QA63 - Listener Questions, Episode 63

0:00Pete Matthew: My grey matter's fine. I'm still working. Yeah, mine's falling at my ear as I speak. It's fading. Fading fast. Never mind. We'll keep you sharp. Yeah, thank you. Roger Weeks, warding off dementia one episode at a time. Hi, folks, and welcome back to another Meaningful Money Q &A. I'm Pete Matthew. And I'm Roger Weeks. How are you doing, bud? Yeah, doing fine. Enjoyed lunch? It was really nice, actually. I feel like you enjoyed it particularly today. Yeah, actually the focaccia was nice and soft, wasn't it? Oh yeah, fresh every day. So we generally record at least two of these on the trot. I hope you appreciate everybody watching on YouTube, by the way, that we change our shirts in between takes.

0:42Pete Matthew: It looks as if we've done it on different days. And yeah, so we recorded two this morning. We just had a very nice lunch at, what's it called? Milan Cafe over the way in Causeway. Milan? Napoli. Not Milan at all, Napoli. Napoli. Different part of the country. Napoli Cafe over the way. So, yeah, very nice for Katcha. Right, let's get one more done. Where do people send their questions? If they want to send their questions to hello at meaningfulmoney.tv, put the heading podcast question as before. We'll try and use it at some point in the future. I think we're still on May. We must be getting there now.

1:17Pete Matthew: So we're recording in September, but this won't go out until towards the end of October. So that makes us five months behind. We don't seem to be catching up. Never mind. Anyway, keep them coming. And if you're watching on YouTube, help us out by liking the video and subscribing to the channel if you're not already. And if you're listening to this on a podcast app of your choice, you've probably got the option to leave us a rating or review. If you could do that, that would be epic. Thank you very much. Rog, you've got question one this week. Yeah, and it's lots of words, this one. So question one is from Tom.

1:46It says, Dear Roger, Pete, and Producer Kate. Hey. Well done, Kate. Thanks for all the work you do in producing a great podcast.

1:53Pete Matthew: Is that particularly for Kate, that one? Yeah, she's producing. Yeah, she's producing. In a world where financial literacy is often kept behind a paywall, the clarity and confidence your show provides is more than just good content. It's a public service that is genuinely levelling the playing field for all of us. Very kind, Tom. Lovely. Really nice. I wondered if you could impart some of your wisdom from advising clients over the years. We'll try. At my workplace, I'm that guy who tries to encourage the rest of the workforce to engage with their finances. Admiral. I mainly do this through an internal discussion forum, getting some external speakers in once in a while, and me generally trying to signpost good information for people to go and educate themselves.

2:32Rest assured, the Meaningful Money podcast is top of the bookmarks list, closely followed by Bank of Dad for younger teammates.

2:39Pete Matthew: Hey, love that. Yeah. Thank you. I've hit a situation a few times now that I feel you must have seen on countless occasions in your careers, and it is to do with risk ratings for investment funds. Oh. The situation typically plays out like this. After being convinced that they should engage with their pension and that the default fund may not be the right for them, they go and prepare to move into a 100 % equity global tracker and duly read the fact sheet. And then they stop. They look at this section normally entitled something like risk rating. Using the Vanguard platform as an example, but I think most are similar, a 100 % equity fund is nearly always 6 out of 7 or 7 out of 7 on the risk scale.

3:19To the newly self-aware but nervous investor, they recoil in horror. The old objections start to flood in like, but I'm not a gambler. Does high risk mean I could lose it all? If a well-diversified portfolio everyone says I should get is a 6 or 7, what the heck is Bitcoin, day trading, and all the other things I'm told to stay away from? Is this as bad as them?

3:38Pete Matthew: Yeah, 10 out of 7. To me, it seems there's a big problem with the way these ratings are presented. You and me both. To my eye, it would appear anything low risk is cash or cash-like. Anything in the middle is incredibly bond-heavy, and anything with the chance of beating inflation over the long-term period is presented as very risky. It strikes me it should be reframed as maybe a long-term reward rating or a volatility index, because risk has such an ingrained negative connotation. I was wondering if you have any background into why these scales are presented in such an off-putting manner, and if you have any great ways of handling objections at the last minute based upon your experience.

4:15Thanks, Tom. Thanks, Tom. This thing has always been in existence, unfortunately.

4:21Pete Matthew: Yeah, exactly. Tom sent a question into Bank of Dad as well, and we've had a couple of bits of correspondence with him. So Tom's obviously doing brilliant work at his workplace, engaging his colleagues and getting them to engage in, you know, the things that really matter. But, I mean, this is a textbook example, isn't it? It is. This has been one of the most difficult things to explain to clients ever since we started this job. Yeah, exactly. I think it's part of the reason. Do we have any background into why these scales are presented in such an off-putting manner? I mean, the problem is it's kind of lowest common denominator.

4:57Pete Matthew: My dad, I think, would use the word reductionist. It's like if you try and fit loads of totally different things into a very simplified scale, and 1 to 7 is not even a very big scale, is it? And it's very subjective. I imagine there's sort of measurements behind it. So maybe it isn't subjective, but how it's received is subjective. Seven out of seven. It's like, whoa, what? Risk? Seven out of seven. The maximum amount of risk. It's no wonder they're asking, can I lose it all? Yeah, exactly. Because we're not gamblers in the long run. These things do really, really well. And there's a scale. And you've slightly simplified, Tom, saying low risk is mostly cash-like and then medium risk is mostly bonds.

5:39Well, there's this massive area. And the difficulty is that the FCA, the regulator, wants us to hang our hat on something for the client to say the client's looked at this and thinks they are that sort of person. And it's how you deal with that because you've got some people that have never taken any risk at all and won't understand it. And we've got to try and explain that to them in a way that they can understand and appreciate the longer term benefits in it. And it's really, really difficult. And the regulator wants your fact find and your reason why letter to say, right, you are this sort of person and therefore that fund is for you.

6:13And it's…

6:13Pete Matthew: Every client is different. But Tom doesn't have the benefit of, you know, full financial planning relationship where he can sort of actually talk to one of his team members and say, I think you should be. Yes. You know, he's on a sticky wicket if he does that. And I remember you had a client who had successfully run a business and sold his business and came to you and said, look, Pete, I want you to manage this money now. It's like a million quid. Yeah. And you went through this whole process. Yeah. And it's like, this is how we do it. And he answered all the questions. And he was happy with it and took it and signed along the dotted line.

6:49Pete Matthew: Yeah. And then shortly afterwards, then the markets took a downturn. It's like, I can't stick that. Well, he was on the phone for an hour every day. Yeah. It started 2007, so the sort of start of the financial crisis, really. And it was bleak, and he was watching, you know, he'd gone from building a business for 30, 40 years, where he was in control, to a reasonable chunk of the proceeds of selling that business being out of his control. And so that was a risk he wasn't able to bear, it turns out. And that is part of the problem, Tom. You know, there's loads of examples in regulation, and examples of regulation getting in the way, like risk questionnaires.

7:24Pete Matthew: You ask people a load of questions, and if they've never invested before, these questions are entirely abstract. They can't possibly know how they're going to react in certain circumstances. Capacity for loss is another one. It's too simplistic. It's like, how much can you afford to lose? Well, that makes no account of the fact that it'll probably come back. You haven't lost it until you sell. And we could be disparaging about civil servants keeping their jobs, but I won't do that because the country would grind to a halt without civil servants. But, you know, so often you've got people making these rules who are not, we call them knacks, never advise the client.

7:59Pete Matthew: So you come up with great ideas in theory, but you've never sat in front of a real human and interpreted them. Yeah, and the fact that it's risk, like Tom says, is a horrible word. And in capacity for loss, it's like, well, I could lose this money. And it doesn't work that way. The wording has a massive impact upon the way that people bring these to them. It's like I used to explain when it came to risk and reward that obviously in the long run, this will always make more money than inflation for you, but I can't tell you how long it'll take. And there'll be some big trips in the road along the way.

8:31And I used to liken it to going out in the Salonian in Mounts Bay. When you're in the Bay, the waves are slightly smaller. So therefore, the movement of your funds, although it's up, will be slightly smaller. You go around Land's End and suddenly the Atlantic, you're like this. So could you cope with that? It's like, well, I don't know whether I can cope with it or not. Until you get out there. Yeah. Exactly.

8:50Pete Matthew: I get a vitally C-zick. Yeah, me. Yeah, yeah, but I can tolerate investment risk. So, yeah, they're the analogy breaks down. I get it. And I quite like, because I think Tom's suggesting, should we call it like, calling it a long-term reward rating ignores the downside. But volatility index, I actually quite like, as long as people understand that volatility is, because volatility to me sounds like it can go either way, whereas risk is very much a sort of negative only word. I think. And volatility is necessary. Volatility is actually your friend. And there is clear correlation between higher volatility assets and higher returns.

9:29Yeah. And the thing is, it's your ability to deal with the ups and downs, not necessarily the fact that over the longer run, it'll do really, really well for you. It's like, if you had a million pounds and it went down to 700 ,000 pounds, how uncomfortable would you feel? Well, I'd be okay with that. But if you went to 500, oh, hell, I don't want that so you know this is all based around emotions and exactly where you're coming from tom because if you've got somebody's never done this before like pete said it's this unknown quantity because

9:56Pete Matthew: i've never done it yeah exactly a couple of things perhaps to handle what we used to call objection handling back in the old sales training days so you know can i lose it all i mean the answer to that is if you're invested 100 in global equities in order to lose all your money every country and every company and the planet would have to go bust. So if you're like in multi-assets, you've got bonds as well. So every company and every country on earth would have to go bust and fail completely, in which case we've got bigger problems. Yeah, no matter where your money is, you'll have a problem there.

10:30Pete Matthew: Well, then money's worthless, isn't it? Exactly. Then you'd be hoping that you've been kind of growing carrots and raising chickens. There'd be a run on the banks and you can't get your cash out. Yeah, there'd be no food in the supermarkets, nobody will accept cash, and you basically want like food and guns. because we're in utter chaos, right? Yes. Most people say, well, clearly not every company on the planet is going to go under at the same time. You say, well, that is the only way you can lose everything in this fund. But actually what will happen is you're invested across 6 ,000 different companies.

10:58Pete Matthew: Some of them will go bust, but most won't. And overall, you'll rise. And the other, I think, thing is the sort of reminder that people only lose when they sell out. And usually the best example for that is property. And I'm sure you've used this example before, but I would often say, oh, look, you know, you buy a house for a quarter of a million quid, you do a little bit of work on it, and you're quite proud of the work, and so you get the estate agent back, and you ask him how much he's worth. And you're thinking, it'd be nice if it was 300, right? Made a little bit. But the agent comes and says, well, unfortunately, you know, there's a huge amount of subsidence down the road, and the house behind you is a crack den.

11:35Pete Matthew: So, you know, your 250 grand house that you've spent a little bit of money on is actually, we're struggling to sell them, so you might get what you paid for, but more likely you might get 230 or 220. Now, the question has to be, at the point you're having a conversation with a estate agent, have you lost anything? And the answer is no, because you haven't sold the house yet. It's only when you realize the asset do you actually lose money. And it's the same with shares. The problem is we see it tangibly on a statement when it goes down and we say we have lost money. The answer is you haven't. It's just the stuff you own is worth a bit less temporarily.

12:10Pete Matthew: but these are difficult things to get across to a novice investor. So, you know, I think, I mean, if you've been listening for a while, Tom, you know how we think about this sort of stuff and I'm sure you're doing a brilliant job at kind of encouraging, particularly your younger teammates to engage with this stuff and particularly with a pension. If they're younger, time is on their side and time is not only a great healer, but actually it's a kind of ingredient in the power of company. Good work. Good question. And keep up with what you're doing. Must be good. We're 13 minutes in, we've answered one question.

12:44Pete Matthew: So, right, this is question two from Scott. Hello, Pete and Roger. Love the show and the invaluable insights you provide on a weekly basis. Keep up the good work. Thank you, Scott. We intend to. I'm 55 and my wife is 54, both hoping to retire when I turn 60. No children, so no big inheritance concerns. I'm in the local government pension Scotland pension scheme, and projections at 60 suggest I will receive roughly$19 ,000 a year and a tax-free lump sum of around£50 ,000. My wife is in the NHS Scotland pension scheme. Her projections suggest an annual pension of circa£9 ,000 with a tax-free lump sum of£15 ,000.

13:18Pete Matthew: I have been paying the maximum amount under salary sacrifice to the local government ABC since we became mortgage-free, so there should be a minimum of£90 ,000 in that pot, which I intend to take as a tax-free lump sum. We're hoping to downsize from our current house once we finish working into something smaller and more retirement-friendly, and we believe this will realize equity of around£100 ,000. We reckon we can live well off around£40 ,000 per year, but we are unsure of the most efficient way to invest the lump sums. This could be tripping over into advice here. Equity and AVC pots to provide the required income top up each year until we reach state pension age without overly diminishing the capital.

13:58Pete Matthew: That's an interesting line. We want to use residual funds to allow us to overwinter in sunnier climes. That's a nice verb, overwinter. every year whilst our health allows. We imagine this will be our biggest spend in retirement outside of the drawdown to achieve the 40 grand a year living allowance. We're hoping to create a buffer cash fund of about 40 grand, possibly sitting in premium bonds, while investing the rest of the capital in general investment accounts and topping up ISAs every year to the 20 grand threshold. To use these to withdraw tax-free funds every year thereafter. Or is there another more efficient way to take the desired drawdown every year to keep our tax bill as low as possible?

14:33Pete Matthew: Many thanks and best wishes, Scott. This is dancing over the line into advice here, Scott. We've got to be very careful here. But basically what he says sort of makes sense, doesn't it? It does, yeah. I mean, the nice thing is once you get the state pension age, assuming you've both got full state pensions. It's 25 grand, 26. 26 grand is going to be in it. Yeah, shortly. Then you've got your DBs of another 29. So you're at 55 ,000 pounds. Gross. Gross. It's going to be comfortably 40 grand now, isn't it? Easy. Easy. So your concern really is the gap of seven years to fund£11 ,000. Because you have your DBs, you want£11 ,000 on top of that, and you'll have about a quarter of a million pounds based upon the tax-free cashes you've taken out, the money from your AVC, which you can take as full tax-free cash as long as you take it at the same time as you take your pension.

15:22And then you're downsizing. So you've got a quarter of a million pounds that's got to fund£11 ,000 a year for seven years.

15:29Pete Matthew: Should be all right. Like, all right, could probably fund 40 grand a year for seven years. Yeah. So you've got the money to give you the 40. That's what I'm saying, I think, is that you've got your money for your 40, Scott, and actually you've got your overwintering money there, probably in spades as well. I mean, you can't really tell until you do the proper plan, really. But in my head, rule of thumb, it looks like it should be fine. Yeah, I don't think you need to do anything either more fancy or, of course, more efficient than keeping the money and general investment accounts and topping up into ISAs.

16:00Pete Matthew: You don't need to think about investment bonds. They sort of have some benefits, but usually where trusts are concerned, I'm not sure I'd bother in this case. I think if we were advising you, we'd have to have very compelling reasons not to do the GIA-ISA thing. Just the obvious choice, really. Yeah. I mean, you could buy income earning funds if you wanted to, but you're only bridging this gap, really, until your state kicks in with your DB pensions and you're made up. Yeah. So I don't think you need to be worried about doing income earning funds. Don't worry about it. You're going to be fine.

16:32Pete Matthew: Enjoy your early retirement, Scott. Don't write. Question three, Rog. Question three. This is from Ben. It says, hi, Roger and Pete and production crew. Hey. Fantastic content and discussions. Thank you. Production crew of one. We only need the one. I'm approaching my half-century milestone. I'm in the fortunate position of having approximately£815 ,000 in a DZ pension, which I can access at 55 due to a protected pension age which is really good. And also a sizable stock portfolio but not in a nicer. What does sizable mean? It'd be interesting to know, wouldn't it? Yeah. 15 in a pension. Carry on, sorry.

17:07I've noticed that annual gains in my pension now significantly outweigh my contributions. I think this might be unintentional coast fire which we'll explain in a minute after Pete told me what it was. I've wondered what is the point of continuing high percentage salary sacrifice contributions. 30 % of base pay employ an employee given the pension fund compounding is at least triple what I contribute. I'm also in the unfortunate position of sitting in the middle of the 60 % tax trap. But my pension contributions still don't bring me below£100 ,000 because quarterly stock awards, which is a taxable event, and bonus continue to push me into the 60 % tax trap again.

17:42Dividend payments from stocks are approximately£5 ,000 per year, which I currently reinvest. I also have a cash ISA and stocks and shares ISA. It'll be all right, I think. Sounds like it should be fine. I have two young children, early secondary school age, and I contribute monthly amounts into the Junior SIP and Junior Stocks and Shares ISAs. My wife has a DB public sector pension, having worked in education for 30 plus years. She is the same age as myself. First question. I'll likely need to speak to an IFA, but would also appreciate your thoughts on stopping or reducing pension contributions and maybe redirecting it for other purposes, life experiences, increasing children's JISA and J-SIP, giving to charity, etc.

18:19The tax benefit of contributing to my pension is very attractive, but what is the point of saving more when I likely won't need it? I'm also wondering about spending money on life experiences now rather than waiting until I decide to draw my pension. I know where this is going to go. I suppose only I can answer that question, but is there something I'm missing? Probably not. Second question on my mind. What is the definition of surplus income when it comes to gifting, which I've started to think about a lot of IHT purposes? I would like to regularly gift to my children. as a hypothetical scenario.

18:50Pete Matthew: Easy for you to say. Yeah, it was. Can I just give them£500 each a month for my pension if I don't need it, or it is surplus to my living needs? For example,£4 ,000 a year per month income, £3 ,000 living cost,£1 ,000 per month left over. If I eat beans on toast, I could give them a lot more. Does the same apply to stocks or dividends? Can I gift them regularly and achieve the same tax benefits? Thanks, Ben. First question. So Ben says, What is the point of saving more when I likely won't need it? Coast fire. I did just double check. Because I'm sure I sounded very knowledgeable when I told you what it was earlier on.

19:25Pete Matthew: Suddenly I thought, okay, we're recording. I better just double check. And it is basically you've got to the point where without contributing any more, the growth on your pots will be enough to, even if you're not at the point where you want to retire yet, the growth between now and then will be enough to get you to the point you need. So I think Ben's question is exactly the right one. What is the point of saving more when I likely won't need it? And this is where we, professional advisors, but also people who have an interest in financial planning and personal finance generally, let the tax tail wag the dog.

20:00Pete Matthew: So, well, obviously, you need to keep paying into your pension because of the tax relief. So, I resent the word obviously there. If the choice is paying 40 % tax but using the net money to take the kids and the family on an amazing holiday, um, you know, to really get behind them in a hobby that they're passionate about. It's a no brainer to me. I would spend the money every single day of the week and pay the tax as a result. Some people don't, they just can't get their heads around that. But you know, the longer as I've been doing my job, I realized the money's not important. The thing is, if you know you're going to be okay at the far end, when you're going to be drawing your pension income, why, which you're not guaranteed to get there.

20:43Yeah. Right. Why not spend it now, or not it, spend more money now doing the things you want to do and putting money aside for your children, which is a good IHT plan as well, as you said, and enjoy the money. Yes, you're paying some tax, and the 60 % tax trap is not so nice, but you're still keeping 40 % of it. And once you're in there and you can't get out of it, what can you do? Spend the money, Ben. Whilst you're young enough and healthy enough to enjoy the money, then enjoy the money, is what I'd say.

21:13Pete Matthew: enjoy the money ben yeah just do it you won't regret it right i mean we often say you know nobody regrets having a bigger pension fund either but you certainly would had you missed out on opportunities with your kids and all that so if it's a choice between the two that could only go one way your second question is what is the definition of surplus income technically speaking it's the definition of the gifts from surplus income exemption that you want to know there's three rules to that you've got to tick all three in order for a gift to be from surplus income all right it's got to be regular by which i mean there's a there's no set definition of that but you've got to think it's got to be at least annually hasn't it really um it's got to be from income not capital and that's where it gets a bit tricky um because what you can't do is spend money so that's from your pension because so it's income but then draw from your isis to supplement your lifestyle because it's the same thing.

22:12Pete Matthew: You might as well just be giving away your ISIS, right? So it's got to be regular. It's got to be from income, not capital. And it cannot reduce your standard of living. So you do say, you know, if I eat beans on toast, I could give them a lot more. You could, but if that would have affected your standard of living. So even if it's voluntary, that would kind of negate the IHT benefits of giving them money. But crucially, the rules shouldn't stop you giving them money. No. If you want to give money, give money, right? Do it. I mean, you're already doing it into sort of junior ISIS and stuff. So, you know, don't let the tax tail wag the dog.

22:49Pete Matthew: Don't let the tax rules rob you of the joy of giving and spending time with your kids and creating great memories. There's always tax reasons to do stuff or not do stuff, but there's far more important life reasons. Very much so. Cool. I'd second that. Glad we're aligned on that. Amen. Preach. Right. Long question from Tim. Hi, Pete and Roger. First of all, love the podcast and a big thank you for all the work you guys do. Thank you for saying thank you, Tim. My question centers around salary sacrifice and unused pension allowance. I recently turned 55, having been employed in the same profession for well over 30 years and reached a fairly senior position.

23:24Pete Matthew: I'm feeling burnt out and I feel I need a change of pace for the remaining years of work, either by taking a step back from my current role or a complete change in direction. Fortunately, we, him and his wife, are in a position where I can afford to take significant reduction in salary, work for several more years while the pension pots continue to grow before we reach the point where we can both retire. Sounds a little bit like the coast fire. I currently have a salary of circa$75 ,000, car allowance of$6 ,000, and receive a discretionary annual bonus of around$2 ,000. So a total of income of about$83 ,000 a year.

23:59Pete Matthew: I also receive private medical insurance. That's got a taxable benefit of around$2 ,000. In order to try and remain a basic rate taxpayer since paying the mortgage off, I've been contributing circa 47 % of my salary into my work pension via salary sacrifice. My company also contributes 6.5%. Whilst I would like to change direction as soon as possible, if I continue in my current role for the remainder of the current financial year, I am due to receive a significant additional bonus, which could amount to around£50 ,000, likely won't be paid until the 27-28. tax year. I therefore intend to stay and secure this bonus, putting as much of it as possible into my pension to minimize tax.

24:38Pete Matthew: I'm aware I could potentially tap into previous year's unused allowance. This is the meat of the question here. However, given the pension is a salary sacrifice scheme, is this unused allowance the difference between my total taxable income and my total pension contribution during the year? Or is it the difference between the£60 ,000 maximum annual allowance and the total pension contribution. Clearly over the three years, this could make a substantial difference. If it is the latter, if I retain the same rate of salary sacrifice, and my total income in 27-28 remains about the same, would I also be limited to this as the maximum I could contribute?

25:16Pete Matthew: I'm going to kind of end it there. As you can probably tell, I'm a bit confused. I don't want to fall foul of the rules, so your thoughts will be most welcome. We need to explain how salary sacrifice works. Yeah, this is the nub of your question, really, tim um the way the salary sacrifice works is that you've got exactly right you earn well into the higher tax and threshold um and a really good ploy for the next two years i think isn't it till 2028 29 29 wow yeah um is that you can sacrifice your salary which you then say as a contract or agreement with your employer pay me less per month but put the money i'm foregoing sacrificing into my pension for me.

25:55So you're not paying tax on it. So you're not paying high rate tax on it. Then you also save national insurance on a large slab of that. And your employer saves national insurance. So that works out really, really well. Your confusion comes, then you try to count that your pension contributions of£38 ,000 count towards this limit. They don't. Yeah, because they're not his. If you salary sacrificed, you've not paid a penny into your pension. That's the thing that everyone gets confused. so you're not the only one so when it comes to your pension contribution you've got earnings of 48 ,250 using your calculation you've still got all of that available that you can pay in because you've not made any contributions your employer has done them all but the worry for you is that you can't pay 48 ,000 pounds on top of the 38 they've already paid in because that then takes you to nearly 80 which is over the 60 so that's what enables you to carry forward from previous tax years

26:48Pete Matthew: yeah as long as he's got relevant earnings to do it as long as he's got relevant earnings And if you salary sacrifice, then your relevant earnings are less. So the confusion is understandable, right? But essentially, I mean, if he gets the bonus and sacrifices it, if it takes him over the$60 ,000, that's okay as long as he's got carry forward because it's an employer contribution. Which he probably would have. Sounds like he would. Yeah. So as long as you've got remaining annual allowance, you know, carry forward from, you know, the year that you're in and then the previous three. Yeah. because the company can pay in what it likes.

27:22Pete Matthew: It's not limited to your salary, whereas your personal contributions are. So, yeah, you would probably salary sacrifice the bonus when it comes. Yeah, probably would do. And you'll probably have the headroom to do it, but you'll need to do those sums. Yeah, so your employer is limited to the 60, but they can go back, your opinion can go back three previous tax years and work back from the oldest one forward. Because they're not limited by your salary in the year that you make it. where you are. Yes, you are by your contributions. Yeah. And you've not made any. Although you've got 38 grand going into your pension, although it's come out of your salary, you've not paid it.

27:58It's classed as an employer contribution. It's a really good way of doing it.

28:01Pete Matthew: It is. Yeah, yeah. So do the sums, Tim. But you'd probably be all right. You just need to make sure you've got unused allowance, 60 minus what your employers and you have put in in each of those years. So it's a fairly straightforward sum. actually, when it comes to it. There are online calculators as well. Just search salary sacrifice calculator. You'll be able to work it out. Or carry forward, sorry. Carry forward calculator. Right, question five, Roger. Question five. This is from Nick. Hopefully not our Nick. And it says, Hi Nick, Roger and Pete. Probably not then, unless he's talking to himself.

28:34Well, you might do. Yeah.

28:36Pete Matthew: A range of things have happened. I'll keep this question as brief as I can. Love it. I'm currently serving in the Armed Forces, not our Nick. Once my service concludes as part of the AFPS 15, Armed Forces Pension Scheme 15 I will be given either a tax-free lump sum or an early departure payment depending on when I leave and my service length. My question is this will this payment count towards my lifetime pension tax-free cash withdrawal figure? Essentially will my tax-free limit from my SIP in the future be decreased by the value of this EDP or pension lump sum? The payment nor the Armed Forces Pension doesn't come from any pension pot so I'm unsure of whether the payment will count as tax-free cash as if it would if I were to withdraw it from my SIP.

29:19Thanks, gents. Nick.

29:20Pete Matthew: Yeah, straightforward from your SIP. Do you want to take this or do you want me to? I'm quite happy to go with this. Yeah, your pension scheme, Nick, it does depend which of these payments you get. That's the answer. Which is it? Yeah, if you get the tax-free lump sum, hint in the name there, it's classed as a tax-free lump sum from your pension, even though there's no funding behind. DB scheme. Yeah, it's a DB scheme. so if it's a tax-free lump sum based upon your pension that is tax-free which will count towards your overall lifetime allowance for your tax-free cash withdrawals if it's an early departure payment that's a compensation payment for early leaving the service early not early retirement leaving the service early and that is not class anything to do with pension that's compensation perfect couldn't have said it by myself that's it might try yeah yeah Yeah, we had to look some stuff up for that one.

30:15Pete Matthew: But the important thing is, with the services, there is no pension pot. The government gives you this guarantee of an income at some point in the future because they can't afford to put the money aside now. Because imagine how much they'd be paying in every year. So they pay the pension when it needs to be paid rather than funding the pot. So there is an equivalent value, but there is no pot. So if it is actually a tax-free lump sum and hence is deemed to be part of the pension, yes, that would use up some of your lump sum allowance, right? So let's just say it's£100 ,000 lump sum, nice easy figures.

30:48Pete Matthew: That would leave you 168275 of remaining lump sum tax-free that you could take from your SIP. So your SIP would have to be four times the size of that to get anywhere near the lump sum allowance. Okay, good question. Yeah, good question. And finally, question six. It's from Steve. Hi, both. I'm looking to retire in the next two years age 60 and for the first 15 years or so hopefully pay zero tax by living off my personal allowance drawn from my pension. Some tax free cash also taken from my pension and topped up with money held in my ISAs. So age 60, first 15 years draw into the personal allowance.

31:29Pete Matthew: There's already a wrinkle there. My question is, as a non-taxpayer and not earning any taxable income could I put$2 ,880 into a SIP each year for money held in an ISA, which would then receive the$720 top-up from the government, which I could then withdraw as part of my tax-free allowance, getting the$720 for free each year. 1444 myself and my partner. So if you do it for both of you. I understand I can only do this until age 75, but it seems like easy money if it's possible. The idea came to me when I recently set up a SIP for my son, who's going to university this year, so he isn't a taxpayer either.

32:02Pete Matthew: Obviously, he won't be able to draw down on the SIP for 40 years, but I can't see a reason why this wouldn't work for me. Is this workable? Thank you so much for looking at the question and I hope to see it answered on a future podcast episode. Steve. I mean, there used to be dedicated products for this. People used to sell them. I mean, I'm not sure I ever did, but I remember people coming and talking to us called immediate vesting personal pensions. Yeah, so it was literally, it was just like a transaction. Take out a pension, put the money in, get the tax relief, take it out straight away, quarter of it's tax free.

32:32Pete Matthew: And it works. It works. Yeah, I mean, it's the rules. That is how it works. And if the taxable element falls within your personal allowance, it'll commit tax-free. So it's all tax-free, technically. You've made 720 quid. Yeah, overnight. Overnight. It's free money. It's got to be worth doing. The thing that kind of leaps off the page, I'm looking to retire in the next two years, age 60, and for the first 15 years or so, hopefully pay zero tax by living off my personal allowance drawn from my pension. well at 67 your state pension is going to kick in and the new levels you're going to be it's going to use all of your personal allowance and a little bit more you're going to pay tax on it so you might find from that point on it'll have to be whatever tax free cash you've got left in the pension and ISAs and you won't be able to draw any income from the pension because you'll be already paying tax on it but you can but you'll pay tax so if you carry on doing your 2880s you'll be paying tax on the money you take out but if you only take out the tax free cash it's not a problem anyway yeah yeah but yeah Yeah, logic's right.

33:33Pete Matthew: Does work for the most part. Yep. Oh, good. I don't think is there anything else to say on that really but I think it's fairly straightforward, isn't it? Yeah. I mean, if you're going to pay tax on it when you draw it, the benefit is minimal but it's still worth doing. It's 180 quid or whatever in your hands Nick has worked out, I think. Right, okay. So that's after tax, I think. Yeah, so if you paid it in, got your tax free cash, paid tax on the stuff coming out, you're still 180 pound better off. Well, it's not to be sniffed at, is it? 180 pound a year. 15 quid a month. It's like a bar bill for me and you, isn't it?

34:02Pete Matthew: Lol. The irony is not... Exactly. Yeah, probably in our entire lives together, we spent 180 quid in a bar, let alone one evening. There we go. But yeah, good question, Steve. It's funny, isn't it? How people's minds work. And it's like, this idea came to me. Yes. Yeah, it's like, yeah. And lots of other people before you, but it's because you're thinking about this stuff and you're thinking about it in the right way, which is good. And it's funny that we don't think of these things because we know the rules. and it's like, well, I never even thought of that. But unless you don't know what you don't know.

34:33So you get these questions, you might say, actually, I've never even thought of that. That's a really good thing.

34:37Pete Matthew: Yeah, yeah, good shout. Excellent. Six questions done in 35 minutes. Yeah. Well, please keep the questions coming. Hope the answers were helpful. This is great because it keeps our grey cells moving around our brains as well. But please keep them coming at hello at meaningfulmoney.tv with a subject line podcast question and we'll try to use them in the future. We will. My grey matter's fine. I'm still working. Yeah, mine's falling at my ear as I speak. It's fading. Fading fast. Never mind. We'll keep you sharp here. Thank you. Yeah, well, Roger Weeks, warding off dementia one episode at a time.

35:13Good.

35:14Pete Matthew: That's it for this episode of the Meaningful Money Q &A. Any links that we have discussed? Have we? Yeah, probably some. There are probably some in there. There are the show notes, meaningfulmoney.tv slash QA63. As ever, we hope you enjoyed it. Thank you so much for listening. even thank you mr roger weeks cheers be we will talk to you next time