Right thing

Andyed201

Having spent some time reading the forums here I thought I would post a query looking for opinions as to if I am planning to do the right thing with my pension situation.

I am 40, married, with a decent size mortgage running for 20 more years. No debt at all apart from the mortgage. I am a HRT, earning about 70k with some of that not guaranteed bonus, and my wife doesn't work following redundancy last year.

I have 5k in my current account, 7k in a S&S isa. My wife has £10k in S&S plus about the same in cash accounts.

I have 2 pensions, a stakeholder with Scottish widows that I put £200 a month in and has 31k in and a company DC pension from a job I left last year which has 38k.

My plan is this:
1. Join the new company pension scheme as they match my contributions up to 10%, so get the "free" money. I used to make contributions in prior job, so am used to seeing the amount leave and it won't be a shock.
2. Transfer the money from the old company DC pension and add it to my SW pension to increase that pot to try and get compound interest on a bigger amount.
3. Transfer some of the 5k in cash to the S&S isa as I need access, but am happy to take a bit of risk.
4. Reduce contributions to the SW pension to £100 a month, with the mid term aim to increase these back up.
5. Put regular £100 month into ISA and build up a bit more flexible capital. One issue is I think I missed the boat for 12/13, so if I put some of the 5k in isa will I have used my 13/14 allowance?
6. Make sure I am claiming the extra HRT allowance for pension contributions, which I don't think i am at the moment, so have several years to get back, if that is possible.
7. Have a look at how the money in the SW pension is invested, with 27 years or so to go until I retire, again happy to take a bit of a risk.

So that's the plan. It seems to be pretty simple, but have taken an age to get to. What do people think? Have I missed anything or planning anything really dumb?

One reason for not going more into isa is that I am not sure i have the discipline to leave it alone. I do like to buy the odd toy!

Cheers

kidmugsy

Andyed201 wrote: »

I have 2 pensions, a stakeholder with Scottish widows that I put £200 a month in and has 31k in and a company DC pension from a job I left last year which has 38k.

My plan is this:
1. Join the new company pension scheme as they match my contributions up to 10%, so get the "free" money. I used to make contributions in prior job, so am used to seeing the amount leave and it won't be a shock.

Excellent idea.

Andyed201 wrote: »

2. Transfer the money from the old company DC pension and add it to my SW pension to increase that pot to try and get compound interest on a bigger amount.

Bonkers: adding them together doesn't of itself get you any more growth. You might be able to find a way to save on charges; you might benefit from a different choice of investments, but ye cannae change the laws of arithmetic.

Andyed201

I think the word in Doh! Not sure why I didn't get the maths, but it is pretty obvious.

Part of the reason for joining together was I was presuming the single pot still being contributed to would grow more, but I understand that may not be true, and it depends on a raft of things.

Add another point to my plan to look at the old company pension and its charges and investments it offers. I guess this could help spread the risk a bit as well?

GhIFA

Re: point 6 - you can claim back HRT relief for contributions made in previous tax years - You used to be able to go back for 6 years, but it has all changed recently and if I remember correctly it is now a maximuim of 4 years.

somethingcorporate

Make sure you add the extra tax relief back into the pension (as it would likely come through your tax code), it makes a massive difference.

As others have pointed out, no difference in growth, compound interest etc of having 2 £50k pots than 1 £100k pots (assuming they both hold the same investments). But if you do not want to manage or keep track of 2 pots then moving them into one may be a reasonable idea, if the costs stack up. My wife has a small £8k pot from an old employer she is going to move across into her SIPP so she can have it all in one place and she likes to feel in control so can certainly sympathise with the consolidating point.

gadgetmind

As others say, combining pots is only worthwhile if it saves fees or gives you more control/flexibility. I've slowly done it but I think it should be down your priority list.

Does your employer allow you to contribute to your pension via salary sacrifice? If so, go for this, and contribute here rather than into SW as you'll also save NI. Some employers also give you a slice of the NI they save.

Certainly you should be putting in enough to get employer to full match.

Regards ISAs, maybe set up a monthly drip into a S&S ISA. This will give you flexibility if you decide to retire before state pension age.

atush

As you are a HRTaxpayer, you need to get all your spare cash into an ISA promptly, as you are paying 40% tax on it. If your's is gull because you were too late, start putting extra into an ISA for your wife. AS she might go back to work at some point, and as a couple it is best to save on tax. In the meantime, all money not in a tax wrapper should be in her name.

Dont' lower your current contribs unless you have to with the new work pension, as paying into the pension gets you HRTax back.