Navigating Pension Options: SIPP vs. Lifetime ISA

A bit of a themed Q&A this week, with some great questions from folks in their 30’s. We cover share save schemes at work, large inheritances and retirement planning - yes, even in your 30’s!

Shownotes: https://meaningfulmoney.tv/QA17 

01:29  Question 1

Hi Pete and Roger,

First of all I wanted to say I'm a new but avid listener to the MM Podcast, I'm so glad I found it while I'm still (relatively) young,  I'm 39 and after years of making bad financial decisions the MM podcast has turned my attitude to money/investing and pensions on its head.

I now relish the challenge of taking care of my finances rather than what felt like years of fighting against it. I wanted to ask a question regarding selling Investments vs taking a short term loan. I work for a large pharmaceutical company and as a perk of being an employee I pay into 2 share schemes through work.

The one I'm thinking of selling is a plan whereby I'm limited to a certain amount a month I can pay in and whatever I pay in is matched by my employer, so half the shares in this scheme are free. Needles to say I pay the maximum into this to benefit from the BOGOF offer.

I've recently had a large unexpected bill that even my emergency fund can't cover! And I wanted to know if selling the shares would be advisable over getting a 12 month loan?

If I sell the shares the money will be paid to me through my next pay so it will be subject to tax and NI contributions, after a bit of number crunching I've worked out that what I'll pay back on the loan is a lot less than the tax and NI I'll pay on the shares, however it does mean being in debt for 12 months, but I'm reluctant to sell the shares as I'd earmarked it as a supplement to my pension.

If this was cash sitting in an account then it'd be a no brainer but I'm sure that I've heard people advise against selling investments.

Please could you help and offer some advice as I'm really not sure what's best as I do what to avoid debt too. Thanks in advance, Anthony

05:30  Question 2

Hi Pete and Roger

Thank you so much for the podcast and content you put out - for free! - it's incredibly generous and has helped thousands of people including myself.

I appreciate this is not a typical situation, but I am 30 years old and am due to inherit £500,000 (yes, really, though due to unhappy circumstances).

Up until now (in no small part due to your content!) I've been confident managing my finances. I am single, and am just approaching becoming a higher-rate tax-payer as an NHS doctor. It is a stable job with a great pension and guaranteed pay progression. I have a £200,000 mortgage on my house which I am comfortably paying out of my salary. I also have a £10,000 cash emergency fund in place, and no other debt apart from my student loan.

Due to the NHS pension (and the complexity of avoiding annual allowance breaches with a SIPP alongside a DB pension), I have favoured directing all my personal savings into my stocks and shares ISA rather than a SIPP, all in a 100% equities passive global tracker (currently about £60,000).

I don't know what to do with this inheritance.

I will put the first £50,000 in Premium Bonds. After that, I like the simplicity of £20,000 per year into the stocks and shares ISA in a passive global tracker. But in the short-term this still leaves a vast sum in cash. Even if I paid off the mortgage (which I'm unsure about, as I've had plans to spend on house renovations fairly soon), there is still a vast amount of cash left unsheltered. (First-world problems, granted.)

I could pay for advice, but I would rather self-manage as I feel I don't want to do anything too complicated if someone could explain a simple strategy using a GIA.

Option 1: GIA Is it easy to calculate the dividends on an accumulation global tracker fund? Should I ditch the simplicity of global trackers to find dividend-paying funds/investment trusts to try and pay less tax?  Option 2: Cash Option 3: Holding gilts to maturity

Have I missed anything? Does it really matter whether I do Option 1 or 2 in the grand scheme of things? Any thoughts would be much appreciated!

Kind regards, James

14:30  Question 3

Hi Pete (and Roge)

Thanks for all you have done and continue to do on the podcast. I've now read both your books which I would warmly recommend to anyone. I've tried to keep this brief but tricky not missing out key details!

My wife and I are in our mid 30s and have SIPPs invested in passive, 100% global equity, accumulation funds. With a reasonable time horizon, and stomach for volatility, we're very happy with this approach. We would like the option to retire as soon as we reach the Normal Pension Age minus 10years which we assume will be 60 by then if we assume the state pension age will rise to 70.

Given this background, how do I pivot away from 100% equities to a cash flow ladder? My current thinking is to do the following:

- 10 year prior to retirement buy a Gilt with a 10 year maturity - do this for following years working my way up the cashflow ladder - I would need to plan for what I would do if the market was down at any point during this period - perhaps something like - if down by >10% in a given year only sell enough equities to cover minimum expenses for the applicable year and hope for a recovery. This would seem like a reasonable hedge between being prepared and missing out on a recovery.

Does this sound like a reasonable approach? What other approaches could I consider?

I appreciate I wouldn't be acting upon this question til about 2039, ahead of retiring in 2049, but I guess that is a testament to how you have helped me with my financial planning. If you think this is too far out for planning when do you think I should revisit it? Thanks, Dave

21:02  Question 4

Dear Pete and Roger,

I've been a faithful listener for some time and yours is one of the best financial podcasts in the UK. Thank you for all your hard work.

I've recently read Pete's new book. Gosh, it was not a light read but it was extremely valuable to me.

My question is whether it is worth stopping contributions to the NHS pension if the money is needed more now rather than in retirement.

Me (34yo) and my husband (43yo) are in an incredibly privileged position where we have 800k pounds in our ISAs (majority) and SIPPs  and no debt. I love my NHS job and have no plans to leave it any time soon.  My husband couldn't care less for his work. We figured we would like him to retire soon so we can enjoy benefits of having a stay at home dad at home for our child.

The problem is, we cannot live off my salary alone and will have to supplement it. I calculated that if he retired in 3 years we would have 3 years worth of cash to cover the shortfall, 5-6 if I have more take home pay due to not contributing to pension. Basically leaving the NHS pension would give us 2 extra years of not having to draw from our investments but would cost circa 1k of guaranteed annual income in retirement for every year of missed contributions, plus benefits - death in service etc. I just wonder if it is worth it for potential returns which are obviously not guaranteed. 

Based on historical returns, allowing our investments to grow for 8 years will bring us to our FI number (25x annual expense). I feel this would be more valuable then having guaranteed income later in life. To me, being able to take out NHS pension in 34 years is completely abstract.

I know you cannot give specific financial advise but I would love to hear your thoughts. Thank you in advance, Jane.

29:04  Question 5

Hi Roger and Pete,

Love the podcast and have learnt so much! Thank you!

I am 34 and have paid into the teacher's pension (TPS) for the last 8 years. For 5 years, I worked abroad and did not contribute to it. Living back in the UK, I am not sure how much longer I will be a teacher or eventually my school might even withdraw from it and offer a private pension instead. Missing 5 years of my pension whilst away, I did a few years whereby I increased my contributions using faster accrual from 1/57th to 1/45th of my salary, however I wasn't convinced this was actually going to make up for my lost contributions. This tax year, I decided to stop this and have now got back £300 a month into my salary. My question is whether I would be best to pay this £300 into a LISA (already have £1500 in there for my pension) or ditch this and pay it into a SIPP. I want to have access to some money if I retire early before I can access my TPS which I can imagine will be 70 by the time I am older.

Thanks in advance. Rachel

32:07  Question 6

Hi Pete (and the fabulous Rodge)

Me and my husband both listen to your podcast and absolutely love your content. We've gone from not really having a clue to having more than £50k between investments and savings for the first time this month, and we put it all down to you and your excellent advice.

The question I have is about raising our children with good money attitudes. You like to say "your attitudes towards money are set by the time you're 7", and that makes me think about my kids, who are currently 1 and 3. Me and my husband are both second children, and couldn't be more different from our older siblings in terms of money attitudes. Both our older siblings are spenders, and both in significant amounts of bad debt, making what we would consider poor financial choices. On the flip side, we are both savers, sometimes to the point of unhelpfulness, and we've had to do a lot of learning about spending money to enjoy ourselves more in the here and now.

Obviously, we've had functionally identical upbringings to our siblings, so I'm not sure what's made us so different, but certainly I never remember having any direct advice from my parents of money management, investing, budgeting ETC.

What is your advice on imparting finical wisdom to our offspring? How is it different at 3 to aged 7, for example? What about their early/late teenage years and young adulthood?

I haven't told my husband I'm submitting a question, but if he hears this he'll definitely know it was from me so I'll look forward to our conversation later based on your answers!

All our best Hannah