QA47 - Listener Questions, Episode 47

Time for another Q&A episode where Roger & Pete answer questions on retirement planning, passing assets to children. SIPP vs ISA and much more!

Shownotes: https://meaningfulmoney.tv/QA47 

01:42  Question 1

Hi Pete, Roger, and Nick,

Thank you for the podcast - I've been listening for a while but fell behind and just binged about 15 Q&A episodes over the last fortnight! There's nothing like listening to the podcast to get me fired up about my finances!

I have a question about the upcoming change to minimum retirement age, and a question about how to use my SIPP versus S&S ISA post-55/57.

I was born in February 1972 and so by my reckoning should be ok to access my SIPP at 55. However, I heard somewhere that access could be removed at the date the law changes, because I wouldn't be 57 by that date.

Can you shed any light please? It doesn't make sense to me to grant access then take it away.

The reason I'm asking is because I'm thinking that in the next year I should favour putting money into my SIPP for the tax relief instead of into my S&S ISA, since I can access it within a short time anyway if I really needed to.

Once I'm 55, does it still make sense to put money in the ISA at all, given the SIPP will continue to have tax relief so long as I'm working?

All the best and looking forward to the videos coming out!
Chris

07:04  Question 2

Hi Pete & Rodger,

My wife & I are both aged 55 & I plan to retire aged 60 possibly a little earlier my wife isn't sure exactly when she will stop at the moment.

I currently have a work place Scottish Widows default pension lifestyle turned off £225,000 I pay in 31%, company pays in 4%, salary sacrifice I then occasionally move funds to my 100% equities SIPP low cost global index fund £442000.

My wife has a small DB pension and 45,000 in a SIPP again all in equities. My plan is to retire at 60ish on the SW pension to bridge the gap to state pension age 67. Leaving the SIPPS invested in equities both in low cost global index funds. Possibly adding some bonds a few years out from state pension age. Currently 20k emergency fund cash isa and my liquid assets whisky collection.

Do you feel I could improve my plan or is it reasonably sound?
Kind regards, Lee.

 

12:48  Question 3

Hi Pete & Roger,

I have a deferred DB pension which in 2018 (when it closed) I was told my annual pension at age 62 would be £18270.
The pension is capped at CPI or 2.5% annually, whichever is lower. As such it is getting deflated by high inflation. As of today it's £21840. (With CPI it would be £23830 or even £26050 with RPI). I have a decent DC scheme to top it up but what can I do mitigate this decline with transfer out values currently quite low?

Thanks for your advice.
Richard

 

18:08 Question 4

Hello Pete and Roger,

Firstly, thank you for your brilliant podcast - it really is absolutely fantastic. Since discovering it early in 2024, I've listened to almost every show! I love the way you both make complicated concepts easy to understand and often have me chuckling along at the same time!

I have a question to you both about inheritance tax and a potential way to reduce, or even eliminate, its effects. I don't believe you have covered this particular strategy, so I'm very interested to hear your thoughts. Here's what I am thinking.

My wife and I are both 43 and have two lovely children aged 7 and 9. We both work full-time in well-paid jobs and save a good amount into our pensions and ISAs, whilst also ensuring we 'live for today' by going on regular holidays and spending as much time as possible with the children (whilst they still like spending time with us!). Our rough combined financial position is as follows:

- £1m in company DC pensions, contributing at a rate of about £85k gross per year
- £350k in stocks & shares ISAs, contributing at a rate of £40k per year
- For each child – £40k in Junior SIPP contributing at a rate of £3600 gross per year, and £10k in Junior ISA with no significant annual contributions
- A house that is worth about £700k with £400k still to pay on the mortgage (remaining term 15 years)

I am aware that it's very early to think about inheritance tax, and I know that rules in the future will very likely change. However, it's very conceivable to me that our children will incur a very significant IHT bill when we both shuffle off (to use Pete's phrase!). My "solution" to this is as follows. When our children reach the age of 18, rather than paying £40k per year in our ISAs, we will pay it directly into their ISAs. We will fund this either through earnings (I still love my job and envisage working well into my 60s), and/or from one or both of our pensions. When we are retired, we plan to take regular payments from our pensions up to point where we would start paying higher rate tax; this will hopefully allow us to live comfortably whilst also contributing to our children's ISAs. Any shortfall will be covered by our own ISAs.

We will give this money to our children on the basis that it is still our money if we ever need it (e.g., care homes, massive holiday, Lamborghinis, etc). In other words, we will tell them that we will continue paying them £20k a year each provided that they do not touch it and have it available for us if we ever need it. With a bit of luck, we will never need it, and both our children will ultimately receive a substantial sum of 'inheritance' without paying any IHT.

I appreciate there are some risks associated with this strategy. The two that I can think of are as follows. Firstly, there's a risk that we fall out with our children and lose control of the money. Secondly, if one our children marries, then divorces, then half of the money we've given them may disappear to someone else. This is definitely a concern. However, provided we are both comfortable with these risks, do you think this is a sensible method of transferring wealth to our children, and can you think of anything other considerations we need to think about? I'm probably missing something really important so it'd be great to hear your thoughts!

Thanks again for your amazing podcast – I really do love tuning in every week!
Thanks, Martin

28:19 Question 5

Hello gents,

My question is this : if someone is looking to retire pre-state pension, and bridging that gap, what are the primary options available? 
I've been looking at for example - fixed term annuity if rates are good; bond ladder (feel a bit overwhelmed on this); money market fund; bung it in a cash savings account.

I'm assuming I want minimum volatility - is that the right approach to take?
Richard.

32:18  Question 6

Hi Pete, Roger and Nick

I have become an avid listener in the last three months, having just taken Voluntary Redundancy at age 63. I have benefitted hugely from your expertise and listenable style. Many thanks.

I'm imagining that if you include this question in your podcast you might mention a tax tail wagging the dog. However, I don't want my dog to miss out on performing tax tricks.

My question concerns whether I can take taxable income from my SIPP whilst leaving my tax-free lump sum untouched. I would then like to take the tax free lump sum at a future date to fund a home relocation. Is this possible? 
The background is as follows:

My DB (£40k) pension will kick-in at 65 (18 months to go) when I will also take a lump sum which I will place into my and my wife's ISAs. I have to do this at 65 due to scheme rules. So in the meantime we're living on my £100k redundancy pay which is sizeable enough to also fill our ISA allowances for 25/26 financial year. I will avoid higher rate income tax on this VR payment via a SIPP contribution. This means that our current and future 2 financial years ISA contributions will be full and I will also have a SIPP bumped up to £250k. However, it will also mean most of my VR pay will then be in SIPP and ISAs leaving us short on spendable income next year!

But next financial year, being un-salaried, I will have the opportunity to take £50270 from my SIPP whilst limiting my income tax to 20%. This will then fill next years income gap. (Once I start receiving my DB pension I will find it harder to get the remaining SIPP funds out without paying 40% income tax as the state pension plus DB will then take me over £50270). I don't want the tax-free lump sum next year as I don't have a need for it until age 65 when we plan to relocate and I can't put it in ISAs because I've already filled them.

So can I start taking taxable income but leave the tax-free lump sum in the SIPP where it currently performs the function of an ISA (ie tax-free growth).

Alternatively, am I just being a bit silly and making life overly complicated? Your wise observations will be eagerly received.

I have done my own cash-flow modelling in detail and this is just a simplified summary of the main facts. Once I am in the new routine post-65 then it'll become a lot easier, but these few steps in the dance over the next couple of years require a great deal of thought.

Kind regards, Tom