Government coming for our Pensions

[RobertT]

And like I said there's no point me putting much more into my Pensions as the Government will take 20% of my income above £12570.

I'm not sure you fully understand the tax liabilities of the various savings vehicles, Milly!

If you just concentrate on the amounts of money you're putting in, pensions and particular RM pensions, are actually the best option from a tax point of view.

Assuming you're a standard rate(20%) taxpayer:

With a personal pension/SIPP: you'll get tax relief at 20%, which means for a £100 gross contribution, you only need to put in £80 of your own money.
That £80 will have come out of your net income, so you'll have paid income tax and NIC's on it.
You're effectively getting the tax back, but not the NIC's. So that £100 is actually costing you about £89 of your earned income.

If your income is already over the Personal Tax Allowance(currently £12,570) when you access your SIPP, you'll pay tax on the money you withdraw, not including the 25% tax free cash. So you'll effectively only pay tax on £75 of the £100 and overall you'll get £85 in return for the £89 you put in.

With your RM DC pension: contributions are paid before the deduction of taxes. You'll get tax relief at 20% plus the benefit of PSE(12%), assuming you stick within the contribution limits. Meaning a £100 gross contribution will only cost you £68.
When you subsequently access that money, 25% will be tax free and again you'll pay tax on £75, so you'll get the same £85 as with the SIPP, but it will have only cost you £68.

With an ISA: when you take out your money it will be tax free. But the cash you put into it in the first place will have come out of your net income, so you'll have already paid income tax(20%) and NIC's(12%) on that.

So to get the same £100 as you'll have in your pensions, you'll need to earn £147 gross.
If you reduce that down to the £85 net you'll have from both your SIPP and RMDCP, it will have cost you £125 gross.

Transferring from the RMDCP to a SIPP is potentially a decent move, because you're taking advantage of the tax breaks, not to mention RM's contributions, and then giving yourself the opportunity to invest where you want. Although the returns won't automatically be better!

On a week by week basis, you'll actually gain more by continuing with that regime, rather than going the ISA route. Because although you'll be paying 20% tax on your pension income above the PTA, that's better than paying a total of 32% tax on your income now.
Plus, I'm sure you'll pay tax once you hit state pension age anyway!

Would hope to, I'm heavily invested in Stocks and Funds that benefit from inflation .

I'd be genuinely interested in which shares/funds you're investing in, if you would care to divulge.

[Jaggs]

Well Milly, good luck to you because I think you are going to have to beat a compounding rate of 43% over the last 5.5 years for the £30 per week on average that I have put into the DBCBS.

Problem is that Gilts won't keep up with inflation going forward as the 40 year Bull market in Government debt is over and I certainly wouldn't want to have the majority of my money in yesterday's investment.
Once inflation compounds the Pension assets will lose value at an alarming rate.
And like I said there's no point me putting much more into my Pensions as the Government will take 20% of my income above £12570.

But aren't you giving up 32% relief from not paying tax and NI if using PSE now?

[milly]

And like I said there's no point me putting much more into my Pensions as the Government will take 20% of my income above £12570.

I'm not sure you fully understand the tax liabilities of the various savings vehicles, Milly!

If you just concentrate on the amounts of money you're putting in, pensions and particular RM pensions, are actually the best option from a tax point of view.

Assuming you're a standard rate(20%) taxpayer:

With a personal pension/SIPP: you'll get tax relief at 20%, which means for a £100 gross contribution, you only need to put in £80 of your own money.
That £80 will have come out of your net income, so you'll have paid income tax and NIC's on it.
You're effectively getting the tax back, but not the NIC's. So that £100 is actually costing you about £89 of your earned income.

If your income is already over the Personal Tax Allowance(currently £12,570) when you access your SIPP, you'll pay tax on the money you withdraw, not including the 25% tax free cash. So you'll effectively only pay tax on £75 of the £100 and overall you'll get £85 in return for the £89 you put in.

With your RM DC pension: contributions are paid before the deduction of taxes. You'll get tax relief at 20% plus the benefit of PSE(12%), assuming you stick within the contribution limits. Meaning a £100 gross contribution will only cost you £68.
When you subsequently access that money, 25% will be tax free and again you'll pay tax on £75, so you'll get the same £85 as with the SIPP, but it will have only cost you £68.

With an ISA: when you take out your money it will be tax free. But the cash you put into it in the first place will have come out of your net income, so you'll have already paid income tax(20%) and NIC's(12%) on that.

So to get the same £100 as you'll have in your pensions, you'll need to earn £147 gross.
If you reduce that down to the £85 net you'll have from both your SIPP and RMDCP, it will have cost you £125 gross.

Transferring from the RMDCP to a SIPP is potentially a decent move, because you're taking advantage of the tax breaks, not to mention RM's contributions, and then giving yourself the opportunity to invest where you want. Although the returns won't automatically be better!

On a week by week basis, you'll actually gain more by continuing with that regime, rather than going the ISA route. Because although you'll be paying 20% tax on your pension income above the PTA, that's better than paying a total of 32% tax on your income now.
Plus, I'm sure you'll pay tax once you hit state pension age anyway!

Would hope to, I'm heavily invested in Stocks and Funds that benefit from inflation .

I'd be genuinely interested in which shares/funds you're investing in, if you would care to divulge.

I'm well aware of the tax advantages however many people are going to be caught by fiscal drag as income tax rates are frozen until April 2028.
I prefer to have a mix of Pensions and S&S ISA's so I can maximise my tax free income.
With regards to my investments they are Oil and Gas, Tobacco, Mining Shares, Potash, Telecoms ,Asia, and Emerging Market equities and Bonds.
All these investments ought to keep up with inflation.

[RobertT]

I'm well aware of the tax advantages however many people are going to be caught by fiscal drag as income tax rates are frozen until April 2028.
I prefer to have a mix of Pensions and S&S ISA's so I can maximise my tax free income.

The point I'm making though, is it's best to look at things in the round.
You can gain more with one hand, than you lose with the other!

I can understand the flexibility of the ISA approach. But the most tax efficient way overall may well be via your RMDCP, even if it does involve paying some tax on the way out.

With regards to my investments they are Oil and Gas, Tobacco, Mining Shares, Potash, Telecoms ,Asia, and Emerging Market equities and Bonds.
All these investments ought to keep up with inflation.

Thanks for that, although I was hoping you'd be more specific!
You say they ought to keep up with inflation. But how are they actually performing?