QA63 - Listener Questions, Episode 63

In this Meaningful Money Q&A, Pete Matthew and Roger Weeks answer six listener questions about UK investing, pensions and retirement planning. They explore investment fund risk ratings, funding the years before the State Pension, balancing pension saving with spending and family gifts, and how salary sacrifice, relevant UK earnings and pension carry forward work. The episode also examines how Armed Forces Early Departure Payments relate to the tax-free pension cash allowance, plus whether a £2,880 SIPP contribution could benefit a non-taxpayer approaching retirement. A practical UK personal finance podcast for anyone seeking clearer answers on investment risk, pension tax relief and making retirement income last.

Shownotes: https://meaningfulmoney.tv/QA63

01:45  Question 1

Dear Roger, Pete and Producer Kate,

Thanks  for all the work you do in producing a great podcast. In a world where financial literacy is often kept behind a paywall, the clarity and confidence your show provides is more than just 'good content'; it's a public service that is genuinely levelling the playing field for all of us.

I wondered if you could impart some of your wisdom from advising clients over the years. At my workplace I'm that guy who tries to encourage the rest of the workforce to engage with their finances. I mainly do this through an internal discussion forum, getting some external speakers in once in a while and me generally trying to signpost good information for people to go and educate themselves. Rest assured the Meaningful Money podcast is top of the bookmarks list, closely followed by Bank of Dad for younger team mates.

I've hit a situation a few times now that I feel you must have seen on countless occasions in your careers and it is to do with risk ratings for investment funds.

The situation typically plays out like this. After being convinced that they should engage with their pension, and that the default fund may not be right for them, they go and prepare to move into a 100% equity global tracker and duly read the factsheet. And then they stop. They look at the section normally entitled something like "risk rating". Using the Vanguard platform as an example (but I think most are similar) a 100% equity fund is nearly always 6 out of 7 or 7 out of 7 on the risk scale.

To the newly self-aware but nervous investor they recoil in horror. The old objections start to flood in like:
"But I'm not a gambler"
"Does high risk mean I could lose it all?"
"If a well diversified portfolio everyone says I should get is 6 or 7 what the heck is Bitcoin, day trading and all the other things I'm told to stay away from? Is this as bad as them?"

To me it seems there's a big problem with the way these ratings are presented. To my eye it would appear anything "low risk" is cash or cash like, anything in the middle is incredibly bond heavy and anything with a chance of beating inflation over a long time period is presented as very risky. It strikes me it should be reframed as maybe a "long term reward rating" or  a "volatility index" because 'risk' has such an ingrained negative connotation.

I was wondering if you have any background into why these scales are presented in such an off putting manner and if you have any great ways of handling objections at the last minute based on your experience?

Thanks,
Tom

12:45  Question 2

Hello Pete and Roger,

Love the show and the invaluable insights you provide on a weekly basis, keep up the good work!

I am 55 & my wife is 54 both hoping to retire when I turn 60.  No children, so no big inheritance concerns.

I am in the LGPS Scotland pension scheme and projections at 60 suggest I will receive roughly £19k pa + a tax-free lump sum of around £50k.

My wife is in the NHS Scotland pension scheme and her projections suggest an annual pension of circa £9k with a tax-free lump sum of £15k.

I have been paying the maximum amount under salary sacrifice to the LGPS AVC scheme since we became mortgage free so there should be a minimum of £90k in that pot which I intend to take as a tax-free lump sum.

We are hoping to downsize from our current house once we finish working into something smaller & more retirement friendly and believe this will realise equity of around £100k.

We think we can live well off circa £40k pa, but are unsure of the most efficient way to invest the lump sums, equity and AVC pots to provide the required income top up each year until we reach state pension age without overly diminishing the capital.

We want to use residual funds to allow us to over-winter in sunnier climes every year whilst our health allows. We imagine this will be our biggest spend in retirement outside of the draw down to achieve the £40k pa living allowance.

Hoping to create a buffer cash fund of circa £40k, possibly sitting in premium bonds, whilst investing the rest of the capital in GI accounts and topping up ISAs every year to the £20k threshold, to use these to withdraw tax-free funds every year thereafter.

Or is there another more efficient way to take the desired draw down every year to keep our tax bill as low as possible?

Many thanks & best wishes, Scott

16:36 Question 3

Hi Roger and Pete, and production crew - fantastic content and discussions, thank you.

I am approaching my half century milestone. I am in the fortunate position of having approx £815k in my DC pension (which I can access at 55 - protected pension age) and also a sizable stock portfolio (not in an ISA).  I've noticed that annual gains in my pension now significantly outweigh my contributions - I think this might be unintentional coast fire.  I have wondered what is the point of continuing high percentage salary sacrifice contributions, 30% of base pay (employee+employer) given the pension fund compounding is at least triple what I contribute.  I am also in the unfortunate position of sitting in the middle of the 60% tax trap, but my pension contributions still don't bring me below £100k because quarterly stock awards (taxable event) and bonus continue to push me into the 60% tax trap again.  Dividend payments from stock are approx. £5000 per year which I currently reinvest.  I also have a Cash ISA and a Stocks and Share ISA.

I have two young children (early secondary school age), and I contribute monthly amounts to their Junior SIPP and Junior Stocks and Shares ISA.  My wife has a DB public sector pension, having worked in education for 30+ years - she is the same age as myself.

First question - I'll likely need to speak to an IFA but would also appreciate your thoughts on stopping or reducing pension contributions and maybe redirecting it for other purposes (life experiences, increasing children's JISA / JSIPP, giving to charity etc).  The tax benefit of contributing to my pension is very attractive but what is the point of saving more when I likely won't need it...  I am also wondering about spending money on life experiences now rather than waiting until I decide to draw on my pension.  I suppose only I can answer this question but is there something I am missing?

Second question on my mind - what is the definition of "surplus income" when it comes to gifting (which I have started to think about a lot for IHT purposes)?  I would like to regularly gift to my children.  As a hypothetical scenario - can I just give them £500 each a month from my pension if I don't need it / it is surplus to my living needs?  E.g. £4000 pm income, £3000 pm living costs, £1000 pm leftover - if I eat beans on toast I could give them a lot more.  Does the same apply to stocks or dividends, can I gift them regularly and achieve the same tax benefits?

Thanks
Ben

23:07 Question 4

Hi Pete and Roger,

First of all, love the podcast and a big thank you for all the work you guys do.

My question centres around salary sacrifice and unused pension allowance.

I recently turned 55. Having been employed in the same profession for well over 30 years and reached a fairly senior position, I'm feeling burnt out, and feel I need a change of pace for the remaining years of work (either by taking a step back from my current role or a complete change in direction). Fortunately we are in a position where I can afford to take a significant reduction in salary, work for several more years whilst the pension pots continue to grow before we reach the point where we can both retire.

I currently have a salary of circa £75k and car allowance of £6k, and receive a discretionary annual bonus of circa £2k; so, a total income of around £83k. I also receive private medical insurance, which has a taxable benefit value of around £2k. In order to try and remain a basic rate taxpayer, since paying the mortgage off, I have been contributing circa 47% of my salary into my work pension via salary sacrifice. My company also contributes 6.5%.

However, whilst I would like to change direction as soon as possible, if I continue in my current role for the remainder of the current financial year, I am due to receive a significant additional bonus, which could amount to circa £50k (which likely won't be paid until the 2027/28 tax year). I therefore intend to stay and secure this bonus, putting as much of it as possible into my pension to minimise tax.

I'm aware I could potentially tap into previous years' unused allowance. However, given the pension is a salary sacrifice scheme, is this unused allowance the difference between my total taxable income (£48,250) and my total pension contribution during the year (£38,625) or the difference between the £60,000 maximum annual allowance and the total pension contributions? Clearly, over three years, this could make a substantial difference (£28,875 compared with £64,125).

Even if it is the latter, if I retain the same rate of salary sacrifice out of my (basic) salary, and my total taxable income in 2027/28 remains at, say, £48,250, then would I also be limited to this as a maximum I could contribute, this being 100% of my income (which may also have a bearing on when I choose to change role). Or would the bonus simply be classed as additional income, which would then allow me to take advantage of the unused allowance (whichever figure that may be)?

As you can probably tell, I'm a bit confused. I don't want to fall foul of the rules, so your thoughts would be most welcome!

Tim

28:27 Question 5

Hi Nick, Rog, Pete,

I'll keep this question as brief as I can.

I am currently serving in the armed forces. Once my service concludes, as part of the AFPS 15 I will be given either a tax free lump sum or an early departure payment depending on when I leave and my service length.

My question is this. Will this payment count towards my lifetime pension tax free cash withdrawal figure? Essentially, will my tax free limit from my SIPP in the future be decreased by the value of this EDP/ lump sum?

The payment nor the armed forces pension doesn't come from any pension "pot", so I am unsure of whether the payment would count as tax free cash as it would if I were withdrawing from my SIPP.

Thanks gents!

Nick

31:04  Question 6

Hi both

I'm looking to retire in the next 2 years aged 60 and for the first 15 years or so (hopefully) pay zero tax by living off my personal allowance drawn from my pension, some tax free cash also taken from my pension and topped up with  money held in my ISA's.

My question is………

As a non-tax payer and not earning any taxable income could I put £2880 into a SIPP each year from money held in an ISA which would then receive a £720 top up from the government which I could then withdraw as part of my tax free allowance getting the £720 for free each year? (£1440 for myself and my partner)

I understand I could only do this until age 75 but seems easy money if it's possible?

The idea came to me when I recently set up a SIPP for my son who is going to university this year so isn't a tax payer either (obviously he won't be able to draw down on the SIPP for 40 years but I can't see a reason this wouldn't work for me) Is this workable?

Thanks so much for looking at the question and hope to see it answered on a future podcast episode

Steve