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See what's bugging others. 

And what our experts say.

Investments | Pensions | Personal Finance | Robo Advisors

Is there a Robo Investor who provides both income and growth for those who are retired? (There must be a large market for this?) It seems to me that at the moment all the Robos focus on long term growth and reinvesting dividends - which is fine if you are younger. Have I got this right? Any comments / thoughts? P.S. I think your website / service is very good

David,

18 January 2019

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Dr Richard Bradley

Thanks for getting in touch, and for the nice feedback on our site.

You’re right – many robo-advisers are focusing more on investors building up assets rather than those taking income.  Most don’t offer pensions yet, and those that do typically don’t offer income drawdown for retirees.  The only one I know of which has specific drawdown functionality is PensionBee: https://www.pensionbee.com/drawdown

In terms of the actual investments that robo-advisers make, they’d typically reinvest dividends rather than focus specifically on generating income – they would look at the total return of a portfolio and let investors draw down from that.

 

 

Just be aware...

We are not regulated to give personal financial advice - This isn’t full-fat regulated financial advice. Boring Money is a publisher and not regulated by the FCA. 

This means we can't help with specific personal circumstances or recommend specific investment products. It also basically means that if we say something daft, you have no recourse to come back and complain.

We’re only allowed to give you a steer or share an opinion or tell you the facts - That said, we promise that our answer to you is an independent unbiased perspective with no commercial gain to make. If you need regulated financial advice, you can find a good adviser via sites such as Unbiased & Vouchedfor.

Pensions

I had a small company pension and used a "pension specialist IFA" to transfer it to a private pension when I left the company. He failed to meet the company's timescales and so they only returned my contributions. We finally settled the matter by his making a payment to me but it was less than I would have received, as he said when I reinvested it the government would gross it up. Needless to say I don't want to put it into his recommended fund where he will receive a commission so I was going to start a Nutmeg pension. Nutmeg require a minimum investment of £5,000. As I have less than £5,000 per annum income I am a bit confused about how much I can put into a pension. I know the government will only gross up a maximum of £2,880 per year but can I put more than this in and forgo the gross up? Many thanks Barbara

Barbara, Hertfordshire

10 July 2018

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Richard Allum

You can pay up to the annual allowance of £40,000 onto a pension so there’s plenty of room there. You’re right that tax relief is restricted to the higher of £3,600 gross contribution (£2,800 net) and 100% of your relevant earnings. This is generally income from employment or self-employment but does not include pensions, investment income, interest and rent etc.

You can pay in more than £3,600 gross (or your earnings if more) but would not be entitled to tax relief on the excess.  Many pension providers won’t accept more than this as it’s a bit of a hassle for them!

You would be much better off paying in £3,600 gross (£2,880 net) now and then topping it up with the difference on 6 April 2019 when you’ll have a new allowance available. You could keep the excess in an ISA until then so it benefits from the same investment tax breaks.

Hope this helps!

 

Just be aware...

We are not regulated to give personal financial advice - This isn’t full-fat regulated financial advice. Boring Money is a publisher and not regulated by the FCA. 

This means we can't help with specific personal circumstances or recommend specific investment products. It also basically means that if we say something daft, you have no recourse to come back and complain.

We’re only allowed to give you a steer or share an opinion or tell you the facts - That said, we promise that our answer to you is an independent unbiased perspective with no commercial gain to make. If you need regulated financial advice, you can find a good adviser via sites such as Unbiased & Vouchedfor.

Pensions

I hope you can help. I recently consolidated two modest pensions into a SIPP in readiness to start UPFLS drawdown in May (2018). Whilst I was hoping for growth in my investments I wasn’t expecting it to rocket and now find I could well be looking at exceeding the lifetime allowance, possibly even before my first annual drawdown in May, and I’m unsure what, if anything, I should do. Unless you have another option it looks to me as if I have two alternatives : • Keep within the LTA, sell the shares and hold in cash when the SIPP reaches approx £930-950K (which could be imminent) – leaving a cushion of spare capacity for interest over the next 10/15 years. Are you allowed to hold your entire pension in cash and drawdown from it annually? • Let it grow unfettered, exceed the LTA and take the excess as a lump sum with 55% tax. Is this treated as a separate transaction and would I still be able to withdraw an annual payment from my LTA as a normal UPFLS, i.e. with 25% tax free and 75% at normal tax rates? In other words, can I view the excess as a ‘bonus’? As the excess lump sum withdrawal will slice the overall fund back to the lifetime limit and consequently any growth at all will automatically become excess, then presumably this situation will repeat for successive years. Is this permissible and advantageous or are there implications, tax or otherwise, that I’m missing. Or would your advice be to avoid exceeding the LTA as it’s more trouble than it’s worth? Having for once been fortunate enough to have bought into what appears to be stock with a solid future of growth (famous last words!) it would be criminal and heartbreaking if I have to sell them only to watch their steady rise. I would value your opinion, suggestions, advice and any correction of my understanding of the rules or flaws I've missed. Thanking you in advance for your time and consideration. Jt, London

John, London

03 July 2018

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Richard Allum

It’s understandable that you want to minimise the impact of tax on your pension fund but in this case I would argue that paying a lifetime allowance* tax is a good thing. It means you have more money in your pension fund than you planned. If you hold it all in cash and get no growth above £1 million that’s all you’ll have. If the fund keeps growing you’ll still get to keep at least 45% of the excess over the million. Would you rather have 100% of nothing over £1 million or 45% of anything over £1 million?

To answer your first question, yes, you can hold your entire fund in cash but I struggle to think why this would ever be a good idea. Based on current interest rates, your fund would struggle to keep pace with inflation and that’s without you drawing anything.

If you let it grow and it exceeds the lifetime allowance, you have the option to take part or all of the excess as a lump sum and this would be taxed at 55%, normally paid by the pension fund. You also have the option to draw the excess as an income with 25% deducted from the fund and you would then pay income tax. If you’re a higher rate taxpayer this would be at 40%. The combined tax on income would be 55%. It’s tax neutral whichever way you go.

You can use the UFPLS withdrawal method on any fund up to your remaining lifetime allowance if you’re under 75. If over 75, as long as you have some remaining lifetime allowance you can use UFPLS but the 25% tax free cash is limited to 25% of your remaining lifetime allowance.

There is a long list of events that trigger the lifetime allowance test. In your case the most relevant will be when you take benefits from your pension and again at 75. The calculation at 75 is based on the ‘growth’ in your drawdown fund since you started taking benefits. It’s quite complex and takes into account previous withdrawals and so there is scope to plan for it. I’d refer back to my previous comment; if you have a lifetime allowance tax charge in the future it’s because you have a bigger pension fund. Yes, you'll be giving the tax man a chunk but you’ll still have more.

In short, no-one would ask for the lifetime allowance charge if we didn’t already have it. Invest your pension fund based on what’s best for you in retirement. Embrace the lifetime allowance charge as it means you have more money than you thought you would.

Hope this helps!

 

* From April 5th 2020, the Lifetime Allowance rises marginally to £1,073,100.

 

 

Just be aware...

We are not regulated to give personal financial advice - This isn’t full-fat regulated financial advice. Boring Money is a publisher and not regulated by the FCA. 

This means we can't help with specific personal circumstances or recommend specific investment products. It also basically means that if we say something daft, you have no recourse to come back and complain.

We’re only allowed to give you a steer or share an opinion or tell you the facts - That said, we promise that our answer to you is an independent unbiased perspective with no commercial gain to make. If you need regulated financial advice, you can find a good adviser via sites such as Unbiased & Vouchedfor.

Pensions

Hello Are there any specific pensions you would recommend, with low charges, which I can set up for my 11 yr old son? I am already paying the maximum into a Junior ISA. Anita

Anita, West Sussex

18 June 2018

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Richard Allum

Investing money into a pension for a child has its pros and cons. There is tax relief to be had, the power of compounding over time is massive and it gives them a good financial foundation in the future. But, that future is likely to be at least 50 years away for your son. That may be a good thing but could he benefit from accessing that money earlier in life?

Putting that to one side, I’d suggest speaking with your Junior ISA provider as they may also have a pension option. This would allow you to keep things simple and there may be discounts available. Other than that, have a look at our Best Buys page and guide for our top picks.

Thanks,
Richard

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Just be aware...

We are not regulated to give personal financial advice - This isn’t full-fat regulated financial advice. Boring Money is a publisher and not regulated by the FCA. 

This means we can't help with specific personal circumstances or recommend specific investment products. It also basically means that if we say something daft, you have no recourse to come back and complain.

We’re only allowed to give you a steer or share an opinion or tell you the facts - That said, we promise that our answer to you is an independent unbiased perspective with no commercial gain to make. If you need regulated financial advice, you can find a good adviser via sites such as Unbiased & Vouchedfor.

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