however it wouldn't even currently cover a month of expenses..

[@chris9867]

Hi James, the ISA/Pension conundrum. The problem is the government keep changing the rules on pensions lump sum/annual allowances/lifetime allowances etc. Knowing what the rules will be in 20 years on tied up money in a pension. Ive opted to hedge my bets and do part pension and part ISA. No idea what the future holds, but I'm comfortable with my decisions.

[@mikerodent3164]

YES! I completely agree with this. Pensions (both State and SIPP) are a hostage to fortune. In fact doubly so, because not only do you not know how long you're going to live, but as you say, you also have absolutely no idea how the rules are going to be changed by future governments. I'm 63 now and over the past few years I have started dumping stuff into my SIPP in quite a big way. But an ISA is a no-brainer (as they say) because if any government ever threatened to chip away at the sheltered status you always have the nuclear option of cashing it in and putting it to some other use. Conversely, as this vid demonstrates amply, a SIPP is very much a "brainer", in fact a Total Head-Flip.

[@mikerodent3164]

YES! I completely agree with this. Pensions (both State and SIPP) are a hostage to fortune. In fact doubly so, because not only do you not know how long you're going to live, but as you say, you also have absolutely no idea how the rules are going to be changed by future governments. I'm 63 now and over the past few years I have started putting stuff into my SIPP in quite a big way. But an ISA is a no-brainer (as they say) because if any government ever threatened to chip away at the sheltered status you always have the nuclear option of cashing it in and putting it to some other use. Conversely, as this vid demonstrates amply, a SIPP is very much a "brainer", in fact a Total Headflip.

[@porschecarreras992cabriole8]

Maybe not 50/50 ration but seems sensible decision

[@OneAndOnlyMe]

I too was not comfortable with pension policies, but for some reason felt more confident with ISA being left alone by government.

[@rosssnedden1108]

Hi James, Excellent content again. Would you consider a video on the USS hybrid pension scheme which includes a DB and DC element,

[@MrDuncl]

GEC had a similar scheme which some BAE Systems employees are still in.

[@paulvilagos7008]

Yes, indeed, well done Lois...but for her it seems easy to do on a 90k annual salary...what about people with roughly a third of her income, who are paying rent and sacrificing a lot to max their ISA? Very good scenario and example of tax efficiency ... one more question, can you recommend a financial advisor in Colchester, please?

[@OneAndOnlyMe]

Hi Paul, please see my latest comment further up, you'll see I didn't always have a £90k salary. Try Fornham W R S Financial (London Road, Stanway) near Colchester.

[@rockhopper70]

Great video, needs a few watches to sink in! Just a suggestion for a future topic, maybe some guidance for parents/guardians what they can do for their children to get them ahead of the game. It might be a short one though, “as much in their pension as soon possible” 😂

[@paulbrightwell3621]

I would have done some pension recycling - putting £2880 into the pension each year - which would yield £3660 put into pension with tax relief. This wouldn't trigger the pension recycling rules because it would be under £7500 each year. You would make a couple of hundred even after tax and there would be more to invest than putting into an isa still

[@JamesShack]

This is a good strategy that most people miss. Not enough time to include it in this vid!

[@paulkelly6726]

I've never heard of the pension recycling scheme, future video James 👀👀🤔🤔😉😉 Edited- Great content James🙏🙏

[@terrybrown3486]

Plus if it is you and a partner, you can put in 5760 and get a 20% return from hmrc

[@jamesday426]

That £7,500 a year tax free lump sum every rolling twelve months period limit only applies to tax free lump sum recycling, unlimited income recycling is allowed, subject to annual allowance. The alternative increase in contributions over the two tax years before the lump sum is taken, the year of taking and the following two can often work around this.

[@jamesday426]

The three lots of up to £10,000 from the small pot rule plus unlimited number of occupational schemes also doesn't count towards the recycling limit even though it's 25% tax free. Not counted towards the tax free PCLS limit either.

[@sgparkin1]

Here's a different scenario for you to get your teeth into! Retiring at 57. Estimated final salary scheme pension of 40k per annum. Private pension pot estimated 250k. Planning to leave the UK and sail overseas long term - living aboard and returning to the UK for a few weeks per year. Annual living costs of 30-50k. Any advice on achieving financial nomad status and its implications? Is it worth it?

[@jamesday426]

Some years ago I mentioned a Portuguese or Spanish scheme to a couple planning to go sailing outside the UK. Thx tax treaty provided that personal pensions were taxable in the country of residence, no longer UK, and the country had an income tax bug zero rate for foreign pensions. This allowed drawing 100% of the personal pension pot tax free, with a back tax caveat I'd they returned to the UK resident status in the following few years.

[@jamesday426]

An important caveat is that the country must have an income tax, even if the rate is nil.

[@jamesday426]

Having considered that opportunity you might then look I to establishing tax residence in a country where you get state pension increases but where taxation is low. The channel island of Sark wants more residents & has no income or inheritance taxes but instead a per person tax of around £1k a year, with talk of higher rates as much as four times that for spending too few days physically present. Still may be useful & any British citizen can live & work there.

[@davemitchell3998]

Malaysia

[@SeeryTrades]

I invest heavily into my SIPP the way I see it is that in order to build wealth I need to let compound interest do its thing, which needs time. So i am happy to lock that away until I am 57 years old.

[@davidtickle1]

James, how does this new information tie in with your retirement planner spread sheet (excellent tool, thanks) As I understand the tool only assumes draw down cash, then ISA, then pensions. Does the tool take into account these tax optimisation opportunities?. Thanks for the great videos

[@JamesShack]

The tool does not optimise tax. It draws down taxable > ISA > pensions. Even the best software only has basic tax optimisation because to do it in any more detail, you need would need to go through year by year to choose your drawdown options. Then every time you make a change, go back and change every single year! That's why it's best to keep it simple.

[@iainhunneybell]

Another very thought provoking video @James, thank you. One point for clarity. For simplicity’s sake, let’s say State Pension consumes all of the personal tax allowance. Then as you crystallise pension, 25% (subject to the new total tax-free limit) is ‘tax free’, and 75% subject to marginal rate tax. Given your personal allowance has been consumed by state pension, does that mean only the 75% of pension is taxed? It might seem a silly question, but what I’m trying to confirm is that the 25% pension really is tax free, no matter what, or whether you can end up paying tax on it in some circumstances, e.g. some other source of income from a GIA, part-time or other work. Does ‘tax free’, really mean tax free in all circumstances? Thanks again for wonderful content 😊

[@JamesShack]

25% is tax free, no matter what other income you have coming in, it’s almost identical to an ISA but its value is capped at £268k.

[@iainhunneybell]

Thank you @James 😊

[@chiggz247]

So much good context in one video!

[@KeriJoyce]

Hi James, love your content but would be interested to hear about planning when you have a very short runway into retirement so not even a medium term investment horizon. Example, my plans see me working for 3-4 mos more, 4 months before I’m 55 with £420k split across2 pensions roughly 50/50 & £100k ISA, with some rental income. Confused over a go forward strategy & little time to plan. Thanks

[@JayBeebie]

I'm not clear in the example if Lois expects to get her income from dividends inside the ISA and pension (with maybe a cash bridge to state pension for a small shortfall?). It seems like she might be at first, but later in the video (13:48) we seem to be talking about total return (and CGT considerations) with Lois depleting the capital in her ISA and GIA to zero for some reason. I think dividend income vs total return seems to be a bit of a personal decision more than anything else, but is @JamesShack assuming the latter in this example?

[@JamesShack]

In the first attempt at solving the drawdown problem I demonstrate how if Lois is following an income strategy, to be tax efficient she's going to have to ignore the income, and sell down her assets as it it's a total return strategy.

[@JayBeebie]

@@JamesShack Ah OK. And thanks, David Cameron, for pension freedom. No thanks for making the tax situation that goes with it a nightmare. Forcing future pensioners to all become tax accountants wasn't on my bingo card.

[@eddied112]

Another great video, James. Yes it probably raises many questions as you said at the end of the video, but that's no bad thing. A few personal observations - food for thought: Lois may have prioritised her ISA because she had little faith in what future governments will do with SIPPS, given the constant interfering and changes that we've endured over the past 20 years. I sympathise and know a number of people who think this way - with good reason! With regard to the State Pension I'm going to address the elephant in the room: It's unaffordable and unsustainable, but no Government will address this because of the political implications. At some point however, it will need to be confronted and I think means testing is the least unpleasant option. I'm not saying I agree with this, I'm simply stating it as a possible outcome. Therefore I personally don't include the state pension in my strategy - even though I've paid NI all my life.

[@MrDuncl]

I don't think they would dare change the state pension. However, we could soon get to the point where the state pension exceeds the personal allowance. Give with one hand and take with the other.

[@ratttttyyy]

Right, so not only do I have to be a high earner and a diligent and responsible saver, I also have to have thorough tax system and accounting knowledge to be able to figure out the most tax effective ways for not just my savings and investments but how I draw them in retirement - Got it! The dream of retirement for most is dead.

[@karmanline2005]

Great video. Many of us have 1 or 2 DB pensions as well as DC pensions, which adds yetmore variation. Im currently thinking of postponing DB start and usung DC first, partly for tax and partly for growth teasons. DB have done relatively well during high inflation/low growth times.

[@armunro]

Think I am going to have to watch this again when less sleepy and more awake! I think I observed that using your isa's to give income when you are in pension years between retiring and getting the state pension is very wise, which reduces capital gains tax exposure should you die. Then in state pension years you can then focus on drawing down pension to top up the state pension. This then keeps your pension intact for longer before being drawn down, and thus gives it more opportunity to grow in value. Also those years before getting the state pension: you are likely to be more active and will want to do more things (and thus spend more money/need more money) than in later years, so maybe a higher pension in the earlier pension years? Plenty to think about.

[@jamesday426]

IHT is easy to avoid via potentially exempt transfers, late in life unlimited pension contributions without tax relief and lifetime mortgages to increase the previous two. Instead, start out by drawing at least the income tax personal allowances in taxable from the pension every year until state pension age because that's a use it or lose it allowance. That preserves the amount in the ISA. If VCTs are suitable for you there's considerably greater scope for withdrawing taxable pension money with no net tax cost.

[@dudeatx]

3:55 you miss the point of dividend investing. It's not just about returns, it's about being able to draw money without selling your shares and therefore maintaining the primary investment. You might well double your money on a particular investment but you have to de-invest to make money. This means that you are robbing yourself of both future capital and income growth. Plus you may have come off the top at the time you need that money, in other words there is zero chance that your favourite share/fund will maximise at the same time you need the money. and you may have to watch your shares devalue. This is much more painful than have a dividend cut.

[@JamesShack]

In the second part of the video I demonstrate why you would need to draw down different amounts from different accounts to remain tax efficient. So a dividend investor would have to sell stocks irrespective of the income that is generated.

[@dudeatx]

​@@JamesShack Only if you are also drawing money from a GIA/other taxable source as you illustrate. If you are only drawing money from one source (e.g. a SIPP) whether the money comes from de-investment, or your dividends is irrelevant, the tax treatment will be the same. Also, why would you put money into a taxable investment source if you haven't used up your 80k p.a. allowance, surely that's more than enough for 99% of the population. If you are rich enough to worry about that, why would you unnecessarily expose yourself to tax liability by having a further investment account? I'd be putting money into assets like paintings, wine, gold, property etc. easy to liquidate and avoid IT and IHT as well.

[@abya2630]

The average life expectancy in the UK is around 80 years. Will it be really worth putting extra into a pension? Ideally one would want to get a good return for..money invested or salary sacrificed. Therefor on average a person would have to live past 86/90 years before it starts to be beneficial...

[@TheSilvercue]

This does not make sense. You don’t have to take an annuity, in fact they are not suitable for most. You can leave your pot and just draw down 4% a year.

[@rohitd23]

Hi James. Do you see a possibility that the tax thresholds may shift significantly enough over the next 15-20 years and perhaps the affect these projections?

[@jameswestcott4191]

Interesting video James. Isn’t it worth withdrawing from the pension pot up to the 40% tax bracket and putting any excess you don’t spend in to the ISA? That way future income from a growing ISA will be tax free? So in effect deplete the pension pot before using the ISA (ignoring inheritance tax implications)

[@neilmackison1329]

James This is really interesting analysis and advice. I had a question on the strategy at 11 minutes plus in the video. Given the strategy is to keep the tax rate down why would Lois not take the 4% income from her Isa which is tax free thereby reducing the amount of capital she needs to take from her investment account by £12k? For me it surely makes sense to preserve capital as much as possible. I would be particularly interested to see if it made more sense for her to take the 4% income from every bucket in the first year, thus retaining the capital element as much as possible, and I would look to move the capital from the investment account to the ISA account over the next 5 years by utilising her ISA allowances. In this way she would increase her tax free income over the next 5 years and the longer term gain from that would surely negate the slightly higher taxes in years 1- 4? What do you think about this strategy? Finally I also think that Lois could find a much better yield than 4% and at the moment Higher Yield Bond funds are paying out over 7% (and given interest rates are likely to fall from their current lofty highs the capital returns are likely to be positive) and some enhanced dividend funds are paying out over 6%.

[@lsarafin]

Great video. This begs quite a few questions for me (about to stop work at age 54). Should I start my DB at age 55 even though I have enough DC and ISA savings to leave it until NRD of 60 and avoid the 25% actuarial reduction? When I start my DB pension should I make use of the PCLS from the linked DC scheme even though I don't have use for the lump sum straight away? The total PCLS value is already slightly over the new LSA. Should I drawdown from DC alongside DB to fully maximise the basic rate tax threshold even if I don't need the income yet? What asset mix should I have across different taxable and non-taxable pots? Happy you pass further details if you want to include in future video.

[@MrDuncl]

Correct me if I am wrong but I don't think you can start your DB pension until you are 56 (soon to be 57). After that it depends on what penalties your DB scheme applies. On the plus side when a colleague took early retirement he had it all planned out to pay zero tax for the next three years.

[@danjames4606]

Sorry for the daft question, am I right in thinking that withdrawing from a investment ISA is tax free? My teacher pension is calculated to give me a low monthly payout after taking the lump sum when i wanted to retire. So I'm hoping I can even that out with the ISA 🤞🙏

[@jamesday426]

Yes, no tax on withdrawing from ISAs of any type.

[@jamesday426]

I do wonder whether you may be making a mistake, though. Contributions to a personal pension in addition to TPS are likely to make you more money due to the 25% tax free on withdrawing, subject to being within the tax free lump sum limit. You can vary how much you take from this each month just as you can with an ISA, but with better tax treatment

[@OneAndOnlyMe]

@@jamesday426 My goal wasn't to make as much money as possible, but to achieve a £35k tax free income :)

[@rlamacraft]

Yes, but as already suggested if you're paying a higher rate of tax to fill the ISA that you'll only draw from after 57 you may be better off opening a SIPP

[@OneAndOnlyMe]

@@rlamacraft Agree, though in my case I wanted the option to retire as early as possible, even before 55 if I could hit my required income goal.

[@lawrencesinderson]

Quick question. Does a partial or completely crystallised pension still earn interest?

[@JamesShack]

If you place funds into "drawdown" then they remain invested.

[@tommytinkler1708]

Great video thanks. Next year I will be 55 and can access my FREETRADE stocks and shares pension sipp, but is that different the first withdrawal of 25% would I need to sell all the holdings to then withdraw the whole amount to get 25% tax free?

[@garglingtoad-ke1qg]

Is it worth taking out a mortgage on a currently mortgage-free BTL property and use that money to pay the last three years’ unutilised contributions into a pension scheme?

[@darrenhague]

Hi James - assuming I retire with a pot that means my lump sum allowance is £268k, is that £268k a fixed amount or are its gains post-retirement also tax-free? In other words, does it make sense to withdraw the £268k as soon as possible and move it into ISAs, or is that unnecessary?

[@JamesShack]

That is another factor I did not have time to cover in the video. The £268k is capped, meaning any growth then falls into the taxable part of your pension. This means that, so long as IHT is not an issue, taking tax-free cash to fund an ISA can be a valid option.

[@martinbower2915]

you wouldn't be able to transfer it into ISAs straight away though, you'd be limited to £20k a year, so more than likely paying tax on any interest the lump sum would be earning whilst you transfer it all over the next 13 years

[@darrenhague]

@@martinbower2915 Indeed, there are definitely more sums that need to be done here. Using both ISA allowances from a couple would help speed the transfer, and until then the remainder could be put into an income-oriented general investment account so that only 8.75% dividend tax is paid on that part of the income.

[@jamesday426]

Each tax free amount is added to the count when you take it. Growth on the tax free amount you've already taken is ignored. This tends to favour taking it and reinvesting as fast as possible. A catch is tax on the money once it's outside the pension. Sometimes many years of this tax can make it better to leave some in the pension. Of course you can have all or some paid to a spouse, children other than your own or others to reduce the problem using inheritance tax giving while you're alive to see the benefits approach. You might also find investigating VCTs useful.

[@darrenhague]

It appears that under Money Purchase Annual Allowance (MPAA) you can start to withdraw from the LSA before retirement and still keep contributing to the pension as usual, so transferring the LSA to ISAs could potentially begin a few years before retiring.

[@thorpeeedo]

This was great, thanks. I'd love to see if/what/how things might change if you're a couple with one higher (>100k) and one modest earner (

[@JamesShack]

That makes it a little more complicated!

[@thorpeeedo]

@@JamesShack I know, but it's a very common set up. Even some broad brushstrokes advice of common things to look at might be useful.

[@andibk2853]

does the pension provider automatically allocates the 25% tax free cash in a separate bucket/account (as you showed in this vid)? How does it keep track of how much of the % of tax free cash is withdrawn since the pension amount can constantly change if it sits in.

[@MoonPie44]

Good food for thought, thank you 🙏

[@akhtaremco]

So the question is at what time do we know what is 25% tax free amount 1) at the age of 55 or 2) when we start drawing down pension?

[@paulxc4411]

Effectively whatever the value of your total pension it is split into 2 pots. 25% tax-free pot, and 75% taxable pot. At any time after you reach 55 you can take as much or as little from the tax-free pot and not pay tax on it because you don’t have to declare it on a tax return. But everything you take from the other ‘drawdown’ pot is added to any other income you have (including you state pension if you have one) and you have to submit a tax return every year, and pay tax at whatever rate bands up to 45% depending on your total income. The pension company will automatically take tax off any amount you ‘drawdown’ before sending you the balance. They send you a P60 each year (just like if you are still getting a salary) which you declare on your tax return.

[@shaniarain650]

I sold an apartment in Springfield and made about $250K. I was frustrated when I only earned $171 in interest from a regular savings account. After doing some research, I was advised to invest in stocks. Are these stocks a good point to start from?

[@HettieClausenTl]

While the stock market is promising and can give good ROI, expert guidance is essential for effective portfolio management so you don't get burnt out in the market as it is very volatile.

[@SolemnBankingplc]

I opened an online high-yield savings account with 5.12863% interest compounded daily, expecting to get $2,500 in interest on my initial $50,000 at the end of the month. Instead, I only received $420. When I inquired, I was told the interest is calculated daily, which was not clearly stated on the website. My partner advised me to divert into stocks through an advisor, and in just six months, I achieved over 80% capital growth, excluding dividends. Highly recommended!

[@matteohenry33]

Pls how can i meet this advis0r? i want someone to help me invest my divorce settlement, It's just being laying around in the bank without much interest.

[@SolemnBankingplc]

`Celia Kathleen Martel` is the licensed advisor I use. Just search the name. You’d find necessary details to work with to set up an appointment. She’s really good

[@matteohenry33]

Thank you for the lead. I searched her up, and I have sent her an email. I hope she gets back to me soon.

[@anichez34]

James I d really like to get some advice from you in regards to my personal finance s and future pension and Iht planning. How would this work? Are you taking on clients or providing one off advice.

[@stuwhite2337]

I've been hitting my annual pension contribution limit for years before it went up last year. With the employer contribution saving around £40k a year cost me way less than £40k

[@MrDuncl]

Just the tax and NI savings are a big help. I increased my contributions by £1000 a month but nothing like that came off the bottom line of my payslip.

[@JamesDrainPT]

Hi James, thanks for all the great content - one thing I think not mentioned is state pension. Assuming Lois has been earning and saving as well as she has, likely she's got some sort of NI contribution. The state pension would more or less put her over the tax threshold already would it not?

[@MegaMidds]

Is it worth changing tact to start paying avc's at 55 if the retirement goal was 60?

[@dominic8218]

Great info yet again James 👍🏻

[@stuartogden1660]

The member may subsequently decide to recommence pension contributions … taking taxed pension income will have severely reduced the annual allowance

[@TaiwoOmotosho-m9v]

Thanks James. Does the illustrative gross pension contribution of £34482 in this example include the government 's added 20 % basic tax relief of £6896.40 and the extra tax relief of £6896.40,?If thst's the case,Why did you wish she had paid £34482 instead of £27585.60? Kindly explain the maths

[@dailaffin9066]

Thanks James, but I suspect not many of us have funds anywhere near the amount that “Lois” has accumulated!

[@mackeyuk]

Another great explainer, cheers!

[@chqshaitan1]

great video , keep up the great work

[@JamesShack]

Thanks, will do!

[@LawrenceTimme]

For the buckets I would do this before watching that part. Draw from isa, 20k per year, but also move 20k from the gia Per year back into it. Then anything else required I'd take out the pension.

[@thenoodlebuddy]

Something very important lots of people may jot know is if you are a higher rate taxpayer you need to chekx if your work does salary sacrifice for your pensuon, because if they dont then you need to submit self assessment tax returns to get your tax relief back!

[@stevenclark5792]

I’ve not spoken to a higher rate tax payer who has known they have to reclaim the additional tax if non salary sacrifice which is crazy, then they get a cheque back for thousands, so much being left on the table

[@rl3799]

It is possible to claim higher rate tax relief without submitting a tax return.

[@porschecarreras992cabriole8]

@@rl3799yes write a letter to your tax office. I did it last year and got a £5k check back😊

[@stevegeek]

@@rl3799True…I did this. Just sent HMRC a letter with evidence of pension contributions and salary, if I recall ( it was a few years ago). Got a cheque for a couple of grand a few months later. 😊

[@porschecarreras992cabriole8]

The frozen thresholds as such a ripoff. They give you tax relief to invest in DC but they take it all back later. It is like a loan with bad terms and conditions!

[@jamesday426]

Alternatively, learn about VCTs, decide whether that small company investing is suitable for you and potentially withdraw all of this pension money with no net tax cost, as I'm doing. For most people the 25% tax free lump sum combined with basic rate tax in and out delivers at least a 6.25% net gain. Salary sacrifice to save NI, employer contributions & maximising use of the personal allowance can increase the gain even without VCT use.

[@rss112]

Thanks James, great video.

[@JoystickJives]

Great content as always James. Would you be able to do a more detailed video of Junior SIPP and what the tax benefits of these are? We have two daughters (3 and 6). My wife and I also invest i to a Junior ISA for them but we often think that maybe we should invest in a Junior SIPP too. Would appreciate some information about tax relief, expected growth, how long can we as parents contribute. Is it one off or regular monthly up to age 18? Can we invest beyond them reaching 18? Thanks

[@brendanpells912]

What I don't understand is how a pension provider can tell me the value of my pension pot and yet even if I live to be 100 what they expect to pay me as a pension is about half the value of my pot. Who gets their hands on what's left in the pot after I die?

[@suncatsoftware]

Absolutely love these videos

[@damionyates4946]

I would have assumed you could contribute to both the pension and the ISA. But that might require cutting down on your outgoings.

[@matthewhall8443]

James could you possibly make some videos on retirement plans for those of us with Defined Benefit pensions. For example, I'm 35 year old NHS GP. 90k salary. DB pension is worth about 10k per year currently and increases by 1/54th of my yearly salary each year. But not accessible without charges until 68( probably later once i get there). I am currently trying to build up a pot in a S&S Isa to cover my spending from 55/60 until the pension is accessible. Currently, i have 74k. Any thoughts on this kind of situation would be great. Keep up the good work.

[@yongxiongdai4733]

what about withdrawal without using tax free component of the pension? There is one more option/choice for withdrawal from pension, isn't it?

[@JamesShack]

If you draw from the taxable part, you have to draw 25% from the tax-free part too.

[@puppetsnippets6830]

Take a 25%portion of tax free cash and the rest from pension each year. Make sure your pension is still performing as well as it can, don’t drain it.. By the way James it would be great to see a video for the low wage folk like artists. It’s really hard right now to make ends meet. If you don’t earn a lot then you can’t save a lot….

[@puppetsnippets6830]

James, I had an email with a ‘reply from James Shack ‘ to my KZbin comment asking me to move to What’s App for further advice from you…… I assume this is a scam as it is not listed here online……if this is so, folk are reading the comments and targeting people . Just thought you should know…..I won’t be replying to it. Scammers get lost.

[@peterdavis3125]

James - I must be missing something about drawdown/tax-free cash. Around the 6 minute mark you say that she could drawn the £50270, in one go, using £12570 (the personal allowance) and then paying basic tax tax on the rest. Doesn't a withdrawal like this not automatically trigger the extraction of the tax-free cash at the same time and therefore 25% (£12567.50) would be tax-free then of the remainder, £12570 would go against the personal allowance and the 20% tax charge would then be £5026.50 (20% of £25132.50) - an effective rate of about 10% ?

[@JamesShack]

In this part of the video we’re only trying to assess the tax she should pay on the taxable part of her pension. We’ve see the tax free part aside, as we know there will be no tax to pay there. So the example is showing how much tax Lois would pay if she drew £50,270 from the taxable part. If she actually did this, she would also have to take £16,756 of tax free cash .

[@finnle5432]

This is very interesting, but I really wanted to be told, more or less, what percentage of savings I should put in my ISA, SIPP and whatnot...

[@rlamacraft]

Depends on at what age you want to retire and how the amount you need each year will change through retirement.

[@ths4125]

Hi James, I was hoping you/the community could help. For the first time I am being a awarded a LTIP (approx 30k USD a year, matures after 3 years). I am a additional rate tax payer and I am already maxing out my pension allowance each year. How do people normally go about selling these shares? What is the tax rate? Is there any way to do this tax efficiently? Should I sell them straight away or keep onto them? Thanks in advance!

[@JamesShack]

Are these share options or restricted stock units ?

[@ths4125]

@JamesShack Thanks for the reply! My contract says it is a discretionary equity award (no references to share options and I know it is not a sharesave scheme). Any guidance on what folks typically do would be great. My medium term goal is to save for my daughter's education in high school/uni and my long term goal is to start to max out me and my husband's ISAs so we can have options for early retirement/pay off our mortgage early. Thanks again! EDIT: can confirm it is a RSU that will vest 100% in three years, the first vesting 1 Feb 2027.

[@najib1]

Well explained and goes beyond the usual "save towards a pension if high tax payer"...its all good but what about political risks...whats the point planning when the government keeps changing the system. With Labour coming there are rumours of more pension taxation changes : IHT on pension, flat tax, LTA ...etc..

[@Hyfly13]

Can you take the tax free lump sum out of a pension and then just put it back in and get tax relief to make the pension even bigger?

[@BoulderDash24]

Clearly not, but you can make small pension contributions in retirement as long as you understand the 'tax-free cash recycling' rules.

[@jamesday426]

Yes, though there are limits on this PCLS recycling. Easy limit is £7,500 of PCLS taken every rolling twelve month period. The five year increase in contributions alternative may allow more.

[@curiousjoe395]

What’s your views on pensions as a vehicle for generational wealth? Could it be an effective vehicle to pass wealth down multiple generations?

[@JamesShack]

It can be, if you’re wealthy enough not to need to draw from your pension in early retirement or at all, you can draw your pension last or focus on spending/ giving away other assets that fall inside your estate first. You pension is a great last resort vehicle, it’s there for you to use it if you need to but if you don’t it gets inherited free of IHT. However I think the pre 75 death benefits are perhaps too generous. So there may be some changes to policy there in the future. That’s just my opinion however.

[@BenGuardian]

Sorry if this is a daft question, but is it generally smart to put more into your pension pay what your employer matches? So right now I contribute 6% of my salary, and my employer contributes 12%. If I can afford to put away more beyond that, does it make sense to do so?

[@BenGuardian]

*past what your employer matches

[@JamesShack]

The more you save the more you'll be able to spend in retirement or the earlier you'll be able to afford to retire.

[@MartynThomas1]

One contributing factor is what tax rate you pay. If you are a basic rate taxpayer and under 40, then a LISA might be a better option than a SIPP. On the other hand, if you are a (significant) 40% payer, then every £8 into your pension will result in £10 invested and £2 back in your pocket (via a tax return). If you earn between £100k-£125k then your marginal rate is 60% and the benefits of paying into your pension become eye wateringly good. BTW 12% match on a 6% contribution is very nice. Don't overlook that is you ever consider changing job.

[@orangesub121]

Once a pension is crystallised is it not liable for IHT upon death?

[@JamesShack]

When you “crystallise” a pension you have to take 25% of what your crystallise as tax free cash, which will then be part of your estate. You can either put the other taxable 75% into “drawdown”, which means it stays inside your pension, remains outside your estate and continue to grow. Or you draw it out of the pension, pay margin rates of income tax and it becomes part of your estate.

[@orangesub121]

@@JamesShack that's good to know. Thanks James for the reply!