From Drawdown to ISA

In message , Andy Pandy writes

Merely a statement of fact.

So many people either dont know this or conveniently forget it when selling a pension.

In message , Andy Pandy writes

No. there would be no need for a 25% tax free sum in an ISA regime. It is all a 100% tax free lump sum. But that is irrelevant. There is no need for a lump sum to invest, or be subject to the costs of re-investment, because it is already invested in that tax free environment (other than the loss of the tax credit to which the pension fund is also subject)

I was not envisaging an index linked annuity in any of this.

Overall extra cost? including wealth preservation? I dont think so.

I feel a lot safer knowing that I only have to wait for a 3 day bank transfer (I could even pay for a quicker CHAPS transfer, if I was that desperate) from my ISA than wait until I'm 50 before I can get my hands on any of it!

True, but on nominal terms leaving inflation aside - my point was that on the face of it, most pension funds could go up or down, whereas cash ISAs for example will only go up, provided you are not spending any of the capital.

Fair enough, but that's not going to be most people. I'm not a 40% tax payer and I'm not 50 or over either.

As you said elsewhere, it all depends on your circumstances: we are not all equal.

People want to know both how much they pay and how much they will get. In many cases the amount paid has had to increase dramatically, while the amount received is not exactly guaranteed and looks less secure.

So it seems that actuaries did not do the sums properly. What the industry fails to understand is that it is easy NOT to make a false promise.

An irrelavant and misleading fact.

They don't need to know it. It adds no value when making the decision as to how to invest, in fact just the opposite.

No, it's a 100% *taxed* lump sum. The tax has already been paid.

For a HRT payer the TFLS will be worth 41.7% of the total ISA fund assuming equal investment returns etc.

I was highlighting ways you can increase early years returns with pensions.

Yes. How would the ISA strategy preserve wealth until death?

So can creditors. And the DWP can point to it if you try to claim means tested benefits. They can't with a pension.

So will cash pensions.

In message , Andy Pandy writes

Its not irrelevant because it makes clear that Pensions are not as 'tax free' as many people make out. It is certainly not misleading because it is perfectly factual and it quantifies something that many people, like you, just gloss over.

I'm speechless at the stupidity of that statement. The value it adds is that it draws investors attention to the true, taxable, outcome. I usually go further than that when talking to people about pensions. I also point out that income from an annuity can also risk the reduction or loss their age allowance, thereby increasing the effective tax rate of the supposedly 'tax free' savings plan. But I suppose you would think that was misleading and irrelevant too.

In message , Andy Pandy writes

I havent checked your figures but your point is correct. But the ISA still has 58.3% available for instant tax free use. The pension has 75% available for taxable use, in effect this is equivalent to only 45% for a Higher Rate payer. No doubt you will call this misleading and irrelevant but I think flexibility has a value.

By leaving the capital fully available for any use the owner may desire.

In message , Andy Pandy writes

Please excuse my butting into this part of the thread but I think I should say that my ISA strategy would not be appropriate for people in that situation and I would suggest a formal Pension Plan is the better route.

And not only the owner. Let's not forget that cash (or even shares) stashed in an ISA can be willed to one's heirs. Pension funds can't.

Because they used to work before:-

1. Employers took payment holidays during periods of stock market gains rather than building up reserves.
2. Mutual financial institutions, which invested for the benefit of the customer, were floated on the stock exchange and began ripping-off the customer to pay shareholders.
3. Young city-slickers were employed to take risks with our money to earn several million in annual bonuses for themselves.
4. The Chancellor, whilst exhorting us to work longer and save more, rewarded our efforts by taxing pension funds to the tune of £5billion p.a.

Toom

I don't just "gloss over" it. The tax treatment is important and I have corrected people who imply pensions are tax free, or even that you get tax relief on ensions - other than 25% of it, you get tax deferment.

But to use that fact that you end up paying more pounds in tax via a pension, caused purely by pre-tax income growing rather than post-tax income growing, as an issue in deciding investment strategy, is blatenly misleading.

You don't seem lost for words......

No it doesn't. Extra tax paid purely because the deferred tax has grown in value is of no relevance in deciding investment strategy.

Considering that I have highlighted that same point in this very thread, what do you think?

Only if they are a HRT payer in retirement. Generally I wouldn't recommend investing enough in a pension to be a HRT payer in retirement.

No, it's not irrelavent. It's the obvious main advantage of going the ISA route.

How would you ensure it lasted until death?

So be sure to polish your crystal ball....

In message , Andy Pandy writes

I didnt say that. I said you pay more tax on the way out than you saved on the way in. Not quite the same thing.

What I said isnt misleading, what you think I said could be.

Im not saying anything abut 'extra' tax.

I think you have misunderstood me.

In message , Andy Pandy writes

By switching to Gilts and not touching it.

In message , Andy Pandy writes

Quite ! :-)

Good question. I think it started as a perk then became an expected part of employment.

Daytona