Stuck with SJP and my pension! Please help!
19 July 2021
Question by Graham
Hi I am 62 yrs old and looking to retire in 2 yrs I currently have my Pension with St James Place over the last 6 yrs of which it has risen from £212k to £284k,which I don’t think is very good. I also have an additional £50k with Zurich. We have recently sold the family home and after HMRC taxes and already have used my ISA allowance for 2021-2022 find I have £90,000doing nothing. I also expect to have saved an additional £50k until I retire as we have no outstanding borrowings. I do not trust it with SJP, but have a small work pension of 5% with Scot Widows. I am wondering A/ whether to invest it with them, but would then pay tax on it, when I retire. B/Use it as ISA allowance in future years, which is non-taxable. C/ Use it as income when I retire ,then I don’t pay tax ,until such time as its gone and a can begin Drawdown of my SJP Pension. I am really stuck with SJP and their high charges, but think I’m now exempt from their Exit Fees because now over 6 yrs since transferring to them. What would you suggest? I’m really about ‘biting the bullet’ with SJP so much controversy, so many Fund Changes, and most worryingly so many Fund Manager changes...... Regards
Thanks for your question. SJP - the company that all IFAs love to hate! You won't get any argument from me against moving away from them. Their charges are very high, fund performance is 'mixed' at best and very limited in choice compared to the thousands of funds at an IFAs finger tips, but they do have such lovely embossed headed paper...
Can I ask about your Zurich pension? If it's an old Allied Dunbar policy then that too will have high charges and might be worth moving away - but beware of 'safeguarded benefits' like guaranteed annuity rates.
I would definitely advise that you do something with your £90,000 instead of leaving it to lose its real value in cash. I can't advise you exactly what to do without having a lot more information, but my comments on your options are as follows:
A) I am a great advocate of pensions. Yes, you might pay tax on it when you retire, but you also get tax relief up front, so if you're a higher rate taxpayer, you could convert your £90,000 into £112,500 and get £22,500 refund from the tax man (being able to pay that much into a pension depends on your earned income and any unused allowances - so my point is just theoretical right now without knowing your full details). Carefully timed drawdown of your pension income and using your Pension Commencement Lump Sum (PCLS) as part of your 'income' through phased drawdown means that you might pay less tax than you think during retirement. Are you married, and if so do you view your finances jointly? If the answer is yes then depending on your spouse's position, it may be beneficial to pay into their pension rather than yours, especially if they are likely to have less income than the £12,500 personal allowance during retirement. In terms of whether you should pay into the Scottish Widows workplace pension or set up a new one (that you've transferred the SJP pension into) it would depend on the charges/ fund choices/ fund performance of the pension. Whilst workplace pensions are great for your minimum contribution - if you pay, your employer pays - but sometimes aren't the best place for any additional contributions. In addition, I'm not sure of your Inheritance Tax (IHT) position but it's worth noting that anything inside your pension is outside your estate for IHT purposes.
B) This is also a good option but I would invest the money now into a General Investment Account (GIA) and then use the 'Bed & ISA' facility every April to move money from the GIA to the ISA each year. You will wrap it all up into ISAs in the next five years, and unless you're really lucky with investment returns, you won't have any Capital Gains Tax (CGT) to pay as they will always be within your £12,300 CGT allowance.
C) This is my least favourite option! Once you retire, unless you have other defined benefit pensions starting in 2 years, you will have no income until your state pension commences and therefore an opportunity to take £12,500 pa tax free each year from your pension on top of your PCLS. If you set aside the £90,000 to provide you with income in these first few years, then you are loosing that opportunity to use your personal allowance.
I think you would really benefit from sitting down with me (or another IFA) in order to have a good look at your whole financial position to expand on the points I've made above and then move on to Cashflow Planning to work out your best route now and in two years when you retire and beyond. Please do click on the contact button next to my name on the Find an Adviser section if you would like to arrange to meet.