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Hi, If I take a lump sum from my pension at age 55, what is the rate of tax after the first 25%?

Judy,

17 May 2018

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Helena Wardle, Certified Financial Planner

Hello,

Strap yourself in for some numbers! 

The answer depends entirely on what other taxable income you receive or expect to receive in the tax year that you withdraw the funds.

The 75% is added to your existing income and will be tiered in the same way as any other income that is subject to income tax. So for example for the current tax year, the first £11,500 of your income is tax-free, the next £33,500 is taxed at 20%, the next £105,000 is taxed at 40%, and anything over £150,000 is taxed at 45%. If the taxable element (75%) of the pension withdrawal takes your taxable income over £100,000, you would also start losing your personal allowance of £11,500 (The personal allowance reduces by £1 for every £2 over £100,000 of earnings until you lose it entirely).

You need to be aware that the pension provider is likely to tax you on an emergency tax rate, which is too high. This would mean that you may have to reclaim tax you pay on the withdrawal. You can do this either by submitting a self-assessment tax return or through a form on the government website.

Be aware that by taking taxable income from your pension, you will limit your ability to save into it. Once you withdraw taxable income from a pension, the total amount you can save into that pension will drop to £4,000 per tax year. If you don't need to use the money you are withdrawing immediately, your provider may allow you to take the pension out in parts enabling you to spread the withdrawal over a number of tax years. If you are unsure and you want more specific advice based on your individual circumstances you can either seek help from a financial adviser or an accountant.

I hope this helps,

Helena

 

We have a portfolio of ISAs/ PEPs worth around £250k, currently invested via Cofunds, managed by Chelsea and Bestinvest. I'm told this is quite an expensive option regarding platform charges. Are there better options? I tend to ask for advice on the make-up of the portfolio about once a year and change perhaps 4 or 5 funds.

Jack,

08 May 2018

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Helena Wardle, Certified Financial Planner

Hello,

 

You do pay to use a platform, and this normally adds between 0.25%- 0.50% per annum to your annual charges depending on the value of your portfolio. However, if you regularly change funds, then platforms do give you access to a wide range of investments with one provider, and this would typically reduce the time of out of the market when you switch investments. It also reduces the administration for you to facilitate the fund switches.

 

If you held the investments directly with the individual investment companies/fund managers, switching would mean selling the investments and repurchasing new investments, potentially with a different company, to implement any changes. You would also need to action every switch as an ISA transfer to ensure you keep the ISA allowances that you have built up. Another consideration is that platforms often get rebates from fund managers which is effectively a reduction in annual charges for offering their funds on the platform. This has to be passed on to clients in full. You should see any rebates in the transaction history of your annual statement.

 

If you want to keep all of your investments together, you can as an alternative hold a number of investments with a discretionary fund manager without a platform, but this would also incur an annual charge. Another consideration is how involved you are in making the decisions on your investments. Do you get advice on any changes to your investment funds or do you select the changes yourself? Discretionary fund managers typically manage the money on an ongoing basis for you and clients are not usually that involved in the investment decisions that they make.

 

Your annual statement from Cofunds would provide you with a breakdown of your cost and charges each year, and this would show the yearly expense of using Cofunds, the funds and any additional management charges that you may be paying. You can then weigh up if you are getting value for the costs that you are paying. For a £250k portfolio, Boring Money identified iWeb and Interactive Investor as having two of the lowest platform and management fees. This assumes 14 transactions a year at £6,000 each.   

 

I hope this helps,

 

Helena

Pensions

How long does it take to release money from your pension at 55 years old?

,

01 May 2018

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Helena Wardle, Certified Financial Planner

 

The time it takes to release money from pensions depends entirely on the pension type and the current timescales for your specific provider.

 

Just after pension freedoms began in April 2015, this took a long time. Now, however, most providers are actioning clients' requests within about 10 working days. If you are drawing taxable income in addition to tax-free cash, it would be worth checking with your pension provider if they have a specific payroll date that they pay taxable income out on as this may affect how long you have to wait for the money to be paid.

 

Your pension provider would also be able to let you know the administrative forms and process for releasing money from your pension, and any additional information that they may need from you to process the request. You may have to provide proof of your bank account or identification and it's always best to check with your pension provider so you understand what to expect. Be aware that withdrawing from your pension may affect your ability to save further into pensions if you are accessing taxable income and tax-free cash from this withdrawal.

 

Please also be mindful of the tax implications on the withdrawal that you are planning. Up to 25% of the pension fund can normally be drawn tax free, if you are only releasing tax free cash then you would not need to worry about the income tax implications. Your ability to save more into pensions in future would not be reduced. However, if you draw tax free cash and taxable income the provider may tax you on a higher rate, and you would have to reclaim any overpaid tax either through a self-assessment tax return or by completing a form on the government website https://www.gov.uk/claim-tax-refund/you-get-a-pension. A bit time consuming and bothersome!

 

I hope this helps

 

Helena

I would like to open a Junior shares ISA for my Grandson for about £50/month. How do I go about it and can you recommend some reliable companies? I intend to keep this going for approx 15 years, so am looking for some sort of 'Tracker' fund that does not need my constant attention.

Alex,

26 April 2018

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Founder and CEO

T

Hi Alex

 

Lucky grandson! If you assume average returns of about 5% after fees, those monthly payments of £50 could add up to about £13,500 after 15 years. And of course that will all be tax free. Perhaps just make sure his parents know that he will get this money at the age of 18 so they can have the necessary conversation as this approaches. Hargreaves Lansdown is the country’s main provider of Junior ISAs and they report that about 97% of these get rolled over into adult ISAs which is encouraging – I thought more would be cashed in and used to head to Thai beaches!

 

OK, you want a tracker fund which is sensible if, as you suggest, you won’t have the time or inclination to be constantly monitoring this. Spreading your bets around make sense so what the industry calls a ‘multi-asset’ fund will get you the investment equivalent of a balanced meal – as the name suggests you’ll have a blend of shares and other investments from all over the world.

 

I normally try and give people a few options but for your needs there is a simple no-brainer option. Vanguard. The low-cost US Kings of tracker funds who now let British investors get a Junior ISA directly from them.

 

I suggest you pick one of their LifeStrategy funds. There are 5 choices – from very low-risk and cash like to the most volatile which is all held in shares. Given your timeframe which is 15 years I think you should be looking at the 80% or 100% equity options but read up on the differences between the options and make your own mind up, based on how comfortable you feel. As I suspect you know, making money is not guaranteed although over 15 years history strongly suggest you’ll outperform cash.

 

If you want other choices have a look at our Best Buys tables and filter by Junior ISAs. Another thing to bear in mind is this – if you or your children have an online investing account, then you might be able to link up the JISA account so you can see it on the same log-in. This is called ‘householding’ your investments and can make it more convenient to manage. But although you can pay in, a final note is that it has to be the parent or legal guardian of the child who actually opens the account for them. Once open, anyone can pay into it.

 

Good luck.

 

Holly