Pension vs ISA? How To Save Money | How To Invest Money UK 

Much appreciated! :)

Hi CK ROY, much appreciated message 😊

Much appreciated, Ms Meow! 😀

You're most welcome 😊

You're most welcome 😀

👊🏾

Thank you, much appreciated 😀

Much appreciated 😊

Hi Edward, Thanks for that reminder about the tapering that happens above £150k. For those interested: For every £2 your adjusted income goes over £150,000, your annual allowance for that year reduces by £1. The minimum reduced annual allowance you can have is £10,000.

Thank you, Nadia 😀

Thanks!

Thank you 😊. Do share with others.

Thanks so much, man! 😀

Thanks a lot! Good move btw

Thank you, Tayo! 😀

😁💛

You're right, it's unnecessarily complicated and they usually aren't in a rush to give you back what you're owed. Millions of people are literally leaving money on the table unclaimed!

You only need to contact HMRC if your employer takes your pension gontribution after tax. If they takes the pension contributions before taking the tax also known as 'salary sacrifice' or 'at source' then you do not need to do anything. You already got the 40% added to your pension pot. If your employer takes pension contributions after taking tax then you can claim the additional 20% from HMRC and back date that for last 4 years.

Exactly! Everything gets taxed eventually. Even in death. However, whilst you're alive, you either use the money to support your lifestyle or carefully pass it onto your spouse or children tax free before death.

Gill, that's dope!! You're in an AMAZING place financially. It's always nice to hear from other mortgage free people. Where in the country do you live? Your pension strategy sounds pretty solid too.

Thanks Ken, we’re in Manchester, my next goal is to look at some more passive income options.

@@gillhoward7063 Ever considered something digital? Like blogging or making videos on RU-vid? I'll make a video about the latter later on. Here are some passive income ideas - thehumblepenny.com/passive-income-ideas-for-a-freedom-lifestyle

Thanks 😊

Hi Miss Diamond Thanks for subscribing. Our videos are already too detailed as they stand and some people (those that want entertainment and not education) even want them shorter 🤔. Point noted though.

Definitely don't make them shorter! I think you have struck a good balance.

Hi Sarah Great to hear from you! 😀. Thanks for binge watching 😉 On savings, personally, there are a few considerations. Broadly speaking, if you need access to your money, then an ISA. If longer term and with no need to access your money, then a pension. These are very broad assumptions though... your age and need for access to money will play an important role.

@@TheHumblePenny wow thanks so much for your reply!! I'm 33 years old, two children and hubby and a mortgage which we are going to be making overpayments on very soon! Thanks for your advice, yes I think an ISA would be best for now, do you always recommend a stocks and shares one above a cash ISA?

Hi Ken, sorry to bother you again. I was wondering about your opinion on LISAs as an option for me to save towards my pension pot? It is quite confusing having so many different options! Thanks.

No probs. I personally prefer a SIPP if the focus is specifically for a pension.

@@TheHumblePenny would you suggest this as a starting point though for a pension? As I am thinking of also opening an investment ISA but I am worried about having two riskier investment options...can you tell I am new to all of this?!🙈 Thanks so much for your reply

You'd need a decent real return. At least 5%. I'd probably aim for a SWR of less than 4% to be safe. Re Ratesetter, yes rates have fallen. Same as for others too. Anyone investing in any of these needs to do serious research and be comfortable with the risk. If in doubt, stick with what you fully understand.

You're most welcome, Bukola! 😀

Hey Jay! Thank you! You can have a SIPP parallel to your NHS pension. Is your NHS Pension a Defined Benefit rather than a Defined Contribution?

@@TheHumblePenny Thanks for the speedy response! I am on the new 2015 NHS Pension CARE scheme which is a Defined Benefit scheme. I am reluctant to use a SIPP because we are fortunate to be in a position where we can max our annual allowance based on Consultant wages. I like your ISA->Dealing account->NHS Pension approach! Respect from your Ghanaian bro!

@@TheHumblePenny Also forgot to mention that I can't access my NHS pension without a heavy penalty until state pension age which is 68 and over!

@@jkq2006 ete sen! 😉. Great to have you stop by, bro!

@@jkq2006 WHOA to the 68 access 😯😯😯!!!

There isn't necessarily a better one per se. With building your own portfolio, you have more flexibility to build what you want exactly and the opportunity to learn :)

@@TheHumblePenny Thank you so much Ken. Really appreciate your reply. I always amazed watching your videos and trust you a lot.

You're welcome. I don't think an ISA application checks your credit score because you're not asking for credit when you open an ISA. All you need is a National insurance number. As for moving your ISA money, it is easy. This is one of the most important benefits of using an ISA. The lifetime ISA is harder is you're using it for retirement.

To clarify, is your employer matching your contributions?

@@TheHumblePenny no they are contributing 15% and I am currently contributing 5% and I m looking to increase this to coincide with my pay rise.

I would.

You get a different personal allowance for income tax from the one that you get for Capital Gains Tax 😀

Dollar average so buy it every week so you get a range of prices.

Hi Sophie, is your income rising per annum? Are your SIPP contributions consistent?

@@TheHumblePenny Hi yes on both, though this financial year might be slightly less sipp

You get £12,300 Capital Gains Tax allowance in the current tax year. Provided you have not had any other capital gains in the year, you shouldn't pay tax from what i see. But that's without knowing your full financial position

@@TheHumblePenny thanks a lot

Do not drop out of an NHS pension! £200 month is peanuts compared to what it will be worth. If its a 95 scheme do not exchange it no matter what is offered! (if you joined well before 2012) you can leave at 60 +3 tilmes pension lump sum. If its 2015 keep it (you will leave after 65 years old maybe longer 68?) but the value is going to be worth it. If you leave early expect to loose 5%ish per year you leave early. How to Work your potential NHS pensions out: 95 scheme is 1/80 scheme *salary (last 3 years) * how many years = 0.0125 *£31000* Guessing 10 years in = £3875, 20 years in = £7759, 30 years in £11,625, 40 years in £15,000 2015 scheme is 1/54 * salary average band 6 to band 7 * how many years = 0.0185185185 * Guessing (£28,000 + 44503)/2 = £36,251 * 10 years = £6713, 20 year = 13,426, 30 years = £20,139, 40 years = £26852 NHS pension schemes are defined benefit schemes they are really good. You would be mad to drop out. Granted the 95 scheme looks less but you get a pension for your entire life which could mean you live over 100 so that 45 years + of pension + state!!!!. You may have both. depending on when you joined. What ever you are remember if you leave early and draw on your pension you will get penalties (actuarial reduction) for each year you leave early it roughly 5% per year. You may want to get a second pension later in life to top up any deduction once you paid off your mortgage, got rid of debt first. In the 95 scheme you get a lump sum 3 * your final pension as a golden handshake. Which you can make larger if you are willing to reduce your annuity payment. Remember to look into ERRBO for purchasing year to prevent penalties leaving before leaving at 67 (you can buy 3 years in the 2015 scheme to go early) and leave at 64 without penalties. If you get to a stage in life that allows you to get an investment ISA start paying in to it what ever you have left at the end of the month. Let compound interest in stocks and shares create you money each year. The more years you have to invest the greater the pot will become. Remember when you want to retire work on the this princible: 15 -8 - 4 rule: You need to idealy try and get a pension pot of 15 * your final salary (gross) to live comfortably in retirement You want to save every month 8-10% net of your salary for retirment no matter what (pension or ISA or both). When drawing down on your investments ISA only ever take 4% of your investment pot out each year of an investment ISA You need to work on the IDEA in retirement that you will want between 50% and 70% of your final salary as a pension +savings to live of each year. Remember to add state pension into your pension at 65-68 EG you have an investment isa worth 100,000 it makes betwen 3-8% normally each year. SO ONLY DRAW 4% !!! Let the rest reinvest without loss and make money. You should never loose money. When you have amazing years take profit and put into premium bonds! as a tax haven you can have £50k+ you get the chance to win 1million etc... every month. Get a 2nd pension if you need to top up Buy property get a 2nd income if you can afford to with inheritance Buy premium bonds Buy stocks and shares in an ISA Investment plan Get a cash ISA DO NOT TAKE A 25% LUMP SUM from your 2015 scheme and leave 5 years early AND GO MAD on the first day of retirement buying new cars and holidays etc... You will have reduced 50% of the yearly drawdown or annuity on your pension. YOU may not have this luxury but bare it in mind. Try not to drawdown on the 2015 pension until you really need to. Hope this helps? I'm not a pension advisor but spent time looking into my pension in the NHS. I have both 95 and 2015 scheme and have bought back years as i did not join straight away way back in 1998 (i can kick myself now) i have had to get a 2nd pension. ISA, Bonds, I have a 2nd home for rental. This is all possible if you start early. Government lost its case recently in court and now must allow Staff with 95 pension the right to claim 7 extra years in the 95 scheme (upto 2022) rather than the 2015/2008 scheme allowing staff like my self to leave at 60 as planned rather than have to wait till 68. BONUS!!! Hope this helped you :)

@@llamudos9809 thank you so so much! This has helped me greatly x

​@@CatrinWyn24 Glad to help! I would suggest getting on a pensions course within your Trust they offer them usually to staff. I did mine 10 years early to get an idea of what to expect. It was a wake up call to save for a rainy day!

@@llamudos9809 Crikey, excellent advice. If you get fed up working for the NHS you would be an ideal candidate as a financial advisor for the Public Sector. I spent 33 years in the Royal Air Force and now work for a Government Agency, if I continue to work beyond 63 then the three pensions that I will receive ie RAF, GOV and State would take me into the 40% tax bracket at 67, with all three Pensions also index linked, it’s a nice problem to have but a private drawdown pension would give me far more options (however I will not opt of these DB pensions due to the security that they provide).

@@chrisc486 TY for your comment. Glad it helped. If you have a RAF pension and 33 years in you are sorted. All the best and many thanks for your service. Look into a SIPP? If all yours pensions are DB its pointless but if any are DC you may want to transfer one into a SIPP you would then be able to draw down? You maybe able to protect upto 25% invested and simply draw down 25% Tax free from your pot without getting 40% tax? May want yo check it out. Have a look at Retiready by Aegon as starter.

Good!! Definitely max out your ISA! it's gold.

Your employer can't match your state pension contributions you pay for this through NI

Considered PensionBee? thehumblepenny.com/PensionBee They do all the work of merging your pensions for you. Plus their fee is about 0.5%

Great move by the way! And yes, the rebate if invested properly will go a long way towards mitigating the expected tax later on. Time horizon dependent ofcourse.

Is it true police pensions are brilliant? How much do they contribute?

David, great contribution. Thank you.

no it's not.. What is your source?

No,he means 57, he's talking about the Private Pension Age, not the State Pension age.

Hi Elle Thanks a lot! 😀 Yes, you should be claiming back tax rebates for any amounts taken from your salary and directly paid into your pension. This something the vast majority of higher rate tax payers do not do. Go back a few years and ask your employer for your yearly pension contributions. Then call HMRC. They will write you a fat cheque 😉

@@TheHumblePenny I'm going to look into this further at the end of the financial year because I only started paying into the pension in Aug 2019...thank you for the heads-up! I'm told the rules may be different for DB pensions compared to SIPPs or other work pensions ... Fingers crossed, who doesn't want more money?!

Yup! Definitely worth checking. I'm not 100% on DB.

@@TheHumblePenny if pension contributions are made pre tax (salary sacrifice) then there is no further rebate surely as you have already saved the tax

@@TheHumblePenny What? thanks KEN, I have changed employer how do i go about that ? should i just write HMRC, i need a FAT cheque for further investments...

Welldone! Use the General Investing Account.

No. Because your contributions into an ISA would have been from net income i.e. taxed already

The Humble Penny ah okay great! Thanks for replying!

I'll make this one :)

Thanks - will appreciate it

You should. Craig :)

Good if you specifically want to buy a home. Otherwise, for pension, I prefer a SIPP.

Hi Samantha There isn't a guaranteed return on investing with a stocks and shares ISA. But the way you invest your money could potentially lead you to generate a decent return above inflation. Do you currently have an emergency fund saved? This should take priority over any form of investing.

Get the match. Free money.

@@TheHumblePenny it means am going to forfeit 13.5% of my salary because of 1.5%

Interesting, Peter. Thanks for sharing. Do you think you get a better return by investing in property? If so, why?

@@TheHumblePenny Not sure this is the best way to save money, hence why I'm here, watching your video now :) But this is what makes more sense for me. I save money, for the moment, it the best saving option available(the ISA) then take the money out and invest them in property. It's not necessarily that property yields a significant profit through property rental, but that capital appreciation(property increasing in price) is the most attractive way to save your money: the capital value increases over years way more than the interest rate you get from a pension fund. Then, you can also extract equity from each property, every year, through remortgaging, if needed(for your own business or for buying new properties). But most people don't know or don't want to bother with dealing with property which can be like a part-time job in itself.

Ride that wave of contributions! 😉

@@TheHumblePenny Ride the tax boosts too!

Good ;)

Thank you for the suggestion. One for us to add to the list :)

@@TheHumblePenny Yes Please, could You make one for self-employed / ltd co directors ?

Cheers, Chris. Good points to raise. DB pensions are essentially extinct for people of my age :). Do you have a DB pension?

​@@TheHumblePenny Yes. I was lucky enough to have worked in organisations years ago that resulted in an index linked DB pension. Although pension wasn’t my main motivator years ago (it was the job that I was passionate about). Since then it has been DC pensions, but the last 8 years have been salary sacrifice DC pensions which benefits from not only income tax savings, but NI savings in addition to boost the pension pot further. That can mean 32% tax boost for lower rate tax payers and 42% tax boost for higher rate tax payers on top of anything put in by the employer.

The employer also benefits from a NI reduction if they operate a salary sacrifice pension scheme as all pension deductions are taken out before any taxes are calculated, so it's win/win for employers and employees. In my humble opinion (although I'm no expert), if an employer offers a salary sacrifice DC pension scheme, it is the next best thing to a DB pension and is worth a significant amount of extra money on salary if pension was ignored. I believe that it's worth considering when choosing an employer offering a salary sacrifice scheme or job if you are lucky enough to be able to choose or change jobs as it makes a big difference when it comes to retirement, early retirement or semi-retirement.

@@outdoorsman1140 You make an important point. Thank you

Agreed. My employer offers a salary sacrifice scheme. Luckily they match up to 11% which I do, to make a total of 22%. Not only do I save on tax but NI too.

Thanks!

Also... ISAs - limit is 20k p.a. total per person, but there are caveats. The first is this is a subscription, not a current account. If you pay 10k in and then withdraw 5k in the same tax year, you can only put another 10k in. The second is some of the ISAs have a lower limit (e.g. lifetime ISAs). Pension - limit is 40k for most people. However... if you have less than 3.6k p.a. salary, you can still pay up to that number into a pension and the government will top it up as if it were a tax rebate on basic rate 20%. Also... if you are fortunate to earn over 200k p.a., then the amount you can pay into the pension starts to taper off based on overall compensation. Lastly, the pension limit also includes any employer contributions.

Yes.

Autocorrect so Making a lot more than the 25% exit

Thank you, James :) How much at the most can you put into the LISA?

@@TheHumblePenny 4k per year, with a government top up of 25% giving you a 5k per year. then used very much like an ISA (cash or stocks and shares). so for a basic rate tax payer who does not have a employer Contributing to a pension this is equal to putting into a pension fund. with the added benefit of tax free withdrawals t retirement

Not an overkill ;)

@@TheHumblePenny I have contemplated putting in 25% for a few months. But I think this will be silly, as it's unknown how the gov in the future may change the rules.

Property remains a good investment if done well

Hi Amy I mentioned it twice I believe but very briefly. I could have spent much more time on it and will probably do so on another video. Do you have any specific questions regarding the LISA?

I think the LISA would only be beneficial for a first time house buyer. If it's for retirement purposes SIPP seems to be more beneficial.

Yes, SIPP offers a lot more scope and possibility.

Yes. So long as you do it before 5th April.