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Investing to Retire Early

Including Financial Independence and Retiring Early (FIRE)
FeeBeeDee
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Investing to Retire Early

#155537

Postby FeeBeeDee » July 27th, 2018, 11:06 am

I’ve just turned 59. I have 20 years in a company pension that allows me to pay 100% of my salary into AVCs where the company allows me to benefit from their NI contribution. In addition to my pension I have built up a reasonable share portfolio. I would dearly love to retire in the next two years. I have two questions:
1) To maximise return, should I sell shares to pay for living expenses over the next year and sink all my salary into AVCs?
2) Is there a cash ISA I could pay the money into that would allow me to draw down regularly from it?

StepOne
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Re: Investing to Retire Early

#155540

Postby StepOne » July 27th, 2018, 11:15 am

Are you likely to hit the Lifetime Allowance for Pension savings, or the 40k annual allowance? Both of these could have an impact to the sums.

Will there be Capital Gains tax to pay on any of the share sales?

What will the AVCs be invested in, and what are the charges?

Sorry for more questions than answers!

JohnB
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Re: Investing to Retire Early

#155549

Postby JohnB » July 27th, 2018, 11:39 am

Your company are obliged to pay you minimum wage, but there will be little tax and NI on that, and you could pay it all back to them.

Do you pay higher rate tax now, do you expect not to in retirement when drawing your pension? More benefits of pension contributions if you do, otherwise its just the 25% lump sum tax free, and 2% for your NI, and 13.8% from your employer. It also removes the money from IHT, which might be useful to you.

So generally a good idea to fund from your share portfolio, provided you leave enough for a rainy day in the ISA, otherwise large one-off pension withdrawls will get taxed at HRT

Can you move your company pension to a SIPP when you retire without penalty, or would you be stuck with their (probably higher) charges long-term

Stonge
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Re: Investing to Retire Early

#155553

Postby Stonge » July 27th, 2018, 11:56 am

There are always murmurings about abolishing the tax-free lump sum, especially when extra taxes are seriously being considered.

Itsallaguess
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Re: Investing to Retire Early

#155568

Postby Itsallaguess » July 27th, 2018, 12:38 pm

StepOne wrote:
What will the AVCs be invested in, and what are the charges?


Regarding charges, it's definitely something to keep an eye on.

I pay a relatively small amount into my AVC scheme, in addition to my normal pension contributions, and every time I get my annual statement I'm shocked at the percentage of my AVC contribution that goes towards the AVC management charge.

It's always looked to me that any tax-advantages of the AVC scheme itself are very quickly eroded by the high AMC, but am I the only one to think this?

I'd actually like to contribute a little more to my AVC, but I'm put off by what seems to be high charges.

Cheers,

Itsallaguess

swill453
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Re: Investing to Retire Early

#155579

Postby swill453 » July 27th, 2018, 1:04 pm

Do you get any benefit from contributing to your AVC scheme that you wouldn't get if you contributed instead to a SIPP or other Personal Pension?

Scott.

FeeBeeDee
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Re: Investing to Retire Early

#155619

Postby FeeBeeDee » July 27th, 2018, 3:11 pm

No I don’t pay higher rate tax now and will just be on standard tax in retirement- not over the 24k limit.
I have to decide on my AVC in August for the next year – so I could sell enough shares now to tide me over to the next financial year and then just sell some more then. I believe I can also use my husbands CGT allowance if I gift him the shares ?
There’s choice of a Cash ISA that has no charges, or a Stocks and Shares ISA. Both of these are arranged by my employer through Aviva. The S&S ISA has charges of about 1% Fees per year.

I’ve not thought about moving my pension out of my employer once I retire.

All of this is really new to me so I am a real novice but finally understand I need to become more experienced with looking after my finances. Retirement has just crept up on me.

Did I miss any questions ? Thanks so much for all the replies – I really appreciate it.

JohnB
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Re: Investing to Retire Early

#155632

Postby JohnB » July 27th, 2018, 3:57 pm

I can't see why you'd want an ISA through your employer. They won't be contributing to it, and fees are likely to be higher than DIY. Cash ISAs are pretty pointless with interest rates so low, but you need to understand your own risk profile and timescales for accessing the money. If you are tolerant of risk and have a 5+ year timescale, S&S should give better returns. Bonds are a better alternative to cash, but need a fair bit of research, so I'd not worry about them at the moment.

I suggest you

1) Make sure any shares outside ISAs are in one. You'd need to sell, transfer as cash and then rebuy, up to £20k per year per person. Do read about Capital Gains Tax though.

2) Use the salary sacrifice AVCs to convert shares outside a pension to funds inside one.

Gostevie
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Re: Investing to Retire Early

#155705

Postby Gostevie » July 27th, 2018, 8:46 pm

Stonge wrote:There are always murmurings about abolishing the tax-free lump sum, especially when extra taxes are seriously being considered.


I think this is a really important point, and why I withdrew the 25% tax-free lump sum from my SIPP as soon as I hit 55 a couple of months ago, even though I don't need the cash.

This 'tax break' or 'tax perk', whatever you call it, is likely to be among the lowest of the low hanging fruit when the current or any future Chancellor of the Exchequer needs to raise funds for e.g. the NHS without risking any serious political fallout.

Gostevie

JohnB
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Re: Investing to Retire Early

#155707

Postby JohnB » July 27th, 2018, 9:08 pm

I think removing the lump sum would cause more upset than reducing the annual limit or making tax relief flat rate, as it affects everyone, so is fairly safe. Most tax changes aren't retrospective either

YeeWo
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Re: Investing to Retire Early

#155723

Postby YeeWo » July 27th, 2018, 10:07 pm

FeeBeeDee wrote:The S&S ISA has charges of about 1% Fees per year.
HSBC InvestDirect S&S ISA has a fixed fee of £42 per annum irrespective of the value of stocks held. I have a 6 figure portfolio and contemplating paying 1% fees brings me out in a sweat! :oops:

Urbandreamer
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Re: Investing to Retire Early

#155733

Postby Urbandreamer » July 27th, 2018, 11:40 pm

YeeWo wrote:I have a 6 figure portfolio and contemplating paying 1% fees brings me out in a sweat! :oops:


I have an EXPENSIVE ISA (fees capped at £140) with a stock broker and it's cheaper than 1% of a 6 figure sum! Indeed the yearly alllowance of £20k would cause my capped fee to be exceeded.

With respect FeeBeeDee, you are, and have been, paying through the nose like many do who don't want to research the subject.

Pension schemes traditionally charge A LOT. Hence the question about AVC fees and the question of why use AVC's instead of a SIPP.

My company pension has higher charges than my SIPP*, but being a sallary sacrifice I should be paying more into it than into my SIPP. That's not what I do.

Ignoring that. One thing that I do, that you might consider doing is that I recycle some of the dividends from my ISA into my SIPP (pension). I of course get an imeadiate 20% uplift. In addition the money moves out of my estate with respect to IHT.

Something else that you NEED to do, is check your entitlement to a state pension. As you seem to be female and of a certain age, it is possible that the state has seperate records of contributions before and after your name change (marrage) and assumes they are different people. If there is an issue, then the sooner that you sort it out the better.

*My SIPP is with A J Bell and I pay 0.25% fees which will be capped at £100 as I don't buy funds. Of course I could buy the same funds that my company pension is invested in if I so chose. The cap would not apply to them though.

TUK020
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Re: Investing to Retire Early

#155741

Postby TUK020 » July 28th, 2018, 7:54 am

JohnB wrote:I think removing the lump sum would cause more upset than reducing the annual limit or making tax relief flat rate, as it affects everyone, so is fairly safe. Most tax changes aren't retrospective either


I don't think the danger is in removing it entirely, but in capping it - which would make it more politically acceptable to the bulk of people who would fall under the limit.

e.g. 25% tax free up to a limit of £25k (i.e pension pots of up to £100k)?

I too took out the 25% lump sum from my SIPP on reaching age 55 on the grounds of political risk. This money is been cycled into my S&S ISA, (and is a significant part of my HYP)

monabri
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Re: Investing to Retire Early

#155887

Postby monabri » July 28th, 2018, 10:55 pm

A S&S ISA with SVS securities is free.

Even with the Halifax it's £12.50 per year.

Transferring your current holdings to them should be at zero cost.

1% per year ....just say "no".

Assuming a £100k portfolio,the saving would be ~ £1k per year into your pocket.

monabri
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Re: Investing to Retire Early

#155888

Postby monabri » July 28th, 2018, 11:07 pm

You could transfer shares in your S&S ISA from your current 1% rip off merchant to a cheaper platform ( see above).

You could then sell some shares to provide cash which could be withdrawn into a linked account to support day to day living.

You don't have to convert everything into cash on day 1 unless you want to.



I suspect that ( unless you actually work for Aviva!!) that your employer uses Aviva as a pension company to collect yours and their monthly pension contributions. You'll be dealing with Aviva to sort out your pension.

monabri
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Re: Investing to Retire Early

#155889

Postby monabri » July 28th, 2018, 11:43 pm

FeeBeeDee wrote:There’s choice of a Cash ISA that has no charges, or a Stocks and Shares ISA. Both of these are arranged by my employer through Aviva. The S&S ISA has charges of about 1% Fees per year.


I'm guessing that Aviva are offering a "FTSE all share UK index tracker" or something along these lines...for an exorbitant 1% charge!!

If it is indeed a tracker, you can DIY for much cheaper. You can independently set up a standing order to pay monthly and buy " units" - with the likes of M&G, Liontrust...you might need to do a little research to see which has the lower charges...there's plenty of info to be gleaned from Google or more likely a Lemon will advise.

As for cash ISAs with Aviva, what interest rate?? Its as simple as that. If you can get a higher rate elsewhere then why give Aviva your money?

xxd09
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Re: Investing to Retire Early

#155932

Postby xxd09 » July 29th, 2018, 10:38 am

Hi
You have some serious work to do!
Take some months to read up possibilities before decision making
Read these boards -Monevator is also a good board
A single consultation with an IFA is usually free-they want your buisness!- this will give you pointers
xxd09

YeeWo
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Re: Investing to Retire Early

#156137

Postby YeeWo » July 30th, 2018, 3:51 pm

Urbandreamer wrote:I have an EXPENSIVE ISA (fees capped at £140) with a stock broker and it's cheaper than 1% of a 6 figure sum! Indeed the yearly alllowance of £20k would cause my capped fee to be exceeded.

£42, obviously, is cheaper than £140. I have no idea why you don't move your S&S ISA to HSBC and have an extra £98 per annum to invest?(!!). ;) ;)

Urbandreamer
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Re: Investing to Retire Early

#156154

Postby Urbandreamer » July 30th, 2018, 4:37 pm

YeeWo wrote:
Urbandreamer wrote:I have an EXPENSIVE ISA (fees capped at £140) with a stock broker and it's cheaper than 1% of a 6 figure sum! Indeed the yearly alllowance of £20k would cause my capped fee to be exceeded.

£42, obviously, is cheaper than £140. I have no idea why you don't move your S&S ISA to HSBC and have an extra £98 per annum to invest?(!!). ;) ;)


Well Pilling & co do provide excelent service, all be it at a price.
I also have an ISA with Selftrade, that use to only cost me £6pa. Unfortunately they have changed their fee structure and it will now cost me about £70pa.
Then again I have an ISA with YouInvest that costs me £30pa, cheaper than HSBC. :D

TBH, given the trouble that I had closing down a HSBC cash ISA many years ago I wouldn't touch them with a barge pole.

I could save money by having all my ISA accounts with one institution. However there are risks doing so. Hence the reason that I have multiple accounts.

FeeBeeDee
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Re: Investing to Retire Early

#156348

Postby FeeBeeDee » July 31st, 2018, 2:20 pm

Thanks for the replies and apologies for the delay in responding. I've been away.

My employer allows employees to pay in 2% of their salary which the company then match with their contribution – so employees benefit from tax ie: 2% works out as £34 out of our paypacket– the taxman pays £16 in, the company matches that – so that’s another £50 and the company passes on its NI savings of £7.

So £34 out of our pay packet makes a contribution of £34 & £16 tax & matched from the company £50 and the NI saving of £7 = £107 into the fund.

After the 2% has been matched we can still contribute further but it’s unmatched - so we only get £34 & £16 tax and the NI saving of £7 = £57 again into the fund – for the next 2% for example…

Hopefully this makes up for the charges ?


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