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00:00 The Question
02:00 Why do so many people find this hard?
04:34 How this affects real financial decisions
source
@JamesShack
Which option were you drawn towards? Did you second-guess yourself?
@andyodoherty1323
Assumption is that 40% at both points in time – the thing we are continually told is get 40%(or45%) relief now then when one retires on is on a lower rate of tax
@AgileSnowWeasel
It's interesting, that apart from getting your employer match as a standard rate taxpayer for pension contributions, you may be better off putting money into an ISA until the point you are a higher rate taxpayer.
Obviously things like NI contributions can affect this as well, if you get the full employee AND employer NI savings then the pension might still be better even as a 20% taxpayer (as you'll get 20% + 8% + 15%) although I I haven't run the numbers.
You may also be better off salary sacrificing more (once you are earning a lot) and living off the ISA instead of moving the ISA into the pension because of the NI.
And at the other end, early retirement gives you a tax free allowance, and you also get 25% tax free up to a limit. TBH with these the pension is likely to be best for most except those saving for a house deposit.
@MartynThomas1
In the past few years I have taken nearly £100k out of my ISA and put the money into my SIPP.
@michaelcarey7404
Great video James, pension recycling rules maybe worth a mention too for the few it could potentially affect.
@michaelcarey7404
Great video James, pension recycling rules maybe worth a mention too for the few it could potentially affect.
@grahamlewis6777
Hey James. I notice your Retirement Planner (2.0) isn't on your website anymore, unless I missed it. Why did you remove it? Don't sell me out, I know it had some assumptions in there about long term returns which may have made you nervous in this market maybe. Was that the concern? I liked it, and the user could tweak assumptions to reflect their risk appetite
@AndrewPotts-u3u
Surely the biggest problem is that assumptions remain on 'the rules' remaining the same, as opposed to the constant Government changes.
@liam-james
The real question is do you think something that is taxed at 40% today will be tax at 40% in 30 years?
I for one feel in 30 years taxes would have increased massively due to the rate the allowances and inflation of the money itself.
@SubZeroLondon
I'm sorry to say but both examples aren't comparable, secondly, very misleading. Very incorrect information in this video.
@calum6590
I love how invested we all are now in his kitchen upgrade haha. The pressure…. Just imagine if it looks worse
@yeaarfat
Sometimes you sit in the red and think: whats the point of all this? Then a notification from mevolaxy pops up – and the mood gets better))
@Vacheron7
I selected "identical" as my engineer brain cancelled out the common compounding multiplier.
The other issue is it sounds like the classic trick question where what instinctively looks like a bad decision turns out to be the best decision. 🙂
However, as @sl1kr1ky metions below, "A" could be the best decision as it may take less time or effort to "earn" £600 vs £1000. But (as revealed in this video, but not the initial question) "A" was in fact net of front loaded tax. Both would remain identical if A was considered to be sourced from £1000 of gross earned income.
@TheJubess
6:22 in my country it works different. You save tax now at higher rate and later when you are pensioned, you pay tax at lower rates over the money you withdraw. So that's an actual benefit
@629990
I don't know intuitively so I didn't guess I Ran the numbers through a compound growth calculator. And got the answer it's the same.
@kbdkbd99
"It is not a lack of intelligence …. but the shortcuts". The shortcuts are the intelligence. That's a shortcut.
You say these are people relatively good with numbers. I say the proof of the pudding is in the tasting.
@derekr1113
On 'Alex's' pension, if he takes route B and then uses the final investment pot as collateral for a loan, he will pay only interest and not tax, so wins
@SC41N3R
I feel a lot of people will misunderstand this and assume it's the same so just use an ISA for safety.
I know the tax free and personal allowance is mentioned, but i think (as presented) people are likely to see the pension as pointless with restricted access.
@AndrewGreenVellon
I thought the first 25% you draw out of your pension was tax free? That would give your pension the edge over ISAs if youre comparing them by value of final investment or have I over looked something?
@CleanerMark
That's why a 40% income tax, and excessive taxation in general, should be illegal. It simply demotivates people from working. I have met countless people who stop working or striving for more as soon as they hit a higher tax band.
@ShannonWilliams-b3e
We paid off our last credit card on New Year's Eve so we're into 2026 credit card free! This year we plan to pay off our truck, which is our last debt (other than our mortgage) and then we are never going back!!!
@danielalanine7379
You forgot about pension fees. ISAs dont have those.
@James-x5w2d
Sorry im being thick. You said later on he could put the isa money in a pension later on..but hes already had income tax applied so missed the opportunity to save tax at that point? Or is the way to do it, to simply use that isa to fund your expenses and then transfer more of salary into a pension? Or am i missing something, i.e. you can put 600quid into your pension manually and then get 400 via a tax rebate? I had a few beers last night so probably being a bit thick!
@bombardierboerboels
Option b because you got 20% of the £1000 for nothing of the government 🤷🏼♂️
@jonharraway2172
So Alex is following a sensible strategy and some intuition (or guesswork) is needed in relation to future legislation or earnings. I’m not sure of the point of this video?