In this engaging Q&A, listeners tackle pressing financial dilemmas. One graduate is torn about whether to prioritize paying off high-interest student loans or saving for the future. Another listener uncovers a mysterious pension payout linked to a past employer, raising questions about pension accessibility. The hosts share insights on building emergency funds and balancing loan repayments, while also diving into tax strategies for high earners. This conversation unveils vital lessons in smart financial planning for young professionals.
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volunteer_activism ADVICE
Obtain Pension Payout Confirmation in Writing
Contact the pension provider and request written confirmation of the payout details, including the date, recipient, and tax information.
This helps clarify whether the payout was received or transferred and ensures accurate record-keeping.
volunteer_activism ADVICE
Utilize Tax Allowances Wisely
Utilize tax allowances like VCTs and EISs to reduce your tax burden, but consider the investment's suitability for your overall financial goals.
Don't let tax benefits solely drive investment decisions; prioritize aligning investments with your risk tolerance and objectives.
question_answer ANECDOTE
Roger's VCT Investment Experience
Roger Weeks shares his experience of investing in VCTs for tax relief, highlighting the potential for investment growth alongside tax savings.
Despite market fluctuations impacting his initial investment, he emphasizes the long-term potential and the additional tax benefits from reinvested dividends.
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00:40 Sophie - My question is that I am about to start earning a lot more than I thought I was as a graduate. I have always been told to ignore my student loans by my parents as it's essentially a tax, but looking at some calculators I would pay it all off in 25 years before it gets cleared and pay more than double the £45,600 in interest. I'm thinking of trying to overpay it off more quickly than that as it seems very big to have especially with 7.3% interest rate. I'm not sure if I should prioritize this, as I could start now, but as I'm starting work I'm still very uncertain of what to save and how I should treat this debt. Or should I not worry about it this early on?
06:55 Ellie - My partner recently traced a pension from an old employer. When he contacted the company they told him the pension was all paid out to him when he left the company, 9 years ago. He was 28 at the time. Is that possible? I believed it wasn't possible to access pensions until 10 years before state pension age. The exceptions I'm aware of (certain types of job/illness) aren't relevant here. I can't believe this pension would have had particularly special properties. It was while he was working for Experian. He doesn't remember receiving a lump sum, and is checking with his bank (it's too far back to see online). Did the person he spoke to just make a mistake? He is reluctant to go back to them without anything concrete, and it is hard to trust what they say. Any advice on what to do next?
12:15 Joanne - I am a higher rate tax payer and contribute to a SIPP on top of my employer pension (very generous DB scheme) to keep my earnings underneath £100k so that I can benefit from free childcare hours and about the 60% tax trap bracket between £100-£125k. However, I am now breaching the annual £60k pension allowance and so end up paying significant tax on the additional pension contributions in my self assessment. I am so aware that this is a privileged position to be in and want to contribute my fair share of tax but I wondered what other channels I should be exploring to be as tax efficient as possible please (I have never dabbled in VCTs!)
18:44 James - How do I weigh up the relative value of AVC on my DB pension rather than investing in a LISA or S&S ISA where I retain my capital?
22:25 Giles - I have fallen into the 60% tax trap on a number of occasions, to mitigate this I have tried to top up my pension to get my earnings below 100k to reduce my tax bill. Being the main earner and with 2 very expensive teenagers I don’t have enough spare cash to do this easily so have taken the money out of a S+S ISA in the past. I know this shifts the balance of my assets massively into pensions but it seems worth it to reduce tax. My question being is this a reasonable plan? Is it a good idea to do this or am I better keeping retirement options more flexible with a larger ISA pot?
The Meaningful Money Personal Finance Podcast