How to FIRE in the UK?

[Investicles]

So I find myself knowing all about backdoor Roths and Roth conversion ladders. All of which is precisely useless because I am English and I live in the UK.

Has anyone (presumably from the UK) given any thought as to how best to structure savings if you're seeking to retire early in the UK?

There are a number of factors in the UK that make retirement saving 'interesting':
1. you cannot get any pension savings out of your pension fund* until age 57;
2. there is a lifetime cap on how large your pension fund grows to before it is subject to an additional tax - for me, given my age, this is £1m (assuming the rules are not changed again);
3. there is no easy way to extract pre-tax savings before retirement age (which i think the Roth conversion ladder thingummy might be getting at).

* I have a 'Defined Contribution' pension fund (i.e. I contribute in, along with my employer, and I get to decide how it is invested - from a limited number of options).

#2 above is a weird one - from a tax perspective, we are penalised from saving hard and investing well. It makes sense to have a limit on inputs, but outputs....?! This just results in people like me trying to work out when to stop saving into my retirement savings, which surely cannot be the objective.

My work pension scheme, plus a self-invested pension, is at a size now where, if I continue to contribute for more than a 3-4 years, I'm likely to breach my lifetime cap. (I'm 38)

"Wait!", shout the Mustachians, "57 is not early retirement."

Correct, so I need to juggle pension savings and post-tax savings, in order to give me the best chance of retiring (well) before 57.

We do have a pretty sweet tax wrapper in the UK called an ISA, where we can invest £20k of post-tax income each year. Any capital gains or income from investments within this wrapper are tax free. You can take the money out at any time (is this the equivalent of a Roth IRA?).

But the post-tax bit is a challenge. At my income level, the vagaries of the UK tax system mean that my marginal tax rate is 60%. That's right 'Muricans. We might as well be in Schweden.

If I decide to switch off pension contributions (pre-tax - hugely efficient for me right now), my additional income plus my employer contribution and my employer match (which can be taken as income thanks to quite a nice employer pension scheme) will be taxed at a very high rate.

This acts as a huge drag. The difference between the pre-tax pounds that could go into my pension fund, versus the post-tax pounds that could go into my ISA is huge (though I haven't done the mathS).

For completeness, pension withdrawals in the UK (post-57) are hugely tax efficient. 25% is tax free straight off the bat. Then you have a tax free allowance of ~£11k. If you're drawing £40k p.a. off a £1m fund (4%, SWR fans!), then you end up paying not very much tax at all.

So, are there any UK residents out there that have a plan to save for FIRE, where they've thought about the balance between pre-tax and post-tax savings, and when to switch from one to the other?

Thanking you please in advance. Sorry, etc. Is that a queue? Lovely.

[Kwill]

So I find myself knowing all about backdoor Roths and Roth conversion ladders. All of which is precisely useless because I am English and I live in the UK.

Has anyone (presumably from the UK) given any thought as to how best to structure savings if you're seeking to retire early in the UK?

...

I hear you. I am American, and I started reading MMM and then teaching myself about US investments, etc. Then I found a permanent job in the UK -- low paid but otherwise my dream job. It's just me, so assuming I stay until a typical retirement age, I don't know if I'll want to retire in the States if at that point all my friends, my church, and my community are here. With the immigration laws in flux, I can't count on staying until then, so it seems worth thinking about savings even if retiring early isn't a major goal at the moment. Meanwhile I get to worry about taxes in both countries, which means I'm not sure I'm eligible to save using an ISA, for example.

All of this to say, I don't have the answer, but I'm interested to hear others' answers.

I tried to look for finance-related books at the local public library here in the UK, but there were only a few out-of-date ones. Have you read any books about UK savings and investments that you recommend?

[dreams_and_discoveries]

Yes, like everything it is a very delicate balancing act, keeping enough in taxable / ISA accounts to bridge you until you can access your pension(s).

My solutions was to model it in Excel, and work out how much money I need in each pot, and find a balance that works. If you run out of funds that are accessible, but have a large pension, there will be ways around this but they are pricey, or you may be happy to pick up work etc. Conversely, if you have lots of accessible funds, you can start feeding it into a pension if you haven't hit the lifetime limit.

Unless the markets do amazing for the next 20 years, I don't think I'll breach the lifetime allowance, unless they drop it right down again.

[cerat0n1a]

I suspect very few people on here need to worry about breaching the lifetime allowance. At the current £40k per year maximum contribution, it takes quite a long time to do that with a DC pension. I thought the plan was for that cap to be indexed with inflation over the years although they don't seem to have actually done that yet. It's a factor in a lot of GP's going part-time/retiring early though - not a very well thought through piece of legislation at all.

This piece http://the7circles.uk/savings-rate-four-pot-solution/ summarises the problem nicely, although I suspect you know this already. You need to achieve a balance between the pot of money that will support you post-57 (pension) and the one that will support you before then (ISAs and unsheltered investments.)

If your marginal rate is 60% (62% really if you include national insurance), you presumably are not at the point where your allowed pension contributions start to reduce down from £40k too - a small blessing.

[cerat0n1a]

A quick check suggests that the lifetime allowance will be indexed with CPI from 6 April 2018.

[AnswerIs42]

If your marginal rate is 60% (due to annual allowance reduction, right?), then it probably makes sense to continue contributions even if you are risking breaking the lifetime allowance. It's not the end of the world if you overshoot a bit.

So, every £1 in your pension costs you £0.40. You don't get 25% tax free cash above the LTA, and you have to pay an extra 25% tax on drawdown - but if you're still in the 20% band in retirement that makes a total of 45% tax*, so you'll end up with £0.55 back - you're still better off for investing in the pension.

* (not sure if they add the percentages like this, or take 25% off then only take income tax off what's left, but this is the worse case)

[TartanTallulah]

So I find myself knowing all about backdoor Roths and Roth conversion ladders. All of which is precisely useless because I am English and I live in the UK.

Has anyone (presumably from the UK) given any thought as to how best to structure savings if you're seeking to retire early in the UK?

There are a number of factors in the UK that make retirement saving 'interesting':
1. you cannot get any pension savings out of your pension fund* until age 57;
2. there is a lifetime cap on how large your pension fund grows to before it is subject to an additional tax - for me, given my age, this is £1m (assuming the rules are not changed again);
3. there is no easy way to extract pre-tax savings before retirement age (which i think the Roth conversion ladder thingummy might be getting at).

* I have a 'Defined Contribution' pension fund (i.e. I contribute in, along with my employer, and I get to decide how it is invested - from a limited number of options).

#2 above is a weird one - from a tax perspective, we are penalised from saving hard and investing well. It makes sense to have a limit on inputs, but outputs....?! This just results in people like me trying to work out when to stop saving into my retirement savings, which surely cannot be the objective.

My work pension scheme, plus a self-invested pension, is at a size now where, if I continue to contribute for more than a 3-4 years, I'm likely to breach my lifetime cap. (I'm 38)

"Wait!", shout the Mustachians, "57 is not early retirement."

Correct, so I need to juggle pension savings and post-tax savings, in order to give me the best chance of retiring (well) before 57.

We do have a pretty sweet tax wrapper in the UK called an ISA, where we can invest £20k of post-tax income each year. Any capital gains or income from investments within this wrapper are tax free. You can take the money out at any time (is this the equivalent of a Roth IRA?).

But the post-tax bit is a challenge. At my income level, the vagaries of the UK tax system mean that my marginal tax rate is 60%. That's right 'Muricans. We might as well be in Schweden.

If I decide to switch off pension contributions (pre-tax - hugely efficient for me right now), my additional income plus my employer contribution and my employer match (which can be taken as income thanks to quite a nice employer pension scheme) will be taxed at a very high rate.

This acts as a huge drag. The difference between the pre-tax pounds that could go into my pension fund, versus the post-tax pounds that could go into my ISA is huge (though I haven't done the mathS).

For completeness, pension withdrawals in the UK (post-57) are hugely tax efficient. 25% is tax free straight off the bat. Then you have a tax free allowance of ~£11k. If you're drawing £40k p.a. off a £1m fund (4%, SWR fans!), then you end up paying not very much tax at all.

So, are there any UK residents out there that have a plan to save for FIRE, where they've thought about the balance between pre-tax and post-tax savings, and when to switch from one to the other?

Thanking you please in advance. Sorry, etc. Is that a queue? Lovely.

Here you are, have a nice cup of tea and a home made petticoat tail :-)

I'm not quite in the same position as you - I'm 15 years older - but have faced similar dilemmas. I'm fortunate in that I have a DB pension which I could have taken at 50, but intend to leave till I'm 60 to avoid being hit by financial penalties for early access, and my situation is that at 60 I'll be able to live comfortably (not affluently) on the income from that pension, when I'm 62 we'll be able to add a small amount from my spouse's DB pension from the years he worked in the NHS long ago, and from 67, assuming there are no further changes to the state retirement pension, we'll be relatively well off. So I'm sorted from 60, but I want the option of retiring sooner - aiming for 55. Which isn't exactly early, but I've had lots of expensive First World children and a failed marriage and a few unwise spending decisions over the years so I think I'm very privileged to be able to contemplate retirement at all.

My plan is this:
1. I have a SIPP which I can access without penalty at 55 but can't touch beforehand. I plan to take the TFLS and hold it in cash, draw down the capital at a rate that keeps me below the income tax threshold (and will be well above 4% - more like 12% - but that pot doesn't have to last forever, only till I'm 60), and supplement this with the TFLS and other after-tax savings.

2. With this in mind, I'm actively building up a cash pot now, taking advantage of the first £500 of interest on cash held outside an ISA being tax-free. (My marginal rate is 40%, plus NI.) I'm unlikely to trouble the upper end of this limit. I'd contribute more to the SIPP instead if I could because of the tax advantages, but for anomalous income-related reasons I'm likely to be flirting with the annual allowance through my occupational pension alone this year.

3. My spouse has only recently returned to the workplace after being a SAHP. He doesn't earn quite enough to pay tax or be enrolled in an occupational pension scheme, but we're taking advantage of the rule that lets him get tax relief within a SIPP up to the total amount that he earns. He's a little younger than me and we'll be able to start drawing on that pot when I'm 57. Again, the capital doesn't have to last forever. (He may also continue to do a little work after I retire, but I'd like him to have the option of choosing not to.)

At 38, you're in a different situation in that, unless you plan to retire at 39 or have known health and lifestyle issues that could throw a spanner in the works, you can afford to take bigger investment risks than I can, and it's worth maximising your contributions to a stocks and shares ISA using a low-cost fund and a broad-based tracker as the mainstay of your investment.

I can't think of a way round the issue of having to decide between staying in your employer's pension scheme, breaching the lifetime limit, and paying a swingeing tax rate or pulling out of your employer's pension scheme and paying a swingeing tax rate on the money you're not contributing, beyond, "Nice problem to have." Hopefully someone who knows stuff about money will be able to help you with actual numbers.

More tea? Custard cream?

[SpreadsheetMan]

This is useful re. the lifetime limit:
https://www.dfmadvice.co.uk/lta-lifetime-allowance-myths/

[theadvicist]

My plan is this (all figures 2015 levels):

Need £20k a year living expenses as a couple (house will be paid off).

With both our state pensions from 68 being c. £15600* we will need £4000 a year as income or an annuity. I can purchase an annuity paying that for c. £100k. So from 68 to death, we need £100k in a SIPP.

Once the SIPP has that £100k in it, I start working backwards, filling in £20k a year, back to age 57 (which is when we can start accessing it). So we need a further £220k in the SIPP.

So my SIPP target is £320k. At present, we put ANYTHING either of us earn that will be at 40% tax in the SIPP. So we have never actually paid 40% tax in our lives (or we've paid it through PAYE, then had 20% put in the SIPP automatically, then 20% refunded by cheque). I cannot complain about UK tax rates!

Starting this year we will also each put £4000 in a Lifetime ISA (do you know about these? You don't mention them) which the government will top up to £5000. If we leave the money in until we're 60 we can withdraw without penalty. Before then, you lose the top-up and earnings on it, but we're mustachians, we won't need to dip into it! That amount will become part of the £320k target.

Then I work back from age 57. All this money needs to go in ISAs. We use Stocks and Shares ISAs at the moment for maximum growth. I will likely balance with cash ISAs as we approach FIRE.

Now it's just a simple case of following the plan. Once we get the LISAs and SIPP fully funded, we'll start on the ISAs. And then we just see where on the spreadsheet savings we have is enough for the age we are.

So when we're 57 we ned £20k and we are FIRE. When we are 56 we need £40k and we are FIRE. And so on. I have a spreadsheet that shows the value we need at each year of life, and when we get there we are done.

I don't really understand your issue? Why do you think we are penalised for saving well? I think we are handsomely rewarded. Is it the £1m cap? Because that really shouldn't present a challenge to a mustachian, particularly when you take into account 1) you won't need to pay for healthcare in retirement 2) the State Pension and 3) you have a private pension as well?

Maybe I'm missing something but you sound kind of complainypants, but haven't explained what the actual issue is. I think we are well set up here to retire early, especially given the NHS.



*Yes this could change. But all we can do is make the best decisions we can with the best information that is available to us at the present time.

[Playing with Fire UK]

The Finance Zombie has a good article on this (called something like building a bridge to early retirement).

I model my different pots in Excel and try to use that to figure out whether more should be going into the pension or not. At the moment it isn't, because I'm focusing on building up ready-cash in the S&S ISA in case I give into the urge to quit work without a fully funded stache.

You can use a mortgage to help bridge the gap. It is easier to do this if you never fully pay off your mortgage and get the final cash out in the last couple of years at work as you still show an income. [I'm trying to do a cash out mortgage on a property I own outright and it is more difficult than I expected.] Basically you take as big a mortgage as you can as late as you can, and any payments after your pension access age can be made with pension income. An interest-only mortgage makes this even more tasty, as you effectively buy your house with take-advantaged money.

Once you hit the magic pension access age, you can crystallise smaller chunks of your pension and get ready to crystallise the rest when the markets are down. Your £1m allowance will then go a bit further. I'd continue to contribute to the pension, but haven't researched it in detail as I'm not troubling the additional tax band.

OP, do you have a partner who earns less and/or has a smaller pension? There might be some efficiencies there.

[cerat0n1a]

I don't really understand your issue? Why do you think we are penalised for saving well? I think we are handsomely rewarded. Is it the £1m cap? Because that really shouldn't present a challenge to a mustachian, particularly when you take into account 1) you won't need to pay for healthcare in retirement 2) the State Pension and 3) you have a private pension as well?

Maybe I'm missing something but you sound kind of complainypants, but haven't explained what the actual issue is.

I think the actual issue is that if you earn between £100k and £122k, you pay 62p out of every extra £1 to the government. You can try to mitigate that by putting money into a pension, but you're limited to £40k a year (less than that if you earn over £150k). Furthermore, if you get to a few hundred thousand in your pension and you're reasonably young, you have a very real prospect of going over the lifetime allowance value and having the extra 25% tax on money coming out of the pension. Obviously, this is a nice problem to have, but still, it is a bit frustrating that we have this oddly regressive tax system. Between £125k and £150k, you go back to a marginal rate of 40%, above that, you pay 45%. It makes no sense for there to be an effective 60% marginal rate at lower incomes.

It's the same problem at £50k, if you have children for whom you get child benefit, you could end up with a very high marginal tax rate (over 60%) between £50k and £60k as you lose the child benefit. A dual income family where both earned £49k each would get child benefit, but a single earner on £60k would lose the benefit completely. It pays to learn how income tax, NI, benefit & pension system works is the key message.

[TakeStock]

Will track this thread with interest, we will come back to the UK at some point in next 5 years so this is very relevant.

Perhaps an opening for a British Mustachian to set up a FIRE UK specific blog...

[SpreadsheetMan]

Will track this thread with interest, we will come back to the UK at some point in next 5 years so this is very relevant.

Perhaps an opening for a British Mustachian to set up a FIRE UK specific blog...

There are several - see here for some links: http://thefirestarter.co.uk/

[TakeStock]

Will track this thread with interest, we will come back to the UK at some point in next 5 years so this is very relevant.

Perhaps an opening for a British Mustachian to set up a FIRE UK specific blog...

There are several - see here for some links: http://thefirestarter.co.uk/

Thanks

[theadvicist]

I don't really understand your issue? Why do you think we are penalised for saving well? I think we are handsomely rewarded. Is it the £1m cap? Because that really shouldn't present a challenge to a mustachian, particularly when you take into account 1) you won't need to pay for healthcare in retirement 2) the State Pension and 3) you have a private pension as well?

Maybe I'm missing something but you sound kind of complainypants, but haven't explained what the actual issue is.

I think the actual issue is that if you earn between £100k and £122k, you pay 62p out of every extra £1 to the government. You can try to mitigate that by putting money into a pension, but you're limited to £40k a year (less than that if you earn over £150k). Furthermore, if you get to a few hundred thousand in your pension and you're reasonably young, you have a very real prospect of going over the lifetime allowance value and having the extra 25% tax on money coming out of the pension. Obviously, this is a nice problem to have, but still, it is a bit frustrating that we have this oddly regressive tax system. Between £125k and £150k, you go back to a marginal rate of 40%, above that, you pay 45%. It makes no sense for there to be an effective 60% marginal rate at lower incomes.

It's the same problem at £50k, if you have children for whom you get child benefit, you could end up with a very high marginal tax rate (over 60%) between £50k and £60k as you lose the child benefit. A dual income family where both earned £49k each would get child benefit, but a single earner on £60k would lose the benefit completely. It pays to learn how income tax, NI, benefit & pension system works is the key message.

Thanks cerat0n1a, that was a great explanation!

I guess I've never earned so much as to be worried about the tax rate over £122k, and yet I still plan to retire early, even by UK standards where early retirement is common.

I agree it's odd that there are some earnings rate where you can pay more tax than those earning more than you, I hope they are working to close those.

I still think a £1m cap (above which you pay tax, it's not like they just take the money off you) should not be an issue to a mustachian. And I don't think I even have an issue with it in principle, TBH. Roads, schools, hospitals, I'm glad they're there and I'm happy to contribute, and if I'm fortunate enough* that my shoulders are the broadest, I'm happy to take a bigger burden.

*because really, very few of us accumulate wealth by hard work alone. I know I have had doors opened to me simply by virtue of being a nice middle-class white woman with a good accent. I did nothing to earn any of those things.

[cerat0n1a]

I still think a £1m cap (above which you pay tax, it's not like they just take the money off you) should not be an issue to a mustachian. And I don't think I even have an issue with it in principle,

It's done in such an odd way though. The limit is on how much money you take out, not how much you put in, which means you have to try and predict future returns. (Although, as spreadsheet man's excellent link points out, it's less of an issue than people think.) The amount you are allowed to contribute tapers with pay, which means that you need to know how much you are going to earn in a year in order to know how much you can contribute. Many high paid jobs have an element of bonuses or share awards which mean you can't predict what your annual earnings will be ahead of time, so it makes pensions very difficult to handle.

What is particularly iniquitous about this is that it creates this imbalance between the pension options available in the private sector, even for very well paid people, versus the public sector, where senior civil servants, MPs, NHS consultants/GPs etc. have pensions which are pretty much out of reach to anybody in the private sector.

It also creates this crazy situation where people like doctors have a strong incentive to go part-time or retire early - and so large numbers of them do.

It seems to me that it would have been fairer (and collected more money in revenue) to have simply said that tax relief on pension contributions was limited to basic rate (20%).

[Rightflyer]

Having recently relocated to the UK, I'm in the midst of sorting out our retirement plan.

I have used a similar methodology to TartanT and theadvicist with a small twist.

I use a "burndown" calculation that includes the current income (dividends/interest etc) in the planned withdrawals from our investments.
I have assumed that the underlying assets will appreciate in line with inflation and that the dividend increases will also keep place with inflation. (This will not be a straight line obviously but over the 35-40 years we will need the money it is a fair bet.)

So now I can plug in a desired yearly income and it tells me when that particular investment pot will be depleted.

Interesting side note: The withdrawal rates are amazingly consistent starting at 7.7% now, 7.3% @ 60 y.o. (when the first state pension kicks in), 6.6% @ 65. It finally drops to 2.6% @ 67 y.o. when all of our state pensions are being collected. As this WR is below the income of the remaining portfolio we should die with a little money left over as a buffer.

Will follow this thread to be educated appropriately.




 

[UKstache]

Great discussion, I'm also trying to find a balance of SIPP v ISA etc. Unfortunately I'm too poor to worry about the million pound limit too much!

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[theadvicist]

cerat0n1a yes I agree it's crazy that it's based on the value of the pot at the end, not on contributions. That's not really something anyone can predict!

[cerat0n1a]

I like your approach, theadvicist, it's quite conservative (if you had £320k in a SIPP today, one might expect it to grow at a rate faster than inflation over the long term and produce more than the inflation adjusted future equivalent of £20k when you actually retire.) The state pension makes a surprising amount of difference.

An important lesson for me is that in the UK, even those of us without a DB pension can't just think in simple terms of total size of stache and a 4% withdrawal rate. You have to think of money which has already been taxed (e.g. in ISAs) and money which hasn't (in pensions.) It's much easier, particularly for higher rate tax payers, to build up sums in the latter, but it could be taxed on the way out. One of the good things about aiming for £20k pa as a couple is that you avoid income tax completely. Also have to think about how to required balance between the two and that really depends on the age you're planning to retire at.

[theadvicist]

I like your approach, theadvicist, it's quite conservative (if you had £320k in a SIPP today, one might expect it to grow at a rate faster than inflation over the long term and produce more than the inflation adjusted future equivalent of £20k when you actually retire.) The state pension makes a surprising amount of difference.

An important lesson for me is that in the UK, even those of us without a DB pension can't just think in simple terms of total size of stache and a 4% withdrawal rate. You have to think of money which has already been taxed (e.g. in ISAs) and money which hasn't (in pensions.) It's much easier, particularly for higher rate tax payers, to build up sums in the latter, but it could be taxed on the way out. One of the good things about aiming for £20k pa as a couple is that you avoid income tax completely. Also have to think about how to required balance between the two and that really depends on the age you're planning to retire at.

Yes, if your outgoings are low and you benefit from the lower living expenses of being a couple, the State Pension makes a huge difference!

I agree the SIPP could (hopefully will) end up producing more than the equivalent of 20k. I'm kind of assuming that growth will take care of inflation and nothing else. But 20k is bare bones, so we would happily spend the extra on travel! I need to make sure we have a good split, so that husband and I can draw c. £10k each a year up to State Retirement Age and therefore pay no tax.

If my SIPP does take off and we end up exceeding the maximum, honestly, I'll happily pay tax on the 'income' at that point. We have had many benefits from being born and educated in the UK and we use the roads, schools* and hospitals. If I have an income at the level where I am still asked to contribute in retirement, I will thank my lucky stars I am so rich and pay up. Not to say I won't try to minimise it (see about about drawing £10k each), but I am not planning my life to avoid taxes. I am planning the life I want and if taxes are a bi-product I have to live with, oh well. It's a nice problem to have.

*actually (more privilege alert!) we both went to private schools. But I still benefit from the fact everyone else around me got an education whether their parents could pay for it or not.

[cerat0n1a]

But I still benefit from the fact everyone else around me got an education whether their parents could pay for it or not.

Surprising how many people overlook that.

[UKstache]

I'd be interested in arguments for a LISA. Most analysis seems to favour SIPPS for retirement savings. As a basic rate taxpayer it's a close call I think. If I don't want to access the cash until 60 a LISA wins because tax free on the way out. However, I'm only using a sipp right now because of access at 55 and lack of good LISA provider deals. Any thoughts?

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[theadvicist]

I'd be interested in arguments for a LISA. Most analysis seems to favour SIPPS for retirement savings. As a basic rate taxpayer it's a close call I think. If I don't want to access the cash until 60 a LISA wins because tax free on the way out. However, I'm only using a sipp right now because of access at 55 and lack of good LISA provider deals. Any thoughts?

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Since you can only put £4K per person in a LISA and only between certain ages I am definitely maxing them out. That said I get full tax relief on anything at 40% in my SIPP, so it doesn't make a huge difference to me whether I get 20% back in the SIPP or 25% in the LISA. I would get 40% relief on everything I could before filling a LISA, but then I would fill a LISA before getting just 20% relief in the SIPP if that makes sense.

Hargreaves landsdowne have LISAs and from what I can see I'll just manage it the same as my SIPP and stocks and shares ISAs.

[AnswerIs42]

I'd be interested in arguments for a LISA. Most analysis seems to favour SIPPS for retirement savings. As a basic rate taxpayer it's a close call I think. If I don't want to access the cash until 60 a LISA wins because tax free on the way out. However, I'm only using a sipp right now because of access at 55 and lack of good LISA provider deals. Any thoughts?

LISA beats pension if you're a basic rate taxpayer now, will also be a basic rate taxpayer in retirement, and none of the other common pension advantages apply to you (e.g. employer matches, salary sacrifice, increasing tax credits). Otherwise pension is probably best.

[TartanTallulah]

I'd be interested in arguments for a LISA. Most analysis seems to favour SIPPS for retirement savings. As a basic rate taxpayer it's a close call I think. If I don't want to access the cash until 60 a LISA wins because tax free on the way out. However, I'm only using a sipp right now because of access at 55 and lack of good LISA provider deals. Any thoughts?

I'm too old to benefit from a LISA, but my children are in their late teens and early twenties and if I had money to invest for them, which I haven't because I'm still providing bed and board for two of them and giving a bit of financial support to another while she's getting launched, a LISA would be my first choice. Since 60 is likely to count as early retirement for their generation, I think it's quite a good savings vehicle and hope that more providers will show an interest.

[UKstache]

Hmm, I'll probably open a LISA before I'm 40 so that I have the choice in case rules change. Only question is to go for hargreaves lansdown or see if a lower fee option comes along. Suppose I could change later but I'm lazy and there is a transfer out fee.

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[dreams_and_discoveries]

I'm not a great fan of the LISA, seems far to restrictive for me and the penalty charges are high if you withdraw.

[UKstache]

I'm not a great fan of the LISA, seems far to restrictive for me and the penalty charges are high if you withdraw.

Very true. Makes it less useful for RE, locking up cash until 60 and reducing allowance space for your standard isa.

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[theadvicist]

I'm not a great fan of the LISA, seems far to restrictive for me and the penalty charges are high if you withdraw.

Very true. Makes it less useful for RE, locking up cash until 60 and reducing allowance space for your standard isa.

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The penalties maybe high, but it does offer more flexibility than a SIPP because you can't withdraw from that even if you want to!

I didn't realise a LISA reduced your ISA allowance? I will still do it for the 25% relief since you don't get that in an ISA and it's a considerable boost. And I think you can only add to it up to the age of 40? So I've not got that long anyway. But thanks for the heads up.

[UKstache]

I'm not a great fan of the LISA, seems far to restrictive for me and the penalty charges are high if you withdraw.

Very true. Makes it less useful for RE, locking up cash until 60 and reducing allowance space for your standard isa.

Sent from my HTC Desire 510 using Tapatalk

The penalties maybe high, but it does offer more flexibility than a SIPP because you can't withdraw from that even if you want to!

I didn't realise a LISA reduced your ISA allowance? I will still do it for the 25% relief since you don't get that in an ISA and it's a considerable boost. And I think you can only add to it up to the age of 40? So I've not got that long anyway. But thanks for the heads up.

You have 20k total allowance, so if you use the max 4k for a LISA you can only put 16 in your isa. ("Only" being more than I and many others can probably achieve!)

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[UKstache]

I'm not a great fan of the LISA, seems far to restrictive for me and the penalty charges are high if you withdraw.

Very true. Makes it less useful for RE, locking up cash until 60 and reducing allowance space for your standard isa.

Sent from my HTC Desire 510 using Tapatalk

The penalties maybe high, but it does offer more flexibility than a SIPP because you can't withdraw from that even if you want to!

I didn't realise a LISA reduced your ISA allowance? I will still do it for the 25% relief since you don't get that in an ISA and it's a considerable boost. And I think you can only add to it up to the age of 40? So I've not got that long anyway. But thanks for the heads up.

Oh, also, the 25% is not relief, it's a top up, so equivalent to 20% tax relief. Yes, you have to open a LISA before age 40 but you can contribute and get the top up until 50 I believe.

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[theadvicist]

Oh, also, the 25% is not relief, it's a top up, so equivalent to 20% tax relief. Yes, you have to open a LISA before age 40 but you can contribute and get the top up until 50 I believe.

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Thank you, I missed that distinction. I thought the tax relief was better on the LISA than on basic rate income put into SIPP, but it sounds like that is not the case.

I will still probably use the LISA because in the event of an emergency at least I can withdraw (even with penalties). One of the downsides of being a mustachian is you can be so keen to invest invest invest you have a smaller than ideal emergency fund. The LISA could be that for me going forward.

[Playing with Fire UK]

I'm not a fan of LISAs unless there is the option to use it for a house purchase (there isn't for me). The fact that the penalty for taking it out earlier than 60 means you lose money (because it is 25% of the total) just doesn't sit right with me.

Once I can access my pension I'm not going to need access to another pot. If I thought the pension access age was going to rise above 60 then the LISA would be a good option. I might consider it if I drop out of higher rate tax before I'm 40.

Another thing to consider is that if things went really wrong, your LISA could be taken into account and set against benefits or a court payment but a pension isn't (at the moment).

[TartanTallulah]

I'm not a fan of LISAs unless there is the option to use it for a house purchase (there isn't for me).

Once I can access my pension I'm not going to need access to another pot. If I thought the pension access age was going to rise above 60 then the LISA would be a good option. I might consider it if I drop out of higher rate tax before I'm 40.

That's what makes a LISA an appealing option at the moment if I was going to invest for my children or encourage them to invest for their own long-term future. I'm sure they'll all want to buy a house at some time, but none of them has been in a position to do so yet, and if they do become lifelong renters/parental basement-dwellers it's likely that 60 will be early retirement for their generation.

On the other hand, the youngest two, at least, are still young and impulsive enough to take the penalty and cash in a LISA for beer money at university. Just as well it's all theoretical.

[Playing with Fire UK]

That's what makes a LISA an appealing option at the moment if I was going to invest for my children or encourage them to invest for their own long-term future.

Yes, it's perfect for them.

I'm surprised they didn't include the ability to take from a LISA penalty-free if you are diagnosed with a health condition that reduces the ability to work. It seems like a scenario that the government would support you saving for.

[JohnnyRingo]

Another Brit here. Tally ho!

Really enjoyed reading this thread - it was exactly what I was looking amongst all the (understandably) US-biased content.

I'm 33 and currently split my investing between a S&S ISA, cash ISA and a direct contribution workplace pension. My employer matches up to 5.25% of my contributions.

My job is very well paid, and I really enjoy it, so I think I will probably keep working until I'm 45 (at which point, barring a huge market crash, I should be at the LTA with plenty in my S&S ISA to see me through the next 10 years until I can withdraw funds from my workplace pension scheme (at 55)). That being the case, is there any reason to open a SIPP? I presume it doesn't increase the LTA (i.e. workplace pension and SIPP are cumulative)?

Is the key benefit of a SIPP therefore having total control over investment decisions (i.e. access to more trackers / funds / individual stocks etc.)? And that, for some, being able to access the SIP earlier than they can their workplace pensions (55 rather than 60)?

TTFN

[May2030]

Novice UK Mustachian here also. Find it hard to converse about money with colleagues /friends as us Brits don't do that even though we are in the same boat.

This thread has given me a bit to think about. Higher rate tax payer ( just) and as of today thanks to reading MMM paying 41% gross, which is 54%net of basic salary into a SIPP (10% from employer).

Question for you all. I am trying to work out a true FIRE figure but finding it hard. When calculating UK rates of return for a SIPP is there a nominal figure you all use in your calculations? So many variables I know.

[SpreadsheetMan]

Novice UK Mustachian here also. Find it hard to converse about money with colleagues /friends as us Brits don't do that even though we are in the same boat.

This thread has given me a bit to think about. Higher rate tax payer ( just) and as of today thanks to reading MMM paying 41% gross, which is 54%net of basic salary into a SIPP (10% from employer).

Question for you all. I am trying to work out a true FIRE figure but finding it hard. When calculating UK rates of return for a SIPP is there a nominal figure you all use in your calculations? So many variables I know.

You'll get lots of opinions on rates of return. I use 4% as a rough figure for a world exposure. Monevator has UK only here: http://monevator.com/uk-historical-asset-class-returns/ which are a fraction lower, but I'd never have domestic-only exposure anyway.

[dreams_and_discoveries]

Is the key benefit of a SIPP therefore having total control over investment decisions (i.e. access to more trackers / funds / individual stocks etc.)? And that, for some, being able to access the SIP earlier than they can their workplace pensions (55 rather than 60)?

TTFN

I'd only recommend SIPP's to those with no employer pension, or one with really high charges , and yes, all pensions are added together for the LTA, so it doesn't look particularly worthwhile in your situation.

[theadvicist]

Question for you all. I am trying to work out a true FIRE figure but finding it hard. When calculating UK rates of return for a SIPP is there a nominal figure you all use in your calculations? So many variables I know.

For my current planning purposes, I just assume growth will take care of inflation. So the figures I am aiming for are essentially 2015 pounds, because that's when I made the plan.

As I get closer to FIRE, if my investments are just running away with themselves, I'll just retire earlier.

This may be completely the wrong way to do it. But it seems the simplest - I just wanted something I could easily get my head around. If you factor in returns you have to factor in inflation, and that just seems like too much crystal-balling for my simple mind. I'm sure growth with outpace inflation. That just means I'll exceed my targets.

[May2030]

Thanks for the replies. Rather surprisingly it would appear I will be FI in 12 years even if I just keep pace with inflation. 4% is great and I will use that as my blue sky figure. I have a small pension from a previous employer running which has returned 7% per anum over the last 4 years, ever the optimist.