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Answers to YOUR Questions

See what's bugging others. 

And what our experts say.

Pensions | Workplace Pensions | Private Pensions

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

Diane, West Yorkshire

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

 

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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.

Private Pensions | Pensions

I am a 59 yr old retired lady with no income but I have reasonable equity..is it worth starting a pension or is it too late?

LL, Norfolk

06 February 2018

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Cherry Reynard

It's certainly not too late to start and a pension might be the right option. Anyone can take out a pension plan as long as they are below age 75. However, if you have no income, the maximum you can pay is £2,880 per year. They government will add another £720, giving you a total contribution of £3,600 per year. If you invest £300 a month for 10 years which returns say 5% (this isn’t guaranteed so it’s for illustration only), you’ll get a pot of £46,584.68 – that will give you an income of a little over £3,000 per year at age 70. Not to be sniffed at. We have some personal pension options here - https://www.boringmoney.co.uk/best-buys/personal-pensions/

There are also certain inheritance tax advantages. The unused pot of money can usually be passed onto children and grandchildren free from inheritance tax if that is a consideration for you. This - http://www.hl.co.uk/news/investment-times/2014/12/passing-pension-wealth-on-within-the-family - useful guide from Hargreaves Lansdown shows how it works.


Isas might give a little more flexibility and you can invest up to £20,000 per year whatever your income. Any income received is tax-free, but this is unlikely to be a consideration for you because your income will be below the personal allowance limit anyway (£11,500 for 17/18 tax year).

You will also need to decide how to invest the money within a Sipp or Isa. In this you should consider both how much risk you want to take, and the charges associated with the product. Most investment platforms have tools to help you. Groups such as Hargreaves Lansdown and Charles Stanley have suggested lists of investments or Nutmeg do all the heavy-lifting and decision-making for you. Aviva is a more household brand which offers easy DIY pensions – if big brand matters to you this is worth a look.

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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.

Pensions | Investments | Private Pensions

Please help me. Choosing a pension from Aviva. It asks if I want growth or income? Which one do I choose ? I'm 46 .

Ria, Greater London

11 September 2017

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Holly Mackay

We obviously invest to make money. And hope for better returns than cash. The money we make can either be paid out to us as income or represent itself as growth.

Here’s a basic analogy. Imagine your pension is like a bag of Minstrels. Every year you get given an extra Minstrel. You can choose whether to eat it there and then or whether to pop it back into the bag and stockpile more Minstrels.

It’s the same with your investments. When companies you invest in make a profit, they can either re-invest that cash in making themselves bigger and better, they can stockpile it in the bank or they can give a bit back to their shareholders. Any cash they pay out to shareholders is called a dividend. This is like some income for you. You can either choose to take that cash when it’s offered, or re-invest it and buy more shares with it. Foregoing the cash today for a bigger pile of shares. And that’s the difference between investment for income and investing for growth.

As an example, £1,000  in the UK stockmarket might pay you an income of about £20-£30 a year. Growth investors will choose to ‘re-invest’ this and increase the number of shares held. Which they hope will go up in value too.

If you could use some income to boost a salary or a pension, for example, you will probably want the income option. If you’re saving for something like pension which is at least a decade away, it probably makes sense to grow your stash and consider any ‘growth’ option to boost your savings.

 

 

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 | Private Pensions

Which is better - property or pension?

Paul, Greater London

07 September 2017

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Holly Mackay

This is a very common question and the answer could run for pages and pages, but I will try and stick to the main points.

I am assuming you mean a rental / investment property rather than somewhere for you to live and so a good starting place is to look at the relative benefits and risks of each.

Let’s start by looking at residential property. Perhaps the most obvious advantage is that you can actually see and touch a property. This can be reassuring to some as it makes your investment tangible.

With a tenant in place the property should provide you with a steady stream of income. To a certain extent you can vary this by adjusting the amount of rent that you charge. This income can be used to cover any borrowing you may have taken out to buy the property and also supplement your other income.

If house prices grow, you may be able to sell in the future and benefit from this increase in value.

Now onto the disadvantages. By sinking all of your money into a property you are potentially concentrating your financial future on a single asset. The housing market has good times and bad times and if you need to sell during a bad time it can take a long time to get your hands on the money.

 

There is actually some work involved in owning a rental property. You may end up getting calls at 3am telling you the boiler has broken down for example, you can employ an agency to take care of things like dealing with tenant queries but this increases your costs and so the amount of income you get will be reduced.

If the boiler does break you will need to cover the cost of the new one.

The rental income is not guaranteed; you may have periods of time when the property is empty and so any mortgage payments will still need to be made. Your income is therefore restricted to whatever the market will pay. You can’t take out part of the value if you need a lump sum and you can’t take a few bricks down to Tesco to pay for your weekly shopping!

The income you receive is likely to be subject to tax, although you can offset some of your costs against this. If you are fortunate enough to sell at a profit you may also pay tax on that profit. The property will form part of your estate for inheritance tax purposes so there may be more for the tax man there as well!

If you are looking to take out a mortgage it is worth considering, not just if you can afford the payments now, but if there were to be an increase in the mortgage rate that you are still able to meet this obligation.

When buying a rental property ensure that you are aware of the additional costs that come along such as legal costs, mortgage arrangement fees, stamp duty and factor that into your equations.

This is extremely rare but there is also a risk that the tenants decide to just stop paying the rent, trash the house and refuse to move out. You then have the emotional and financial pain of going through the courts to get them evicted.

Now onto the advantages pensions and despite what you may read in the press, there are some.

When you make a payment into a pension you receive tax relief on that payment, this is effectively the government giving you some money. If it is a pension that your employer pays into as well, the actual amount going into your pension is far higher than the cost to you.

Once it is in the pension you can spread your investment over a wide range of different ‘asset classes’ i.e. stocks and shares, Government and Corporate bonds etc. This means you are able to spread your risk.

If the funds grows, it does so tax free and under current legislation at the point you access what is called your ‘pension commencement lump sum’ (often referred to as your tax free cash) 25% of your accumulated fund can be taken by you free of tax.

You then have complete flexibility over how and when you take your income. You can buy an annuity (a secure income for the rest of your life) if you want security of income, although annuity rates can often be seen as poor value because people are living longer.

If you die before you reach age 75, the pension fund can be passed on to whoever you want (assuming you’ve filled out the form) free of any tax. If you die after your 75th birthday you can still pass your pension on, but any income taken will be taxed like employment income.

There are also some disadvantages to pensions and the main one is that you are not able to access your money until you reach age 55. Due to the tax advantages outlined above you are also restricted on the amount you can pay into a pension each year. This is linked to your earnings but is still very generous at £40,000 per annum.

In addition, you are restricted on the amount you can build up in pensions without suffering a tax charge. This is known as the lifetime allowance and is unlikely to affect the vast majority of us as it is set at £1m!

We mentioned above that you are able to spread your risk but any investment involves the risk that you won’t get back as much as you put in. Some investments carry very high levels of risk and can involve a roller coaster like experience with values going up and down.

You can reduce risk by spreading your investment around, but it is important to understand these risks and feel comfortable with them before investing.

Overall there are advantages and disadvantages to both and my only advice (with a small ‘a’!) would be to make sure you fully understand the risks associated with each option and that you have considered the overall purpose of what you are trying to achieve before making a decision.

Read more

 

 

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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