The Lemon Fool

Kantwebefriends wrote:OP, does your employer offer Salary Sacrifice? If so that's quite an advantage for a pension contribution at work.

If you are under 40 consider a LISA too.

My employer will not make any additional contribution if I were to increase my pension contribution.

Therefore, to avoid the 1.8% and 0.3% charges from NEST, I think a good option is to set-up a SIPP with Vanguard.

TDM

saving 1.8% and 0.3% charges
doesn't not beat tax relief of 20% (by a mile)

pje16 wrote:saving 1.8% and 0.3% charges
doesn't not beat tax relief of 20% (by a mile)

I haven't researched NEST to any significant extent, and so ponder whether the investor has any choice of funds that his or her contributions are directed into within the NEST, and can he/she switch between funds etc?

NEST is very popular, since the time when every employee was forced to have a pension
I use it for 3 employees it is very good form that side of the fence, and those charges are not high by any means

pje16 wrote:saving 1.8% and 0.3% charges
doesn't not beat tax relief of 20% (by a mile)

Isn't that same tax relief applied to the SIPP contributions?

TDM

richfool wrote:

pje16 wrote:saving 1.8% and 0.3% charges
doesn't not beat tax relief of 20% (by a mile)

I haven't researched NEST to any significant extent, and so ponder whether the investor has any choice of funds that his or her contributions are directed into within the NEST, and can he/she switch between funds etc?

Yes, I believe the investor can change the fund the contributions are made into to.
I have chosen to accept the default one.

TDM

In general, as in the majority of cases, post-retirement income will be taxed at the same or lower tax rate as during the working life then the pension will win out even if you don´t receive an employer´s contribution due to the 25% cash tax-free and IHT benefits (but who knows whether these benefits will exist in 10-20 years time). Of course, the ISA does offer greater flexibility which could be important for house purchase, school fees, divorce, etc.

In the rare situation of being in a higher tax bracket post-retirement then the ISA may be financially better depending on the difference between the average contribution tax rate and the withdrawal tax rate.

Personally, I would maximize the pension contribution I could make with employer contribution/salary sacrifice and put as much as possible into ISAs to give financial flexibility and to protect against disadvantageous pension and tax changes.

If you think you may end up living abroad the situation becomes far more complex as under most overseas tax regimes you would lose the tax-free status of the ISA and often pensions are more leniently taxed.

AshleyW wrote:In general, as in the majority of cases, post-retirement income will be taxed at the same or lower tax rate as during the working life then the pension will win out even if you don´t receive an employer´s contribution due to the 25% cash tax-free and IHT benefits (but who knows whether these benefits will exist in 10-20 years time). Of course, the ISA does offer greater flexibility which could be important for house purchase, school fees, divorce, etc.

What concerns me is the inflexibility of NEST and Government schemes, as compared to using an ISA., and the potential for the Government to interfere or move the goal posts along the way (e.g. to postpone/change the earliest retirement date).

I like that the ISA can be accessed at any time, for either capital or income, whereas NEST cannot be touched until the retirement date is reached. Also, as already mentioned, whilst accepted one receives tax relief on the way into a NEST pension, the pension income is taxable when taken (subject to one's tax allowances and tax rates); whereas income (or capital) taken from the ISA is not subject to tax,(though accepted contributions are paid from taxed income and no tax relief is available on those).

I've been doing some research of the NEST pension scheme, so thought I would post these links for anyone interested:

https://www.nestpensions.org.uk/schemew ... -fund.html

https://inews.co.uk/inews-lifestyle/mon ... ade-904091

https://www.pensionsage.com/pa/Nest-rep ... eturns.php

https://www.ipe.com/how-we-run-our-mone ... 53.article

https://realassets.ipe.com/news/nest-hi ... 38.article

And an older one:

https://www.thisismoney.co.uk/money/pen ... ategy.html

I can't help thinking with the prospect of future governments interfering with pensions, tax rates and bands and NI, that investing via an ISA would be simpler and far more flexible than investing through a pension scheme like NEST. With an ISA, one can take the capital and income as and when one wants, tax free and with no government interference. Just make sure you pay enough in, so that you don't need to work into retirement where you will again be subject to tax, and now also NI.

The main disadvantage I see, with the ISA route, besides the fact there is no tax relief on the contributions going in, is that one would not receive any (pension) contributions from the employer, which could be worth 5% or even more.

I think tinkering with ISAs us far more likely then adjusting pensions (well at least basic tax relief anyway)
after all EVERY worker has to pay into their pension (once over the threshold) and not every one , by a long way has an ISA
so they would pi**ing of less people
The effect of tax relief on pension contributions is underestimated by many

pje16 wrote:I think tinkering with ISAs us far more likely then adjusting pensions (well at least basic tax relief anyway)
after all EVERY worker has to pay into their pension (once over the threshold) and not every one , by a long way has an ISA
so they would pi**ing of less people
The effect of tax relief on pension contributions is underestimated by many

Point taken, though whilst they could tinker with limits or possibly even taxation, I can't see they (the Gov) could stop people (or would go as far as stopping people) from accessing those funds whenever they wanted, which is a major limitation with pensions.

People can opt out of NEST (a second pension).