QA61 - Listener Questions, Episode 61

The Meaningful Money Personal Finance Podcast

In this Q&A episode, Pete Matthew and Roger Weeks address six specific listener questions regarding UK personal finance management. The disc

Key takeaways

• Emergency funds should prioritize liquidity and accessibility over inflation protection, essentially acting as a formation of 'self-insurance'.
• The Money Purchase Annual Allowance (MPAA) trigger is measured after the event occurs within the tax year.

Main topics

• Emergency fund allocation
• MPAA regulations

Notable quotes

It's an insurance premium. Yes. Self-insurance.

Conclusion

The episode serves as a comprehensive guide for UK savers looking to o

Transcript preview

Speaker 1 (0:00) We're rattling through, Roger. We're eight minutes in and we've done two. Yeah, it's going to slow down in Speaker 2 (0:03) a Speaker 1 (0:03) minute. Well, Speaker 2 (0:04) yeah, possibly. It's probably for the best. Hi, and welcome back to another Meaningful Money Q &A with me, Pete Matthew. And Speaker 1 (0:11) me, Roger Wiggs. Mr. Roger Wiggs. Speaker 2 (0:13) We're both in crew Speaker 1 (0:15) t-shirts. Yeah. Thankfully, not the same colour. Wow. Speaker 2 (0:19) Yeah, that would just cement the sadness of it all, wouldn't it? Yeah, they still refuse to sponsor. Or at least, they don't refuse, they just haven't responded. So, since we've recorded last, you've married off your last daughter. How does that feel? I'm devastated. For those listening, Roger was sort of punching the air. Yeah, Speaker 1 (0:37) it was very nice. It's nice to get to the end of the fourth one of the three daughters and a son. But it's lovely to see so many people. happy for the couple and celebrating and Speaker 2 (0:50) stuff like that and you were there and yeah very honoured yeah Joe and the girls were there yeah Speaker 1 (0:54) it was lovely yeah it's one of those things that yeah glad it got into the expense of the whole thing but Speaker 2 (1:02) Exactly. No, it's good. It was a cracking day. Really, really good day. So we're honoured to be there. And, well, we'd better get on and answer some questions. What do they do if they want a question answered? Well, Speaker 1 (1:11) if you want a question answered, then please send it to hello at meaningfulmoney.tv, the Subtitle Line podcast question, and we'll get this in the stream of them somewhere. I think we're four months down the line from the last lot of questions. Yeah, May. Speaker 2 (1:23) We're answering questions from May at the minute. So we will get there eventually. There's bound to be some links and stuff that we talk about today. They are always at the show notes, meaningfulmoney.tv slash QA61 for question and answers. Episode 61. That's nuts, actually, isn't it? 61. It's meant to be temporary. Anyway, it seems to be going down quite well still because the questions are still coming in. But if you're watching on YouTube, do us a favor, like the video and subscribe to the channel. If you're not already, it really helps. So thank you for that. Right, it's question one from Chris. Hi, Pete and Roger. I'm quite a new listener to the podcast, having come across it in my current pursuit of career changing into the marvelous world of financial planning from accounting. The mini series on what makes a good financial advisor was very eye-opening and helped me take the decision to make the leap into financial advice. So thank you. I hope you're welcome. I hope you know. I'm sure you won't regret it. It is a brilliant career. Currently only four days left of my notice period as of writing. So that was back in May. So hope all went well and you had a good leave in due. My question is hopefully a very simple one, especially for gentlemen of your caliber. Obviously. I'm undecided and procrastinating on where the best place to hold my emergency fund is. With some indecision and flippancy over the past few years, I managed to end up with a little bit in a number of different pots, ranging from around 2,500 in premium bonds. yet to win a prize. Around 4,000 in stocks and shares ISA, which is, of course, is taking a bit of a hit as of late. I guess Iran straight home moves back in May. It's still going on then, isn't it? It still is, really. And then the remaining 2,000 to 3,000 in a cash ISA. I know the short-term volatility of the stocks and shares ISA is not well-suited for an emergency fund, as evidenced in the last few months, but the amount just slowly grew over time while I was haphazardly saving. In your opinion, is this just as simple as putting everything into the cash ISA and just having to eat the small inflation erosion versus interest gains? Naturally, I want the funds to be available quickly where I ever to need them. Thanks for all the fantastic podcast episodes and apologies for my questions being as long as it was for such a simple ask, Chris. No worries, Chris. Not Speaker 1 (3:31) a massively Speaker 2 (3:31) long question, really. No, I know. You wait till question five. Speaker 2 (3:37) So, yeah, I mean, what do you think about Chris's logic, Rog? Speaker 1 (3:41) Yeah, I mean, we all amass different savings accounts over time anyway. And having a range of these things is just what's happened in the history, Chris, really. I mean, yes, ideally, your emergency fund should be held in some sort of cash-based account. Yeah, not a stocks and shares. Not as a stocks and shares, ideally. So whether you think, okay, what I'll do is when that comes back up to where I'm happy with it, I'll... liquidate that completely up to you really. The difficulty when it comes to this small inflation erosion is the emergency fund is there for a job. Yeah. So you could ignore inflation for that purpose really. I think so. Yeah. Speaker 2 (4:19) It's opportunity cost isn't it? It just, yeah, it's not about making you money. It's about being there. Speaker 1 (4:25) It's an insurance premium. Yes. Self-insurance. Yeah, yeah, exactly. Speaker 2 (4:28) So I just think Yes, you can have it in a cash register if you want. I'm not sure it needs to be. Obviously, it depends on your wider situation. But with the personal savings allowance, you know, first 1,000 quid of interest is tax-free if you are a basic rate taxpayer, first 500 if you're a high-rate taxpayer. And I think if it is going to be an ISR, you know, you want it easy to get at. That's kind of the point of an emergency fund. So you want it maybe with the same bank as your current account so you can just flick it sideways on your app. something like that, or at least really easy to get to. Maybe if it's with another provider, make sure your current account is kind of linked to it so you can make a sort of pretty much immediate withdrawal or a worst case a day or two. Any longer than that, it's not really going to be fit for an emergency fund. Premium bond, you can get your money out quite quick, can't you? Speaker 1 (5:17) Yeah, within, well, probably a week to 10 days, I think. And it's, yeah, Speaker 2 (5:22) you Speaker 1 (5:23) probably see emergencies like that coming. Speaker 1 (5:26) Hopefully Speaker 2 (5:26) not at Speaker 1 (5:27) all. No, exactly. No, and I suppose you have not had a win yet, but you'll probably find a big load of them will come in now. Yeah, Speaker 2 (5:34) yeah, just because we've blessed. You've had the meaningful money blessing of your premium bonding. Speaker 1 (5:39) So I think, Chris, you need to work out what you want to have as an emergency fund for the level. Do you think that the £10,000 or £11,000 you've got is right? £2,000, Speaker 2 (5:48) £6 Speaker 1 (5:48) ,000, £7,000, £8 Speaker 2 (5:49) ,000, Speaker 1 (5:49) £9,000, Speaker 2 (5:49) £10 Speaker 1 (5:49) ,000? Yeah, yeah. Is that Speaker 2 (5:50) the Speaker 1 (5:50) right amount? Is that the right amount? If it's right, then... I might be moving the stocks and shares ISA out when the time's right because it needs to be an emergency fund, but I can stand in the background. If that's just grown over time. Speaker 2 (6:03) Yeah. You know, a good chunk needs to be in cash. I would see your stocks and shares ISA as longer term money. We'll put a link in the notes to my good friend, Damien Fay. He runs Money to the Masses with his excellent team there and he has sort of best buy tables of savings accounts and stuff like that. So we'll put a link to the notes for that. Right, question two, Rog. Speaker 1 (6:25) Question two. This is from Kev. Speaker 2 (6:27) Kev. Speaker 1 (6:27) Hi, Kev. It's, hi, Pete and Rog. I only discovered your podcast last year, but I think it's excellent. What a great judge of character that man is. Excellent Speaker 2 (6:35) job. Speaker 1 (6:35) You make complex topics easy to follow. Thank you. I've just turned 65 and I'm planning to give up work later this year. I currently work three days a week. I've watched a lot of meaningful money content over the past few years and great stuff from others. And last month, reread the Meaningful Money Retirement Guide just to keep on the right track. And I think we're in a good place. It's just behind your head, isn't it? Speaker 2 (6:55) There it is. Yep, there it is. Yep, it's a great book. Speaker 1 (6:58) You should have heard how Speaker 2 (6:59) stiff my neck is there. I Speaker 1 (7:01) intend to keep making contributions into my workplace pension up to my retirement. Salary sacrifice, employer contribution, low fees, etc. My question, if I retire partway through the tax year and I've already made pension contributions in excess of the 10,000 MPAA, money purchase annual allowance, does this mean I'd have to wait until the following 6th of April to access my pension other than tax-free cash to avoid a tax charge? I hope this question makes sense. Thanks and keep up the good work. Regards, Kev. Yeah, the question makes huge sense, Kev. And it's a really important question, actually. Speaker 2 (7:33) Yeah, Kev obviously understands what triggers the money purchase annual allowance, doesn't he? It's like, you know, anything other than a tax-free cash. You know, you buy an annuity, you go into drawdown, you draw some taxable element, or you take an off-plus payment, you're going to trigger the MPAA, which then limits your future pension contributions to 10 grand. Speaker 1 (7:49) Yeah, but the nice thing is, the MPAA is measured after the trigger. So if you do... trigger the mpa partly through the year then your allowance obviously subject to the 60 000 overall threshold and what your pay was is triggered at that point so it's not tested until after you trigger it