Listener Questions, Episode 21

This week, we're covering redundancy sacrifice into a pension, cash ISA allowance reductions, evening up finances between spouses and much more - it's another MM Q&A!

Shownotes: https://meaningfulmoney.tv/QA21 

 

00:55  Question 1

Dear Pete & Roger,

My question regards Redundancy Sacrifice into a personal pension (SIPP).

In tax year 2024/25, I had "relevant UK earnings" of £44,000.

I contributed the full amount (inclusive of tax relief) to my SIPP; as a Personal Contribution this used up 100% of my Annual Allowance.

In addition, I received a £20,000 tax-free lump sum Redundancy Payment.

Because it was below £30,000, it did not constitute "relevant UK earnings", as such, I requested it be paid directly into my SIPP via "Redundancy Sacrifice".

(My understanding is that it would be treated as an Employer Contribution, not benefit from tax relief and, therefore, not limited by my Annual Allowance - please correct me if wrong).

However, due to an administrative error, it was paid to me.

Subsequently, I transferred it to my pension provider, together with the necessary paperwork (completed Employer Contribution form and Settlement Agreement detailing the source of funds).

My pension provider has rejected the transfer designating it as a Personal Contribution because it was made from my personal bank account.

Q. Does HMRC require Redundancy Payments be paid from business bank accounts? My understanding is that the rules are different from normal Salary / Bonus Sacrifice.

(Disclaimer: I understand that in answering my question you are not providing financial advice).

Kind regards,

Ross

07:00  Question 2

Hi,

There's increasing headlines that Rachel Reeves might be planning reforms to reduce cash ISA allowances from 20k to 4k.

My understanding is that this will only affect new ISA's so for me and my wife we can continue to invest 20k per year maximum.

Is this assumption correct?

My main question though is planning for my kids.

If they don't yet have any ISA open - what is the best way to start them off to hold onto the 20k annual allowance for potentially accessing cash <5 yrs away i.e. for a car etc (so not S&S ISA)?

They both have money put away for when they're 18 but our plan was to encourage them use some of this for a LISA then put some away in the best cash ISA available for short term requirements.

Eldest son will be 18 in 1year whilst youngest is 18 in just over 3yrs.

Thanks for considering my question.

Stuart

11:43  Question 3

Hi Pete,

I found you from the podcast you did with Damien on Making Money. I really enjoyed listing to your view on money.

My question is: I'm a stay at home Mum (age 42) to my children (12 & 14). I have 20 years NI contributions but have no plans to restart work. I aim to pay volunteer contributions to help build up to a full state pension. I do not have any pension myself.

My husband is a 40% tax payer and has been paying into his pension for the past 20 years. We want to start saving extra to either have my own pension pot (perhaps save in a S&S isa for the next 20-25yrs) or would we be better off putting more money into my husbands pension? We're happy to share the pot as it were. Or is there another option I haven't thought about?

Many thanks,

Louise

15:13  Question 4

Hi both,

Loving the podcast, only recently came across it but have been an avid watcher of Pete's YouTube videos for years now.

I am 33 and a higher rate tax payer. I have spent the last 3 years getting my house in order with my finances and wanted to get your thoughts on what else you think I could be doing to maximise my tax efficient savings. I contribute £1600 to my stocks and shares ISA each month, which I have fortunately been able to max out for the past two years (currently valued at £47k). I have £40k tied up in premium bonds, this is mainly to avoid going over my PSA allowance and also where I am keeping money for a house deposit that I am planning to use in the next 2/3 years.

I have combined my workplace pensions and contribute 5% through salary sacrifice, with my employer paying in 7%. The pot currently sits at £31k (roughly adding £750 per month), but I feel I could be adding to this more aggressively whilst I don't have commitments of a mortgage or children. Also if I wanted to consider retiring at 55, realistically how much more do you think I will have to contribute to my pension each month?

Cheers

Ryan

19:10  Question 5

Hi Pete & Roger,

Firstly, thank you for all of your fantastic work over the years.  It has completely transformed my financial life.

I've been investigating trusts and have discovered what a wonderful mind-boggling world they are.  I have a number of questions in relation to discretionary trusts and hope that this doesn't cause other listeners to glaze over.

Question 1: let's assume you make an initial transfer into a trust, for say £325k.  If you then survive 7 years, is the full nil-rate band available to your beneficiaries on death (assuming no other PETs during that time)?

Question 2: If the trust receives dividends from investments (for example from a Vanguard accumulation fund) and these dividends are reinvested, are the dividends taxed at the appropriate rate, or do they dodge the tax bullet as they are reinvested?

Question 3: Is it sensible to carry out tax harvesting every year to take advantage of the CGT tax exempt amount (even if it is only currently £1,500)?

I have noted that I should obtain advice if I am to go down the trust road, I just wanted to clarify my understanding first as they seem wonderfully tax-inefficient, despite being peddled on many websites as a fantastic way to avoid IHT. Having done my research, they seem to be a tool of last resort for IHT purposes unless you have a specific reason to use them.

Thanks, James.

23:43  Question 6

Dear Pete and Roger,

I have listened to the podcast for many years and have recommended it to many over the years. I remember working in general practice over 5 years ago and singing its praises to numerous patients who felt stuck financially. Thank you.

My question is more of a request/suggestion for a whole episode, sorry!

I moved from being a GP to working in Occupational Health and now I joint own a small OH company based in Plymouth. In the South West we have a lot of manufacturing and this is the core of our client base. This means I am often based in factories seeing people who are on minimum wage and working nights or antisocial hours. Many have very poor education and minimum in way of social support. Although I think your podcast is outstanding, I do suspect its uptake is mainly the motivated middle, even if that isn't the aim. I think there is real need for an episode aimed at motivating, informing and encouraging the people who are truly living pay check to pay check and who may feel there is no escape.

Many of the workers I see smoke and go home every day and have 3-4 "tins" to unwind after work. Often on their breaks they reach for a can of "Monster" and a chocolate bar or bag of crisps. Despite, in my opinion, wasting money on energy drinks they often tell me they can't afford prescriptions or have to work every hour of over time available in order to buy children Christmas gifts.

It really upsets me how low socioeconomic status has such an impact on so many negative health markers. The National Institute for Health and Care Research found that people living in the most deprived areas may acquire multiple health conditions 10-15years earlier than those in the most affluent. The ONS states that men living in most deprived areas only have 52 years of "generally good health", vs 70 yrs of "generally good health" for those in the least deprived areas. This impacts children too, with "The Week" recently sharing a stat that in the most deprived areas 30% of children leaving primary school are obese vs <10% in the least deprived areas.

Many I try to give advice to don't see the point in putting a few quid into a savings account because they can't see the light at the end of the tunnel. They just see working long hours until they get to 67, by which point they accept their health will probably be poor. Lots seem to think its normal by retirement age to just want to sit on the sofa and watch grandkids play football because they are too short of breath to play with them. I want them to be playing football with the grandkids/great grandkids in their 60s and 70s. I want them to realise that saving £2 a day by not buying the energy drink or more by stopping the cigarettes or booze, will add up, compound and could mean they have a deposit for their own flat in 10 years or enough to allow them choices over hours worked in their 60s.

With such good access to a large group of people who are living at the lower end of the deprivation scale I feel that I have a responsibility to try and sow the seeds of change, for those who want it. I am therefore putting together some simple free educational resources to share with these employees, via their employers on healthy choices, simple lifestyle measures etc.

Financial stability, health and wellbeing are closely interlinked. I am not qualified to give financial guidance and feel my approach of telling everyone to stop wasting money on expensive drinks, cigarettes and booze and instead to invest that money in a globally diversified, passive tracker is condescending, preachy and misses the mark. A doctor telling someone on the breadline that by saving £10 a week, compounding over a 50-year career they could end up with £300,000 giving them huge life options, doesn't cut the mustard. The message needs to be delivered by someone with financial acumen and a way with words……

Do you think at some point in the future you could put your thoughts to how people could use simple techniques to break out of the cycle of living pay check to pay check? I would love to be able to share an episode targeted at this population either by directing people to the podcast or by convincing employers to play it to employees at lunch breaks.

Putting together one 20minute informative, evidence-based session takes me about 5-10 hours. So, I am in awe of the huge amount of time and personal sacrifice you must put into the podcast. I don't know how you have managed it for so long, but I am sure it has positively impacted many people's lives.

Thanks again.

Jonny