Retirement savings for tax exempt earner?

S

simp

Registered User
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Hi:-

I'm a sole trader, and a significant proportion of my earnings are tax emempt under the artists' exemption, so my annual tax bill is very low.
Until last year I was channeling all my savings into buying a house, and now that that has happened, I want to focus on retirement savings.
I have, however, been told by a couple of brokers that it is not efficient for me to invest in a pension, as its main advantage would be its tax efficiency, which does not apply in my situation. They have advised a long term retirement savings strategy instead.
Would anyone care to comment on whether this is good advice?

Thanks!
 
simp said:
I have, however, been told by a couple of brokers
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What sort of brokers - i.e. how independent is this advice? Were they authorised advisors, multi-agency intermediaries (dealing with how many companies?) or tied agents?
They have advised a long term retirement savings strategy instead.
Would anyone care to comment on whether this is good advice?
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Well - depends on what specifically they were suggesting as an alternative.

Does the possibility of a 25% lump sum tax free from the accumulated pension fund at retirement not benefit you even though the other tax advantages don't apply here? Might you ever be earning taxable income in the future in which case contributions made before then when no tax was due maye (not sure) be offsettable against taxed income when you are in this situation?
 
ClubMan said:
What sort of brokers - i.e. how independent is this advice? Were they authorised advisors, multi-agency intermediaries (dealing with how many companies?) or tied agents?
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An online execution only broker, and two multi-agency intermediaries. I am about to try to track down a reputable independent financial advisor, but thought I should pose the question here first...


The tax free lump sum is attractive, yes - and I had not realised that the pension investment could be retrospectively offset... I should really speak to a financial advisor about this, I suppose...
 

The advice you were given was correct. Unless you are getting a tax break at the higher rate why you would invest in a pension fund ?

The money you are earning now is tax free,if you put it into a pension fund,its tied up till retirement age and then apart from the 25% tax free lump sump,the rest of the fund will be taxed as income in your hands when you draw it out.

Not very clever
 

Aha. Yes. That was the general gist of the advice I had received. Hmmm.

Thank you both for presenting the opposing views.

I suppose it really just boils down to whether a normal long term savings plan is preferable to a pension minus tax incentives...

I will speak to a financial advisor and see if I can get a clear answer either way.
 
Another view to be considered. If your total income from pensions and any other sources is likely to fall under the tax threshold altogether, this swings the decision back in favour of a pension, though not without counter-arguments.

You'll only get tax relief on the contributions in respect of the portion of your income that is taxable, but you won't pay any tax on the way out. Pension funds are tax-exempt investments and you won't pay DIRT or Exit Tax on the way out. But you'll still be subject to the usual restrictions as to what format you must take your pension, which wouldn't apply to a long-term savings plan.
 
LDFerguson said:
Pension funds are tax-exempt investments and you won't pay DIRT or Exit Tax on the way out.
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But - with reference to PSRAs - beyond the 25% tax free lump sum, all subsequent drawdowns - e.g. from ARF - are subject to PAYE and Health Levy, no?
 
Yes its income same as any pension.

A pension is only attractive because of the tax reliefs.
The investments behind pensions,PRSAs etc are available to you as a straight non pension investment,with lower fees normally and no restrictions
 
Is it not the case that within the funds themselves (as opposed to what happens after encashment) pension investments are free of all taxes while regular non pension investments are subject to 23% exit tax on growth on an 8 yearly deemed disposal basis and/or at exit?
 
simp said:
But - with reference to PSRAs - beyond the 25% tax free lump sum, all subsequent drawdowns - e.g. from ARF - are subject to PAYE and Health Levy, no?
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That's right. But my example assumed that your income in retirement falls below the threshold for Income Tax.
 
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