James:
Fans of the Dentists Who Invest podcast. If you feel like there was one particular episode in the back catalogue in the anthology of Dentists Who Invest podcast episodes that really, really really was massively valuable to you, feel free to share that with a fellow dental colleague who’s in a similar position, so their understanding of finance can be elevated and they can hit the next level of financial success in their life. Also, as well as that, if you could take two seconds to rate and review this podcast, it would mean the world. To me, what that would mean is that it drives this podcast further in terms of reach so that more dentists across the world can be able to benefit from the knowledge contained therein. Welcome, welcome to the Dentists who Invest podcast. What’s up everyone. Hope you’re having an amazing day wherever in the world that you are.
James:
Welcome back to the Dentists Who Invest podcast, and today is an episode that I’ve been meaning to do for flipping ages, lysis versus pensions, because the thing about lysis is they don’t quite fit the mold of the rest of vices and actually, well, I don’t want to give too many spoilers away, but they’re more akin to pension vehicles, or at least they can be used in that instance. And to help me and assist me on this podcast. Today I’ve got my good friend, mr John Doyle. John, how are you?
Jon:
I’m very well. Thank you, mate. Yeah, how are you doing? I am?
James:
wonderful. Things are really, really, really popping these days, got a ton of stuff that I’m creating for dentistry. Invest on the back end. I’m super, super excited for 2023. How about you? What’s going on in john’s world these days?
Jon:
I think things again really excited. 2023 is going to be a big year for juniper. Um, we’re in a growth phase of the business, training up new advisors, taking on new clients.
James:
Uh, yeah, it’s exciting things happening, exciting things happening you know, honestly, when you get bitten by the business bug, it’s it feels flipping good, you know, and when you can create something, especially when you can create something that uplifts everybody else, you’re scaling that mountain and you’re lifting as you climb. It’s you climb, it’s flipping special. It’s not for everyone, but I mean for me. I find it harder to not think about it than think about it, than to not think about Dentistu Invest than to think about Dentistu Invest, and I think that just means you found your happy place, is all, john. What do you reckon?
Jon:
My wife’s got used to it now. There used to be a time when she’d be like, can you just stop talking about it or switch off for a minute. And it’s not like, you know, stressing at night or any of that kind of stuff anymore, but it’s more just um. When your mind goes quiet and you get still, it starts to run with ideas. And that’s the bit that I find exciting. Like when I’m on holiday, like day one, day two, chill, day three I’m like thinking right, where are we taking this, where are we taking this? What’s going on? And it’s because my yeah, it just excites me, it fulfills me, it uh, yeah, it’s good well, this is it.
James:
You can almost spot the entrepreneurial people out from a crowd because they just get so. Whenever an idea pops into their head, business or not, they get so excited, and that is one of the hallmarks for me. So I blip and hear you on that one, john. We should probably pull the things back to invest in in classic podcast form. Sometimes we wind up talking for 20 minutes about something else entirely. So I’ll be strict and swift with that one today for myself, mainly because I’m I’m the main culprit. But anyway, back to what we’re supposed to be talking about lysis versus pensions. Before we talk about lysis, it might be nice for people out there just to have an overview of ISAs, because a LISA is, of course, a type of ISA, and who better to ask than yourself on that one?
Jon:
Okay, yeah. So an ISA is just a savings vehicle. It’s something we can put cash or investments like stocks and shares into, can put cash or investments like stocks and shares into, and the ISA is a tax wrapper. The government provides us for legal tax mitigation and it enables us to invest in a tax efficient manner, so there will be no tax on any income or no tax on any capital gains that we might make from the investments that we have in there. There’s obviously a limit to how much we can put into ISIS each year. Currently that stands at 20,000, subject to change, but that’s the way ISIS goes. Everything. Budget day is a nightmare for financial advisors. What’s changing? What’s changing? It just means that ISIS is a great vehicle for putting money away into. We can grow and invest tax efficiently and hopefully make a lot of money over the long term that’s the idea cool.
James:
So specifically within that there’s different types of ices and we could jump straight into lysis. Here’s the thing I’ve always found it’s nice to have like a stick in the mud. Basically to compare, are you with me? Yeah, so we’ve got stocks and shares, isa, got cash, isa, etc. Maybe we could just elaborate a little bit more on those for people who are okay for the first time.
Jon:
Yeah, yeah. So, um, the probably the most familiar to most people is the cash isa. It’s what you’ll be able to open up with most banks and building societies. It is what it says on the tin. It’s an ISA that holds cash, usually either on a fixed-term basis, so you’ll put it in for one year, two years, three years, and they’ll give you a set interest rate, or you can get instant access ISAs as well. That will just provide an interest rate and all it does is hold cash Like a bank account. You pay no tax on the interest very nice.
James:
How are interest rates doing the? How have obviously the Bank of England put their interest rates up today? How is that filtering through the cash ICES?
Jon:
actually just as a little bit of a tangent, yeah we’re starting to see them come up a bit, a little bit over time. I said to someone recently that cash is having like a Sandra Bullock moment. Uh, you know, like Miss Congeniality, the film where, like Sandra Bullock’s, this mess of a CIA agent, that’s hard to say. And then halfway through the film they suddenly put makeup on, I take off her glasses, put her hair down and she’s hot. And everyone’s like, oh my goodness, sandra Bullock was hot. We never knew. And that’s kind of what’s happening with cash at the moment. We’re getting a lot more inquiries from clients. People have forgotten about it for the last 10 years, but yeah, we are seeing cash rates go up. We have cash management that we offer for clients, so we’re starting to see better rates. You know, maybe 2%, 2.5% on instant access, maybe even a touch more than that some places. So they’re starting to follow through.
James:
It’s still not as exciting as investing long-term but it does have that safety element to it.
Jon:
Cool, awesome, cash, isas being the classic then stocks and shares ISAs as well, right, an ISA wrapper where you can go and invest in, you know, either individual stocks and shares into certain investment funds, etf, index funds, whatever floats you boat investment wise. There are certain rules, but most um investment funds that you would be able to go out and buy would be available through stocks and shares ISA, yeah, and again, 20,000 can go into them, exactly the same, and you can move money between cash and stocks and shares ISAs depending on how you’re feeling about investment risk.
James:
Well, this is the key thing about ISAs apart from the black sheep of the family, which is the LISA, in a way, right, which is that you could put the money in and it’s freely accessible at any point, apart from Lysas and, of course, fixed term cash Isis, as you said, and I’d say that one of the coolest things about Isis now is most of the Isis certainly the ones we use at Juniper are called flexible Isis.
Jon:
And what a flexible Isis means is that you know you can only put 20,000 a year in, but if you need to take a lump sum out you can put all of that money back in within the same tax year. So I’ve had situations before where a client of mine was buying a new house. They haven’t quite completed on their old house, so we withdrew money from their ISA. We’ve been doing this with them disciplined way for a long time withdrew money from their ISA, bought the house, the new house, and then, when the old house sold, they put all that money back into their ISA several hundred thousand pounds.
James:
So they use their way.
Jon:
I didn’t know that yeah, and then another one. A client, a local dentist to me, was doing an extension. They were putting a new wraparound extension on one new surgery, new reception, and it looks really sweet, and they were just a bit short on the funding. Lloyd’s were messing around. It was kind of during that 2021. Are dentists still good? Are they safe, are they not? And so again, we used their isa to get the building work started. They withdrew the money in sort of april, may time, managed to get the stuff, uh, get the um extension sorted. Lloyd’s then sorted all the mortgages out once it was done and we repaid the money back into their isa before the end of March the following year.
James:
I did not know that was possible. That’s actually super interesting. So is that that’s only on specific providers? That’s only on stocks and shares ISAs with specific providers, right, or every provider? Yeah?
Jon:
a lot of it will come down to and this is where you get into the real weeds of how providers work A lot of it’s down to their computer systems. So the legislation says that isis can be flexible now. But if their computer system doesn’t allow you know they’ve hard-coded the one-way allowance calculation then it’s a whole big problem for them in developing their systems to allow flexible ISAs. But certainly you know and there are DIY providers who will offer flexible ISAs as well as advised platforms that will do flexible ISAs. Now it can be a really powerful tool.
James:
That is a flipping pearl right there. I did not know that. I mean, let’s set aside the software things. I didn’t even know that legally that was something that you could do, but there we are, interesting every day is a school day well, you know that is cool as hell. Anyway, onwards to lysis, because they differ a little bit from the ice mentioned previously, and unequivocally they’re. They’re not flexible, or at least not without a penalty right.
Jon:
Yeah, so the ISA. I like to think of it as like a hybrid between a pension and an ISA.
James:
It’s kind of their love child.
Jon:
Oh, wow, but not necessarily a good way. It’s got all the negatives of both potentially right. But a lifetime ISA it’s a type of ice where you, you have a much smaller limit and it forms part of your ice allowance. Right, so you can put four thousand pounds a year into your lifetime ice. You can only open it before your 40th birthday. You, you can only contribute to it until you’re 50. However, the upside is you get a 25% bonus from the government for every pound that you’re putting in. Okay, up to £1,000. So you put your £4,000 in, it suddenly becomes £5,000. Happy days pounds in, it suddenly becomes five thousand pounds. Happy days. The catch there’s always a catch. You never get anything free in life. There’s always a catch. The catch is that this money is then locked within this isa, except for very, very specific purposes.
Jon:
Buying your first home okay, that means that the people buying the house, right, are both first-time buyers, never bought a property before. This has caught a few people out. Well, maybe they’re getting together with someone who is has already owned a home. Maybe it’s a second marriage or something, or, um, you know, their partner’s previously owned a home. Maybe it’s a second marriage or something, or their partner’s previously owned a home, but they’re a first-time buyer. It’s caught some people out, so it’s buying a first home, or aged 60 or over. That’s where the pension element comes into. It is that it’s designed, locked up then, until you’re 60, or if you’re terminally ill with less than 12 months to live, and that will be a doctor as sort of giving you that diagnosis. So we get the upside of the tax relief, but it comes with a set of restrictive handcuffs. Other than that, it works in very similar ways to a normal eye, so you can invest in exactly the same things, often on exactly the same platforms, and it can sit side by side with your other ISAs Cool.
James:
And I’m right in saying there’s actually a distinction within ISAs in that there’s a cash ISA and a stocks and shares ISA right.
Jon:
I believe. So yeah, we don’t tend to get too involved with the cash side of things. Yeah, there probably are cash licenses out there. Um, we as advisors tend to focus more in the investment lifetime isa, because it’s locked up and you have to be 40 or under when you’re taking them out. These are a minimum 20-year investment because, you know apart from maybe if you’re imminently buying your first home but we found that most people taking them out are already already homeowners there’s a small sort of marketplace that these seem to work reasonably well with. So most people it’s a 20 plus year investment, in which case we don’t really want to be sitting around in cash for that that length of time with something that’s locked up. So we tend to focus more on the investment side than the cash ISA or cash LISA side.
James:
Yeah, here’s the thing. Here’s what I often get questions about. People will say, hey, I want to open up the stocks and shares, lisa, and I want to invest the money so I have more to buy my house. Oh and, by the way, I’m buying my house in six months time and I’m like whoa, whoa, whoa, whoa, whoa For the cash rewards. I get it. Yeah, is that something that you come across? Because what I’m getting at is generally timeframes over which we invest our money are much longer than six months.
Jon:
Yeah.
James:
Yeah, over which we invest our money are much longer than six months. Yeah, yeah, never guarantee we need to be careful with that word but to increase the odds of success as much as possible, right, so um the average age of a juniper client’s 51.
Jon:
uh, the average age of financial advisor clients when I talk to other practice owners is in their 60s. Okay, so the kind of when we’re thinking, you know dentists looking to buy their first property, probably late 20s, early 30s, depending on how life’s gone, some of them, some later. Generally speaking, we’re not talking to lots and lots of those clients. So those sort of first time buyers we’ve got some children of clients who will do this. I’ve got one, in fact, text me this week need to get hold of some money from my thing because he’s buying his first house. Fantastic, very happy for him.
Jon:
But you know, if you are there in that situation where you’re going, I’m looking to buy in the next 6, 12 months, even 2 years, we would always look at cash as being the way to go, especially if you’re on that very fixed pathway to buying. It’s a very deliberate plan to be buying in that time period because you just don’t know what the market is going to do in 6 to 12 months and anyone who put money into investments over the last 12 months to go and buy has probably ended up with less than they invested, depending on the investments they’re in which is why cash is king when it comes to short term hell yeah, and another thing we should mention as well.
James:
I believe that that house has to be under 450k. Maybe you mentioned that.
Jon:
Oh, that’s a good question. Yes, it does, yeah, yeah, yeah, it does have to be under 450k.
James:
Yeah, correct, massive right. So here’s the thing on that two year timeframe, when we’re very helpful to get advice, I would, uh, and I, I would unequivocally say that if we want to put that cash within the license of some work, yeah, I’m just also looking here.
Jon:
Um, you’ve got to buy the property at least 12 months after you make your first lifetime isa contribution also good to know yeah, yeah, so it’s not. It’s not something you want to get caught out on, um, you know you can. You can break your money out of the lifetime, isa, but it comes at a cost which i’m’m sure we’ll come on to later, but yeah.
James:
Yeah, Well, it’s 25% off the balance, I believe, and it’s designed to is the cost of reclaiming it.
Jon:
Yeah, so the way it works is if you needed to break your money out of the lifetime ISA, you get hit with a 25% withdrawal penalty. Now, on the face of it, that can sound very much like you’re just paying back your initial bonus of 25%. Let’s just look at some numbers. So you put £4,000 in, you’ve got your 25% bonus. We’ve now got £5,000 in our lifetime ISA bonus. We’ve now got £5,000 in our lifetime ISA Sat in cash and we immediately realized we’ve made a mistake and we want to get this money out. So we’ve not made any interest. We pay a 25% withdrawal penalty, which is £1,250. And we end up with £3,750, less than we put in. So breaking out of these does come at quite a cost. It’s possible, but it’s not something we want to ever have to do, and it’s why we need to think really carefully about what the purpose of using a lifetime ISA is versus other savings vehicles, for what we’re trying to achieve here.
Jon:
And that’s where this buying that first home has caught a number of people. I’ve seen a number of things in the press about this of you know person. One new couple comes together through lockdown or whatever, and they’re falling in love. They’re very happy. They want to buy a house together. They buy a a house together. They find out that one of them has owned a house previously and they. Therefore they are not first-time buyers and the lifetime isa can no longer be used or they have to pay the penalty real quick, guys.
James:
I’ve put together a special report for dentists, entitled the seven costly and potentially disastrous mistakes that dentists make whenever it comes to their finances. Most of the time, dentists are going through these issues and they don’t even necessarily realize that they’re happening until they have their eyes opened, and that is the purpose of this report. You can go ahead and receive your free report by heading on over to wwwdenisoninvestcom forward slash podcast report or, alternatively, you can download it using the link in the description. This report details these seven most common issues. However, most importantly, it also shows you how to fix them.
James:
I’m really looking forward to hearing your thoughts. Good to know the T’s and C’s, because it’s super important, right? And here’s why, specifically why I want to do a podcast on Lysys because people reach out to me and they’re like oh yeah, 25% on top of the money that you contribute, how, how can any investment beat that? And the answer is that over a short time frame, no, it can’t. 25 is a huge, is a huge reimbursement, is a huge return. Are you with me?
James:
But here’s the thing. It’s kind of like, you know, it’s like running into that. You don’t. You don’t realize that when you put that money through the letterbox of the house. You haven’t actually got the key to the house, okay, until you’re 57. And it can be doing whatever the heck it likes in there, right, we have to think about the next step, right, and I feel exactly this is exactly why I wanted to do this podcast is because I feel like that dangling carrot is too much for people to resist almost in the short term, and we have to think about the short term and the next step to actually get this money back, which is just what you neatly described.
Jon:
Yeah, perfect, lovely stuff.
James:
And I think we said everything Right. Yeah, we got them. Anything you’d like to add?
Jon:
I don’t think there’s much more. You know, we’ll probably come into why we might want to use them and the things we want to use them for in a bit. Sure, Because they can fit neatly into a financial plan, they can fulfil a purpose. But for me personally, unless we’re already on that path to buying a property and we know who we’re buying the property with, it’s not something that I have property purchase in mind for when we’re looking at lifetime ISAs.
James:
Cool, good to know. Onwards to pensions so I heard a really nice description of a pension the other day and it’s an investment account with t’s and c’s a bit like a nice, a bit like elisa, but and this is why they’re often compared, right, yeah?
Jon:
yeah, yeah, because, um, essentially what we’re trying to do with the pension is provide for our long-term future. So, again, again, it’s an investment with T’s and C’s, an investment with some handcrafts. We get the tax relief, whether that’s corporation tax relief, by paying for it through our company, whether it’s personal tax relief, by making personal contributions. It grows tax-free, in the same way the ISAs and the tax-efficiently, in the same way the ISAs and the pension and the lifetime ISAs do. But we can’t access it until we’re at a certain point in time. Most people are 55. In their mind it’s 10 years before state retirement age. So, depending on who you are, that could be 55, it could be 57, it could be 58 and as the state pension inevitably moves higher, it will follow it 10 years before and so we’re very much looking at these as vehicles to fund our exit from working life in later life, I guess.
James:
Yeah, 100%. So yeah, with regards to pensions, there’s a few other things that make pensions lucrative, right, like succession, et cetera, and things along those lines. It’d be helpful to go into those, and then what we’ll do is we’ll do a comparison. That will be highly valuable.
Jon:
Yeah, sure. So it’s very likely that there’s two types of pensions that listeners will have. A lot of dentists still have NHS pension and then, if they’ve been fully private or they do some private work, they will potentially also have a personal pension or SIP or other type of individual pension. So the NHS pension is what we call a defined benefit. It’s a promise of an income.
James:
You’ve got some great podcasts already on it, so if people want the nuts and bolts of that, go find them 100%, episode 14 with myself and Luke Hurley, and also a really cool one that I did somewhat recently with Ian Hawk, and we’ve done the nhs podcast of death. Those are gold mines yeah, yeah, exactly.
Jon:
So, very simply, promise of an income. It’s not a pot of money and at a certain point, depending on the scheme, you will start getting that income coming in. Your partner will get half of that, usually if you pre-decease them, and then on your death it expires. With a SIP or a personal pension, what you have is a lump of money that at some point you will just put a tap on and you’ll start drawing money from it. Depending on your circumstances, that can be a monthly income or it could be lumps. You do get your 25% tax-free, which is why everyone thinks that we’re forgetting about it.
Jon:
This isn’t necessarily going into the technical details of pensions, but one of the advantages that a personal pension or SIP will have is, on your death, that money is completely inherited by your beneficiaries. Depending on the time of your death before or after age 75, it either passes tax-free if you die before 75, or if you’re over 75, it is inherited as a pension scheme by the beneficiary, so they get to draw it at their marginal rate of tax. What it never does is very rarely will it form part of your estate. There’s a couple of loopholes that you need to watch out for if you’re meddling with pensions later, but most of the time it doesn’t form part of your taxable estate and therefore bypasses inheritance tax. It doesn’t form part of your taxable estate and therefore bypasses inheritance tax, so it can be a very interesting and useful tool for passing wealth on as well as providing for your own personal financial future.
James:
Good to know. Two quick things to add value to this podcast which are relevant to what we’re talking about. First of all, a way that I heard ISIS compared to pensions very neatly was that with isis, you get taxed on the way in, you don’t get taxed on the way out. Pensions, you don’t get taxed on the way in, but you do get taxed on the way out. So what does that mean? So let’s talk about your isis. So, first of all, that money has to be in your personal name for you to invest that right. It can’t be in a company, it can’t be in yeah, yeah, it has to be personal money.
Jon:
You either have to pay dividend tax or income tax to get it in your personal name, and then you pop that money into the pension that’s right, whereas the beautiful thing about a pension is you can take 40k from your business.
James:
Just stick it straight in there, right?
Jon:
yeah, and in fact you can use. You can carry forward unused allowance as well, so you can sometimes, in some circumstances, go beyond even the 40K.
James:
Yes, that’s right, because I think it’s three years in the past if you haven’t maxed out your contributions, but the account’s been open, something along those lines yeah, as long as you’ve got a pension lying around somewhere, then you can uh put this in, uh you can use those allowances.
Jon:
So, for example, if you had a dentist who did three years nhs, they’ve got an nhs pension, but a decade ago they’ve been working private ever since, never bothered with a pension. They could. They could put 160k into into a pension in some circumstances.
James:
Holy moly, good to know. Good to know. Second thing I was going to say just then. Second thing I was going to say to what we talked about earlier here is the most succinct and neatly I’ve ever heard someone describe the pros and cons or compare the pros and cons between different investment vehicles or different tax wrappers. Okay, basically, you can distill everything down to pretty much two questions and then go from there right, and this is really neat, right? First thing is accessibility. When can you get your money? If that’s, if that’s so important to you that you need to have access to your money in three, four years, then actually that trumps everything, if you think about it. So we can almost put the other advantages to one side and then we let that govern our choice, right, yeah? Second thing to consider Now. By the way, these are not this is not a definitive list, by the way. There’s obviously more.
Jon:
Yeah, yeah, yeah. These are the main two yeah, yeah yeah, these are the main.
James:
these are the main two. Yeah, yeah, number one accessibility. So, like I say, if not being able to touch your money until your state pension is, or 10 years before state pension is, or whatever, it’s a non-negotiable for you, then actually should we be thinking about a pension, or, elisa, maybe not right? Second thing tax tax advantages right, and if you purely straight up just want to save a ton of money on income tax, then you’re more likely going to lead lean towards a pension. I thought that was really neat.
Jon:
That’s your decision tree right there so it’s like three things that I I often talk about that any financial planning process should, should, give to people or bear in mind. Right one is the truth of our current financial situation how grim is it or how good is it? Second is the hope that in the end, with whatever planning we’re going to do, we’re going to be all right. But the third one, and the most important one, is choice. We’ve got to make sure that in our planning, we build choice into it. And that’s where this thing with lifetime ISAs, pensions, isas comes in, because what are each of these do? Well, they either open up choices to us or they restrict choices when it comes to the unknown future that we’re living in.
Jon:
What my experience tells me is that most people are pretty bad at knowing what’s going to happen in 10 or 15 years in their lives. Bad at knowing what’s going to happen in 10 or 15 years in their lives, let alone the 30 years before. You know, you and I end up anywhere near sort of state pension age. I’ll be a bit bit there a bit sooner than you, but uh, you know, when we’re talking about these long sweeps of time, it’s very, very hard. There’s so many potential futures that we could be living in. And, in the meantime, all these decisions we make now either keep choice on the table or have choice off the table for us, and that’s the time and the tax there. You know time is so important. We need to know when we’re going to be accessing this money or that we’ve got choices and options when it inevitably hits the fan beautifully described.
James:
I love that. Let’s pull things back. We went on a tangent there, but it’s okay because there was a ton of value. That was very useful and I love that. I love freestyling. By the way, all these podcasts are ad lib. We barely plan anything before we come on. Let’s pull things back to lices versus pensions.
Jon:
In your experience.
James:
what planning considerations should people think about before they make that choice?
Jon:
Yeah, so the first one, really and I’m going to be a bit naughty here. You’ve told me not to do this, but I’m going to pull ices just into this conversation a little bit. Okay, that’s cool, because the thing that we need to think through is when do we want this money and what choices are we giving up or keeping on the table when we’re putting money into these savings vehicles? Because each of them can have the same investments in them? Right, we wouldn’t do this. But let’s say you just want an S&P 500 index fund, right, it’s nice, and we can have the same thing in all of them, so they’ll do the same thing over time.
Jon:
Right now, with a pension, the agreement that you’re making with your future self is very, very clear I’m putting this money into a pension. At some point in my future, I will draw this money down and I will get full tax relief, not just the 25% uplift, but full tax relief on this contribution. For most dentists that’s going to be somewhere 40% to 45%. It could even be more than that nasty tax track around 100 grand For their business owner. From April it is a 25% corporation tax, depending on their profit levels, so it’s a very attractive tax relief is a 25% corporation tax, depending on their profit levels, right? So it’s a very attractive tax relief.
Jon:
And we’re making this contract with our future selves that this money is for my retirement. It’s a very clear contract with your older self With a lifetime ISA one. We’ve got to get that money into our personal name. So that’s a consideration that you’re going to have to make. And then it’s this question of what is the contract that I’m making with my future self, and I think there’s quite a few unknowns around that that make that quite difficult. Is this money that we’re going to access earlier? Is this money that I’m going to um, you know, leave for my retirement? There’s too many unknowns there for me that make it a little bit more fuzzy as to the agreement we’re making with ourselves. But then I saw it’s. I probably will need this money at some point in the, you know, middle to long-term often, you know, school fees or with a lot of dentists, I have this phrase of minding the gap.
Jon:
Okay, so, um. So most dentists I speak to have an age of 60 in their mind for retirement. It comes from nowhere else other than an anchoring effect with the 95 pension scheme, right?
Jon:
Yeah, it’s cultural, right, it’s cultural yeah, retirement at 60, because every dentist who came before me retired at 60. For anyone in the 2015 scheme or in private pensions, this isn’t the case anymore. You don’t have this age, but we still have this desire of retiring before state pension age. So we’ve got this gap between when we want to retire and when all our NHS pension income comes in, or a state pension, and so it might be that we’re looking to fund the gap there between 60 and 68. Might be that we’re trying to fund other things. So it’s really important, when you’re going through these decisions, to work out what is the purpose I’m trying to achieve with this. And then, am I using a pension, a lifetime ISA or an ISA to to fill that need?
James:
yeah. So it’s a, it’s a cash flow financial planning thing, right, yeah, 100%, yeah, 100%, that’s cool, that’s cool. Anything else, oh, here’s actually something interesting, right? So the profile of a person and we can speak broadly here without being too specific the profile of a person who picks a LISA versus a private pension. Is there any common denominators or common factors?
Jon:
Yeah. So where we tend to use them is where we’ve got either annual allowance or lifetime allowance. Concerns, ah, lovely. So someone who is already putting 40,000 into their pension or because of their NHS pension might be over that. Any doctors having a sneaky listen might know that as well. So someone who’s already maxing out their pensions or someone who’s, through investment, growth and diligent savings, getting up towards that lifetime allowance of 1.1, whatever it is these days million, in which case we go. I’m already doing everything I can on maximising tax relief on putting into pensions. I still want to put money away for retired me and then a lifetime ISA could fit that bill, because you will get that tax relief and your contract with your future self is this is for 60 plus year old me future self is.
James:
This is, for 60 plus year old me, very nice. Here’s something that just popped into my head. For anybody who has got this far in the podcast, I know what it’s like to listen to a podcast. Your mind starts to wander a little bit. Okay, you’re in the shower, you’re driving home, you’re in the gym, you’re doing a rep. Listen the hell up to this part right now, because this will be very valuable, john, is there any disadvantage to just opening a Lysa, sticking a quid in it before you’re 40 and just keeping it ticking along?
Jon:
Not that I can think of, and I’ve done this with a couple of clients. You know, one of the things with the Lifetime, lysa, is you have to open it before you’re 40. And if you get to age 40 in one day, you’re not allowed to open one up, but you don’t have to contribute every year. So, yes, you could well if you want to, if you’ve got FOMO, if you’re reaching your birthday, open up a lifetime ISA.
Jon:
You could even open up a cash lifetime, lifetime ice. If you’re, you know, maybe a bit risk averse or you don’t like making decisions under pressure, and get get one opened, you can transfer them, you can, you can top it up in future years and at least you have the option. That choice is still on the table for you, um, when in your planning through your 40s and 50s in terms of contributions?
James:
that’s a nicer hack right there, you know and there’s actually a few other isa hacks like that and we should probably do a podcast on that someday. A summary of isa hacks the things that you need to know about your isa to get the max out of it. Isa hacks there we go.
Jon:
I just made like that flexible isa hack from earlier exactly, yeah, this is it, this is it.
James:
And there’s also that thing, uh, where it’s like if you’re between 16 and 18, you can have a junior isa and a cash isa at the same time, so you can actually receive 29 000 pounds in total into your own name. I’m right in saying that, right?
Jon:
yeah, yeah, yeah, and it is that. That’s great if you’re thinking about your own children and you trust them not to go and blow that money when they turn 18 yeah listen.
James:
That was a flipping awesome podcast, john. Thank you so much for your time. For anybody who’s listening, john doyle on the group juniper wealth. John, can you give us a little bit more information about where to find you?
Jon:
uh, yeah, you can find me juniper, underscore john, uh on instagram and twitter. You can find me on linkedin as well, uh, and at juniperwealthcouk, or you can just dm me on on facebook. I’m all over the group trying to add value and it’d be helpful where I can, probably trying to add too much nuance to Facebook comments. No, you know something really funny my 15 year old knows when I’m commenting on the Facebook group because she laughs at my face and the the kind of almost like I’m playing a conversation in my face. What are you doing?
James:
that that’s fine. I recognize that pure concentration and it’s probably testament to the amount of thought you’re putting in, to the value they give on there. So thank you, john, we owe you it’s a pleasure much love my man john blinding podcast today. Always pleasure to have you. We’ll catch up very soon.
James:
I’ll see you later, see you soon if you enjoyed this podcast, please hit, follow or subscribe so you can stay up to date with information on new podcasts which are released weekly. Please also feel free to leave a positive review so others can learn about this podcast and benefit from it. I would also encourage any fans of the podcast to sign up to the free facebook community from which the podcast originated. Please search Dentists who Invest on Facebook and hit join to become part of a community of thousands of other dentists interested in improving their finances, well-being and investing knowledge. Looking forward to seeing you on there.
James:
Fans of the Dentists Who Invest podcast. If you feel like there was one particular episode in the back catalogue in the anthology of Dentists Who Invest podcast episodes that really, really really was massively valuable to you, feel free to share that with a fellow dental colleague who’s in a similar position, so their understanding of finance can be elevated and they can hit the next level of financial success in their life. Also, as well as that, if you could take two seconds to rate and review this podcast, it would mean the world. To me, what that would mean is that it drives this podcast further in terms of reach so that more dentists across the world can be able to benefit from the knowledge contained therein. Welcome, welcome to the Dentists who Invest podcast. What’s up everyone. Hope you’re having an amazing day wherever in the world that you are.
James:
Welcome back to the Dentists Who Invest podcast, and today is an episode that I’ve been meaning to do for flipping ages, lysis versus pensions, because the thing about lysis is they don’t quite fit the mold of the rest of vices and actually, well, I don’t want to give too many spoilers away, but they’re more akin to pension vehicles, or at least they can be used in that instance. And to help me and assist me on this podcast. Today I’ve got my good friend, mr John Doyle. John, how are you?
Jon:
I’m very well. Thank you, mate. Yeah, how are you doing? I am?
James:
wonderful. Things are really, really, really popping these days, got a ton of stuff that I’m creating for dentistry. Invest on the back end. I’m super, super excited for 2023. How about you? What’s going on in john’s world these days?
Jon:
I think things again really excited. 2023 is going to be a big year for juniper. Um, we’re in a growth phase of the business, training up new advisors, taking on new clients.
James:
Uh, yeah, it’s exciting things happening, exciting things happening you know, honestly, when you get bitten by the business bug, it’s it feels flipping good, you know, and when you can create something, especially when you can create something that uplifts everybody else, you’re scaling that mountain and you’re lifting as you climb. It’s you climb, it’s flipping special. It’s not for everyone, but I mean for me. I find it harder to not think about it than think about it, than to not think about Dentistu Invest than to think about Dentistu Invest, and I think that just means you found your happy place, is all, john. What do you reckon?
Jon:
My wife’s got used to it now. There used to be a time when she’d be like, can you just stop talking about it or switch off for a minute. And it’s not like, you know, stressing at night or any of that kind of stuff anymore, but it’s more just um. When your mind goes quiet and you get still, it starts to run with ideas. And that’s the bit that I find exciting. Like when I’m on holiday, like day one, day two, chill, day three I’m like thinking right, where are we taking this, where are we taking this? What’s going on? And it’s because my yeah, it just excites me, it fulfills me, it uh, yeah, it’s good well, this is it.
James:
You can almost spot the entrepreneurial people out from a crowd because they just get so. Whenever an idea pops into their head, business or not, they get so excited, and that is one of the hallmarks for me. So I blip and hear you on that one, john. We should probably pull the things back to invest in in classic podcast form. Sometimes we wind up talking for 20 minutes about something else entirely. So I’ll be strict and swift with that one today for myself, mainly because I’m I’m the main culprit. But anyway, back to what we’re supposed to be talking about lysis versus pensions. Before we talk about lysis, it might be nice for people out there just to have an overview of ISAs, because a LISA is, of course, a type of ISA, and who better to ask than yourself on that one?
Jon:
Okay, yeah. So an ISA is just a savings vehicle. It’s something we can put cash or investments like stocks and shares into, can put cash or investments like stocks and shares into, and the ISA is a tax wrapper. The government provides us for legal tax mitigation and it enables us to invest in a tax efficient manner, so there will be no tax on any income or no tax on any capital gains that we might make from the investments that we have in there. There’s obviously a limit to how much we can put into ISIS each year. Currently that stands at 20,000, subject to change, but that’s the way ISIS goes. Everything. Budget day is a nightmare for financial advisors. What’s changing? What’s changing? It just means that ISIS is a great vehicle for putting money away into. We can grow and invest tax efficiently and hopefully make a lot of money over the long term that’s the idea cool.
James:
So specifically within that there’s different types of ices and we could jump straight into lysis. Here’s the thing I’ve always found it’s nice to have like a stick in the mud. Basically to compare, are you with me? Yeah, so we’ve got stocks and shares, isa, got cash, isa, etc. Maybe we could just elaborate a little bit more on those for people who are okay for the first time.
Jon:
Yeah, yeah. So, um, the probably the most familiar to most people is the cash isa. It’s what you’ll be able to open up with most banks and building societies. It is what it says on the tin. It’s an ISA that holds cash, usually either on a fixed-term basis, so you’ll put it in for one year, two years, three years, and they’ll give you a set interest rate, or you can get instant access ISAs as well. That will just provide an interest rate and all it does is hold cash Like a bank account. You pay no tax on the interest very nice.
James:
How are interest rates doing the? How have obviously the Bank of England put their interest rates up today? How is that filtering through the cash ICES?
Jon:
actually just as a little bit of a tangent, yeah we’re starting to see them come up a bit, a little bit over time. I said to someone recently that cash is having like a Sandra Bullock moment. Uh, you know, like Miss Congeniality, the film where, like Sandra Bullock’s, this mess of a CIA agent, that’s hard to say. And then halfway through the film they suddenly put makeup on, I take off her glasses, put her hair down and she’s hot. And everyone’s like, oh my goodness, sandra Bullock was hot. We never knew. And that’s kind of what’s happening with cash at the moment. We’re getting a lot more inquiries from clients. People have forgotten about it for the last 10 years, but yeah, we are seeing cash rates go up. We have cash management that we offer for clients, so we’re starting to see better rates. You know, maybe 2%, 2.5% on instant access, maybe even a touch more than that some places. So they’re starting to follow through.
James:
It’s still not as exciting as investing long-term but it does have that safety element to it.
Jon:
Cool, awesome, cash, isas being the classic then stocks and shares ISAs as well, right, an ISA wrapper where you can go and invest in, you know, either individual stocks and shares into certain investment funds, etf, index funds, whatever floats you boat investment wise. There are certain rules, but most um investment funds that you would be able to go out and buy would be available through stocks and shares ISA, yeah, and again, 20,000 can go into them, exactly the same, and you can move money between cash and stocks and shares ISAs depending on how you’re feeling about investment risk.
James:
Well, this is the key thing about ISAs apart from the black sheep of the family, which is the LISA, in a way, right, which is that you could put the money in and it’s freely accessible at any point, apart from Lysas and, of course, fixed term cash Isis, as you said, and I’d say that one of the coolest things about Isis now is most of the Isis certainly the ones we use at Juniper are called flexible Isis.
Jon:
And what a flexible Isis means is that you know you can only put 20,000 a year in, but if you need to take a lump sum out you can put all of that money back in within the same tax year. So I’ve had situations before where a client of mine was buying a new house. They haven’t quite completed on their old house, so we withdrew money from their ISA. We’ve been doing this with them disciplined way for a long time withdrew money from their ISA, bought the house, the new house, and then, when the old house sold, they put all that money back into their ISA several hundred thousand pounds.
James:
So they use their way.
Jon:
I didn’t know that yeah, and then another one. A client, a local dentist to me, was doing an extension. They were putting a new wraparound extension on one new surgery, new reception, and it looks really sweet, and they were just a bit short on the funding. Lloyd’s were messing around. It was kind of during that 2021. Are dentists still good? Are they safe, are they not? And so again, we used their isa to get the building work started. They withdrew the money in sort of april, may time, managed to get the stuff, uh, get the um extension sorted. Lloyd’s then sorted all the mortgages out once it was done and we repaid the money back into their isa before the end of March the following year.
James:
I did not know that was possible. That’s actually super interesting. So is that that’s only on specific providers? That’s only on stocks and shares ISAs with specific providers, right, or every provider? Yeah?
Jon:
a lot of it will come down to and this is where you get into the real weeds of how providers work A lot of it’s down to their computer systems. So the legislation says that isis can be flexible now. But if their computer system doesn’t allow you know they’ve hard-coded the one-way allowance calculation then it’s a whole big problem for them in developing their systems to allow flexible ISAs. But certainly you know and there are DIY providers who will offer flexible ISAs as well as advised platforms that will do flexible ISAs. Now it can be a really powerful tool.
James:
That is a flipping pearl right there. I did not know that. I mean, let’s set aside the software things. I didn’t even know that legally that was something that you could do, but there we are, interesting every day is a school day well, you know that is cool as hell. Anyway, onwards to lysis, because they differ a little bit from the ice mentioned previously, and unequivocally they’re. They’re not flexible, or at least not without a penalty right.
Jon:
Yeah, so the ISA. I like to think of it as like a hybrid between a pension and an ISA.
James:
It’s kind of their love child.
Jon:
Oh, wow, but not necessarily a good way. It’s got all the negatives of both potentially right. But a lifetime ISA it’s a type of ice where you, you have a much smaller limit and it forms part of your ice allowance. Right, so you can put four thousand pounds a year into your lifetime ice. You can only open it before your 40th birthday. You, you can only contribute to it until you’re 50. However, the upside is you get a 25% bonus from the government for every pound that you’re putting in. Okay, up to £1,000. So you put your £4,000 in, it suddenly becomes £5,000. Happy days pounds in, it suddenly becomes five thousand pounds. Happy days. The catch there’s always a catch. You never get anything free in life. There’s always a catch. The catch is that this money is then locked within this isa, except for very, very specific purposes.
Jon:
Buying your first home okay, that means that the people buying the house, right, are both first-time buyers, never bought a property before. This has caught a few people out. Well, maybe they’re getting together with someone who is has already owned a home. Maybe it’s a second marriage or something, or, um, you know, their partner’s previously owned a home. Maybe it’s a second marriage or something, or their partner’s previously owned a home, but they’re a first-time buyer. It’s caught some people out, so it’s buying a first home, or aged 60 or over. That’s where the pension element comes into. It is that it’s designed, locked up then, until you’re 60, or if you’re terminally ill with less than 12 months to live, and that will be a doctor as sort of giving you that diagnosis. So we get the upside of the tax relief, but it comes with a set of restrictive handcuffs. Other than that, it works in very similar ways to a normal eye, so you can invest in exactly the same things, often on exactly the same platforms, and it can sit side by side with your other ISAs Cool.
James:
And I’m right in saying there’s actually a distinction within ISAs in that there’s a cash ISA and a stocks and shares ISA right.
Jon:
I believe. So yeah, we don’t tend to get too involved with the cash side of things. Yeah, there probably are cash licenses out there. Um, we as advisors tend to focus more in the investment lifetime isa, because it’s locked up and you have to be 40 or under when you’re taking them out. These are a minimum 20-year investment because, you know apart from maybe if you’re imminently buying your first home but we found that most people taking them out are already already homeowners there’s a small sort of marketplace that these seem to work reasonably well with. So most people it’s a 20 plus year investment, in which case we don’t really want to be sitting around in cash for that that length of time with something that’s locked up. So we tend to focus more on the investment side than the cash ISA or cash LISA side.
James:
Yeah, here’s the thing. Here’s what I often get questions about. People will say, hey, I want to open up the stocks and shares, lisa, and I want to invest the money so I have more to buy my house. Oh and, by the way, I’m buying my house in six months time and I’m like whoa, whoa, whoa, whoa, whoa For the cash rewards. I get it. Yeah, is that something that you come across? Because what I’m getting at is generally timeframes over which we invest our money are much longer than six months.
Jon:
Yeah.
James:
Yeah, over which we invest our money are much longer than six months. Yeah, yeah, never guarantee we need to be careful with that word but to increase the odds of success as much as possible, right, so um the average age of a juniper client’s 51.
Jon:
uh, the average age of financial advisor clients when I talk to other practice owners is in their 60s. Okay, so the kind of when we’re thinking, you know dentists looking to buy their first property, probably late 20s, early 30s, depending on how life’s gone, some of them, some later. Generally speaking, we’re not talking to lots and lots of those clients. So those sort of first time buyers we’ve got some children of clients who will do this. I’ve got one, in fact, text me this week need to get hold of some money from my thing because he’s buying his first house. Fantastic, very happy for him.
Jon:
But you know, if you are there in that situation where you’re going, I’m looking to buy in the next 6, 12 months, even 2 years, we would always look at cash as being the way to go, especially if you’re on that very fixed pathway to buying. It’s a very deliberate plan to be buying in that time period because you just don’t know what the market is going to do in 6 to 12 months and anyone who put money into investments over the last 12 months to go and buy has probably ended up with less than they invested, depending on the investments they’re in which is why cash is king when it comes to short term hell yeah, and another thing we should mention as well.
James:
I believe that that house has to be under 450k. Maybe you mentioned that.
Jon:
Oh, that’s a good question. Yes, it does, yeah, yeah, yeah, it does have to be under 450k.
James:
Yeah, correct, massive right. So here’s the thing on that two year timeframe, when we’re very helpful to get advice, I would, uh, and I, I would unequivocally say that if we want to put that cash within the license of some work, yeah, I’m just also looking here.
Jon:
Um, you’ve got to buy the property at least 12 months after you make your first lifetime isa contribution also good to know yeah, yeah, so it’s not. It’s not something you want to get caught out on, um, you know you can. You can break your money out of the lifetime, isa, but it comes at a cost which i’m’m sure we’ll come on to later, but yeah.
James:
Yeah, Well, it’s 25% off the balance, I believe, and it’s designed to is the cost of reclaiming it.
Jon:
Yeah, so the way it works is if you needed to break your money out of the lifetime ISA, you get hit with a 25% withdrawal penalty. Now, on the face of it, that can sound very much like you’re just paying back your initial bonus of 25%. Let’s just look at some numbers. So you put £4,000 in, you’ve got your 25% bonus. We’ve now got £5,000 in our lifetime ISA bonus. We’ve now got £5,000 in our lifetime ISA Sat in cash and we immediately realized we’ve made a mistake and we want to get this money out. So we’ve not made any interest. We pay a 25% withdrawal penalty, which is £1,250. And we end up with £3,750, less than we put in. So breaking out of these does come at quite a cost. It’s possible, but it’s not something we want to ever have to do, and it’s why we need to think really carefully about what the purpose of using a lifetime ISA is versus other savings vehicles, for what we’re trying to achieve here.
Jon:
And that’s where this buying that first home has caught a number of people. I’ve seen a number of things in the press about this of you know person. One new couple comes together through lockdown or whatever, and they’re falling in love. They’re very happy. They want to buy a house together. They buy a a house together. They find out that one of them has owned a house previously and they. Therefore they are not first-time buyers and the lifetime isa can no longer be used or they have to pay the penalty real quick, guys.
James:
I’ve put together a special report for dentists, entitled the seven costly and potentially disastrous mistakes that dentists make whenever it comes to their finances. Most of the time, dentists are going through these issues and they don’t even necessarily realize that they’re happening until they have their eyes opened, and that is the purpose of this report. You can go ahead and receive your free report by heading on over to wwwdenisoninvestcom forward slash podcast report or, alternatively, you can download it using the link in the description. This report details these seven most common issues. However, most importantly, it also shows you how to fix them.
James:
I’m really looking forward to hearing your thoughts. Good to know the T’s and C’s, because it’s super important, right? And here’s why, specifically why I want to do a podcast on Lysys because people reach out to me and they’re like oh yeah, 25% on top of the money that you contribute, how, how can any investment beat that? And the answer is that over a short time frame, no, it can’t. 25 is a huge, is a huge reimbursement, is a huge return. Are you with me?
James:
But here’s the thing. It’s kind of like, you know, it’s like running into that. You don’t. You don’t realize that when you put that money through the letterbox of the house. You haven’t actually got the key to the house, okay, until you’re 57. And it can be doing whatever the heck it likes in there, right, we have to think about the next step, right, and I feel exactly this is exactly why I wanted to do this podcast is because I feel like that dangling carrot is too much for people to resist almost in the short term, and we have to think about the short term and the next step to actually get this money back, which is just what you neatly described.
Jon:
Yeah, perfect, lovely stuff.
James:
And I think we said everything Right. Yeah, we got them. Anything you’d like to add?
Jon:
I don’t think there’s much more. You know, we’ll probably come into why we might want to use them and the things we want to use them for in a bit. Sure, Because they can fit neatly into a financial plan, they can fulfil a purpose. But for me personally, unless we’re already on that path to buying a property and we know who we’re buying the property with, it’s not something that I have property purchase in mind for when we’re looking at lifetime ISAs.
James:
Cool, good to know. Onwards to pensions so I heard a really nice description of a pension the other day and it’s an investment account with t’s and c’s a bit like a nice, a bit like elisa, but and this is why they’re often compared, right, yeah?
Jon:
yeah, yeah, because, um, essentially what we’re trying to do with the pension is provide for our long-term future. So, again, again, it’s an investment with T’s and C’s, an investment with some handcrafts. We get the tax relief, whether that’s corporation tax relief, by paying for it through our company, whether it’s personal tax relief, by making personal contributions. It grows tax-free, in the same way the ISAs and the tax-efficiently, in the same way the ISAs and the pension and the lifetime ISAs do. But we can’t access it until we’re at a certain point in time. Most people are 55. In their mind it’s 10 years before state retirement age. So, depending on who you are, that could be 55, it could be 57, it could be 58 and as the state pension inevitably moves higher, it will follow it 10 years before and so we’re very much looking at these as vehicles to fund our exit from working life in later life, I guess.
James:
Yeah, 100%. So yeah, with regards to pensions, there’s a few other things that make pensions lucrative, right, like succession, et cetera, and things along those lines. It’d be helpful to go into those, and then what we’ll do is we’ll do a comparison. That will be highly valuable.
Jon:
Yeah, sure. So it’s very likely that there’s two types of pensions that listeners will have. A lot of dentists still have NHS pension and then, if they’ve been fully private or they do some private work, they will potentially also have a personal pension or SIP or other type of individual pension. So the NHS pension is what we call a defined benefit. It’s a promise of an income.
James:
You’ve got some great podcasts already on it, so if people want the nuts and bolts of that, go find them 100%, episode 14 with myself and Luke Hurley, and also a really cool one that I did somewhat recently with Ian Hawk, and we’ve done the nhs podcast of death. Those are gold mines yeah, yeah, exactly.
Jon:
So, very simply, promise of an income. It’s not a pot of money and at a certain point, depending on the scheme, you will start getting that income coming in. Your partner will get half of that, usually if you pre-decease them, and then on your death it expires. With a SIP or a personal pension, what you have is a lump of money that at some point you will just put a tap on and you’ll start drawing money from it. Depending on your circumstances, that can be a monthly income or it could be lumps. You do get your 25% tax-free, which is why everyone thinks that we’re forgetting about it.
Jon:
This isn’t necessarily going into the technical details of pensions, but one of the advantages that a personal pension or SIP will have is, on your death, that money is completely inherited by your beneficiaries. Depending on the time of your death before or after age 75, it either passes tax-free if you die before 75, or if you’re over 75, it is inherited as a pension scheme by the beneficiary, so they get to draw it at their marginal rate of tax. What it never does is very rarely will it form part of your estate. There’s a couple of loopholes that you need to watch out for if you’re meddling with pensions later, but most of the time it doesn’t form part of your taxable estate and therefore bypasses inheritance tax. It doesn’t form part of your taxable estate and therefore bypasses inheritance tax, so it can be a very interesting and useful tool for passing wealth on as well as providing for your own personal financial future.
James:
Good to know. Two quick things to add value to this podcast which are relevant to what we’re talking about. First of all, a way that I heard ISIS compared to pensions very neatly was that with isis, you get taxed on the way in, you don’t get taxed on the way out. Pensions, you don’t get taxed on the way in, but you do get taxed on the way out. So what does that mean? So let’s talk about your isis. So, first of all, that money has to be in your personal name for you to invest that right. It can’t be in a company, it can’t be in yeah, yeah, it has to be personal money.
Jon:
You either have to pay dividend tax or income tax to get it in your personal name, and then you pop that money into the pension that’s right, whereas the beautiful thing about a pension is you can take 40k from your business.
James:
Just stick it straight in there, right?
Jon:
yeah, and in fact you can use. You can carry forward unused allowance as well, so you can sometimes, in some circumstances, go beyond even the 40K.
James:
Yes, that’s right, because I think it’s three years in the past if you haven’t maxed out your contributions, but the account’s been open, something along those lines yeah, as long as you’ve got a pension lying around somewhere, then you can uh put this in, uh you can use those allowances.
Jon:
So, for example, if you had a dentist who did three years nhs, they’ve got an nhs pension, but a decade ago they’ve been working private ever since, never bothered with a pension. They could. They could put 160k into into a pension in some circumstances.
James:
Holy moly, good to know. Good to know. Second thing I was going to say just then. Second thing I was going to say to what we talked about earlier here is the most succinct and neatly I’ve ever heard someone describe the pros and cons or compare the pros and cons between different investment vehicles or different tax wrappers. Okay, basically, you can distill everything down to pretty much two questions and then go from there right, and this is really neat, right? First thing is accessibility. When can you get your money? If that’s, if that’s so important to you that you need to have access to your money in three, four years, then actually that trumps everything, if you think about it. So we can almost put the other advantages to one side and then we let that govern our choice, right, yeah? Second thing to consider Now. By the way, these are not this is not a definitive list, by the way. There’s obviously more.
Jon:
Yeah, yeah, yeah. These are the main two yeah, yeah yeah, these are the main.
James:
these are the main two. Yeah, yeah, number one accessibility. So, like I say, if not being able to touch your money until your state pension is, or 10 years before state pension is, or whatever, it’s a non-negotiable for you, then actually should we be thinking about a pension, or, elisa, maybe not right? Second thing tax tax advantages right, and if you purely straight up just want to save a ton of money on income tax, then you’re more likely going to lead lean towards a pension. I thought that was really neat.
Jon:
That’s your decision tree right there so it’s like three things that I I often talk about that any financial planning process should, should, give to people or bear in mind. Right one is the truth of our current financial situation how grim is it or how good is it? Second is the hope that in the end, with whatever planning we’re going to do, we’re going to be all right. But the third one, and the most important one, is choice. We’ve got to make sure that in our planning, we build choice into it. And that’s where this thing with lifetime ISAs, pensions, isas comes in, because what are each of these do? Well, they either open up choices to us or they restrict choices when it comes to the unknown future that we’re living in.
Jon:
What my experience tells me is that most people are pretty bad at knowing what’s going to happen in 10 or 15 years in their lives. Bad at knowing what’s going to happen in 10 or 15 years in their lives, let alone the 30 years before. You know, you and I end up anywhere near sort of state pension age. I’ll be a bit bit there a bit sooner than you, but uh, you know, when we’re talking about these long sweeps of time, it’s very, very hard. There’s so many potential futures that we could be living in. And, in the meantime, all these decisions we make now either keep choice on the table or have choice off the table for us, and that’s the time and the tax there. You know time is so important. We need to know when we’re going to be accessing this money or that we’ve got choices and options when it inevitably hits the fan beautifully described.
James:
I love that. Let’s pull things back. We went on a tangent there, but it’s okay because there was a ton of value. That was very useful and I love that. I love freestyling. By the way, all these podcasts are ad lib. We barely plan anything before we come on. Let’s pull things back to lices versus pensions.
Jon:
In your experience.
James:
what planning considerations should people think about before they make that choice?
Jon:
Yeah, so the first one, really and I’m going to be a bit naughty here. You’ve told me not to do this, but I’m going to pull ices just into this conversation a little bit. Okay, that’s cool, because the thing that we need to think through is when do we want this money and what choices are we giving up or keeping on the table when we’re putting money into these savings vehicles? Because each of them can have the same investments in them? Right, we wouldn’t do this. But let’s say you just want an S&P 500 index fund, right, it’s nice, and we can have the same thing in all of them, so they’ll do the same thing over time.
Jon:
Right now, with a pension, the agreement that you’re making with your future self is very, very clear I’m putting this money into a pension. At some point in my future, I will draw this money down and I will get full tax relief, not just the 25% uplift, but full tax relief on this contribution. For most dentists that’s going to be somewhere 40% to 45%. It could even be more than that nasty tax track around 100 grand For their business owner. From April it is a 25% corporation tax, depending on their profit levels, so it’s a very attractive tax relief is a 25% corporation tax, depending on their profit levels, right? So it’s a very attractive tax relief.
Jon:
And we’re making this contract with our future selves that this money is for my retirement. It’s a very clear contract with your older self With a lifetime ISA one. We’ve got to get that money into our personal name. So that’s a consideration that you’re going to have to make. And then it’s this question of what is the contract that I’m making with my future self, and I think there’s quite a few unknowns around that that make that quite difficult. Is this money that we’re going to access earlier? Is this money that I’m going to um, you know, leave for my retirement? There’s too many unknowns there for me that make it a little bit more fuzzy as to the agreement we’re making with ourselves. But then I saw it’s. I probably will need this money at some point in the, you know, middle to long-term often, you know, school fees or with a lot of dentists, I have this phrase of minding the gap.
Jon:
Okay, so, um. So most dentists I speak to have an age of 60 in their mind for retirement. It comes from nowhere else other than an anchoring effect with the 95 pension scheme, right?
Jon:
Yeah, it’s cultural, right, it’s cultural yeah, retirement at 60, because every dentist who came before me retired at 60. For anyone in the 2015 scheme or in private pensions, this isn’t the case anymore. You don’t have this age, but we still have this desire of retiring before state pension age. So we’ve got this gap between when we want to retire and when all our NHS pension income comes in, or a state pension, and so it might be that we’re looking to fund the gap there between 60 and 68. Might be that we’re trying to fund other things. So it’s really important, when you’re going through these decisions, to work out what is the purpose I’m trying to achieve with this. And then, am I using a pension, a lifetime ISA or an ISA to to fill that need?
James:
yeah. So it’s a, it’s a cash flow financial planning thing, right, yeah, 100%, yeah, 100%, that’s cool, that’s cool. Anything else, oh, here’s actually something interesting, right? So the profile of a person and we can speak broadly here without being too specific the profile of a person who picks a LISA versus a private pension. Is there any common denominators or common factors?
Jon:
Yeah. So where we tend to use them is where we’ve got either annual allowance or lifetime allowance. Concerns, ah, lovely. So someone who is already putting 40,000 into their pension or because of their NHS pension might be over that. Any doctors having a sneaky listen might know that as well. So someone who’s already maxing out their pensions or someone who’s, through investment, growth and diligent savings, getting up towards that lifetime allowance of 1.1, whatever it is these days million, in which case we go. I’m already doing everything I can on maximising tax relief on putting into pensions. I still want to put money away for retired me and then a lifetime ISA could fit that bill, because you will get that tax relief and your contract with your future self is this is for 60 plus year old me future self is.
James:
This is, for 60 plus year old me, very nice. Here’s something that just popped into my head. For anybody who has got this far in the podcast, I know what it’s like to listen to a podcast. Your mind starts to wander a little bit. Okay, you’re in the shower, you’re driving home, you’re in the gym, you’re doing a rep. Listen the hell up to this part right now, because this will be very valuable, john, is there any disadvantage to just opening a Lysa, sticking a quid in it before you’re 40 and just keeping it ticking along?
Jon:
Not that I can think of, and I’ve done this with a couple of clients. You know, one of the things with the Lifetime, lysa, is you have to open it before you’re 40. And if you get to age 40 in one day, you’re not allowed to open one up, but you don’t have to contribute every year. So, yes, you could well if you want to, if you’ve got FOMO, if you’re reaching your birthday, open up a lifetime ISA.
Jon:
You could even open up a cash lifetime, lifetime ice. If you’re, you know, maybe a bit risk averse or you don’t like making decisions under pressure, and get get one opened, you can transfer them, you can, you can top it up in future years and at least you have the option. That choice is still on the table for you, um, when in your planning through your 40s and 50s in terms of contributions?
James:
that’s a nicer hack right there, you know and there’s actually a few other isa hacks like that and we should probably do a podcast on that someday. A summary of isa hacks the things that you need to know about your isa to get the max out of it. Isa hacks there we go.
Jon:
I just made like that flexible isa hack from earlier exactly, yeah, this is it, this is it.
James:
And there’s also that thing, uh, where it’s like if you’re between 16 and 18, you can have a junior isa and a cash isa at the same time, so you can actually receive 29 000 pounds in total into your own name. I’m right in saying that, right?
Jon:
yeah, yeah, yeah, and it is that. That’s great if you’re thinking about your own children and you trust them not to go and blow that money when they turn 18 yeah listen.
James:
That was a flipping awesome podcast, john. Thank you so much for your time. For anybody who’s listening, john doyle on the group juniper wealth. John, can you give us a little bit more information about where to find you?
Jon:
uh, yeah, you can find me juniper, underscore john, uh on instagram and twitter. You can find me on linkedin as well, uh, and at juniperwealthcouk, or you can just dm me on on facebook. I’m all over the group trying to add value and it’d be helpful where I can, probably trying to add too much nuance to Facebook comments. No, you know something really funny my 15 year old knows when I’m commenting on the Facebook group because she laughs at my face and the the kind of almost like I’m playing a conversation in my face. What are you doing?
James:
that that’s fine. I recognize that pure concentration and it’s probably testament to the amount of thought you’re putting in, to the value they give on there. So thank you, john, we owe you it’s a pleasure much love my man john blinding podcast today. Always pleasure to have you. We’ll catch up very soon.
James:
I’ll see you later, see you soon if you enjoyed this podcast, please hit, follow or subscribe so you can stay up to date with information on new podcasts which are released weekly. Please also feel free to leave a positive review so others can learn about this podcast and benefit from it. I would also encourage any fans of the podcast to sign up to the free facebook community from which the podcast originated. Please search Dentists who Invest on Facebook and hit join to become part of a community of thousands of other dentists interested in improving their finances, well-being and investing knowledge. Looking forward to seeing you on there.
BY SUBMITTING MY EMAIL I CONSENT TO JOIN THE DENTISTS WHO INVEST EMAIL LIST. THIS LIST CAN BE LEFT AT ANY TIME.
BY SUBMITTING MY EMAIL I CONSENT TO JOIN THE DENTISTS WHO INVEST EMAIL LIST. THIS LIST CAN BE LEFT AT ANY TIME.
