Starting to plan retirement - some expert advice appreciated!

deeboy1

@atush - the reference to the small flat in spain is not to be taken too seriously. I promise not to get hung up on it! It's 'just back from spain' talk and a little daydreaming for now but if I do retire early well I may need *somewhere* to bolt to lol.

re dependents, yes you're right. i don't intend to stay permanently single, but base scenario is no kids for now.

deeboy :cool:

AlwaysLearnin

deeboy1 wrote: »

- have started to realise some cash and fund assets of around £12k for a pension lump sum, and will commit another sum later in the year to top up to £50k.

£50k may be a conscious decision, but don't forget the carried forward balance of allowance from 2010/11, as you'll lose use of it after this tax year. You can use carried forward amounts for 11/12 and 12/13 next year and the year after:

http://www.hmrc.gov.uk/pensionschemes/calc-aa.htm

jamesd

I agree re the use of the annual allowance from three years ago if you're able to afford to pay in that much this year. It's even worth doing some borrowing to get it done, at decent interest rates.

gadgetmind

I dug deep to use up my carry forwards and am jolly glad that I did. However, as I say, totting everything up isn't easy, and you'll need to get detailed contribution records for your old pensions.

Also note that you need to have been a member of a pension during the year in question to be able to use the carry forward sum.

There's a good chance you could avoid paying any top rate or higher rate tax this year, and keep you full personal allowance!

deeboy1

wow, this forum is FULL of good advice.

ok gadgetmind, jamesd and alwayslearnin, will take a look at carrying some pension allowance forwards too, I hadn't thought of that.

I have to say I had some kind of natural aversion to locking extra money away until 55 but I've conquered that - and upped by contribution 5% and started realising some cash and funds today for a lump sum, so I'm sure I'll get used to the idea of this too!

Sorry for the dumb question in advance, but when I claim back the extra tax relief via my tax return, is the money then simply released by HMRC as cash to put wherever I want or is it somehow added to my pension?

cheers

deeboy :cool:

atush

BRTax into the pension direct.

HRT, you need to tell HMRC. This comes back via your tax code or a refund, so if you want that extra actually into your pension you need to put extra in to begin with if that makes sense?

AlwaysLearnin

What pension arrangements are you using? If you're happy with the options available via your company scheme, paying via AVC means they deduct from your gross pay and you therefore get the full 'tax relief' automatically.

Also, just to clarify a point already referenced above by others, to ensure you're aware, if you can get your taxable income under ~£119k you also start to get your personal allowance back (avoiding the graduated reduction above £100k)

http://www.hmrc.gov.uk/rates/it.htm

jamesd

Is the work pension scheme done using salary sacrifice? If it is, you get all of the income tax relief you're entitled to automatically. But I don't think that it would handle undoing the loss of personal allowance part. Salary sacrifice has the advantage of saving employee and employer NI. If you can adjust your contributions to pay extra money in via a salary sacrifice setup that'd be the most efficient way but your employer might not let you do it that way, depends on what they are willing to do.

If it isn't by salary sacrifice, are the pension contributions from gross pay before income tax but with NI still charged? In this case also, the income tax part is taken care of automatically but you'd want to tell HMRC for personal allowance adjusting.

If the pension contributions are from net pay with both incoe tax and NI deducted you need to tell HMRC the amount that is added to the pension scheme by your own contributions, not any of your employer, plus the 25% that's added to give you the basic rate tax relief. HMRC will call this your part plus 25% the "gross" amount even though it's not full gross for a higher or top rate tax payer.

The pension contributions will reduce our tax liability, HMRC can handle that by refunds or adjusted personal allowances (but not for high contribution values because the personal allowance needed would be too big). For ongoing things I expect them to do it with you giving them estimated earnings and estimated pension contribution levels so they don't expect as much tax paid on account.

deeboy1

Hello again all.

Just to recap, these are the steps I've taken, largely due to the greatsuggestions raised on here, for which I'm genuinely grateful folks, thanks.

*I've played around with some calculators and am reasonably confident the'retire at 50' goal is realistic enough to get cracking.

*As from this month, I'm now contributing 10% into work pension (up from5%). So my total contribution is now 25% including employer's. I couldn't figure out before why on earth increasing my contribution without theemployer match would make sense, and now it's very clear (and the answer beginswith T!)

*I've freed up a £10k lump sum to add too, which in theory takes me tosomewhere around £42k for this tax year. I will top it up with another lump sumlater and consider carrying forward some allowance from the previous tax year.(I was a member of a different company pension for half of that tax year aswell as the two years before so it seems from the link Jamesd provided to theHMRC page that I qualify).

*If I do carry forward I'm not going to overboard, and I think reducingtaxable pay to under £100k would be a stretch: (1) I'm still a little nervousabout locking up so much money until 55 and (2) bearing in mind my earningsincluding bonus for 2012-3 tax year were £178k that means I may have to give upa further £28k to reach that level this year too. But I'm open to persuasion(LOL) and am interested to understand just how much 'marginal' rate tax thatwould save, so fire away at me!

*I mentioned before that I'd recently opened new ATS ISA and general fundaccounts, and the money is in the process of being switched over from HL incash. Basically I wanted to benefit from the new clean share classes and it wastime for a spring clean. I also decided to go for 100% S&S ISA this year(and probably beyond).

*As a result of the above, and a bit of rebalancing and trying to reduce thecash, the below is how things are now looking for the year. Still a lot of cashI know. But I'm reducing my monthly regular cash savings from £1500 to £1000too to try and help put more into equity stuff. I would like now to set this upand leave it be to generate capital and income, with just a decent annualreview. I'd be very grateful for any views on the asset allocation, the funds(and any alternatives to these) that you might want to bounce around.

*Just turned 42, so we could be looking at a 8-year horizon to retire at 50,but of course I also plan to have a good cash buffer so it should effectivelybe more of a 10-year-plus. I've tried to bring in some other asset classes butam struggling to get excited about bonds (moreso about property) and have takena reasonably agressive allocation on small/midcaps and EMs.

Thoughts welcome as before (and numbers to follow)...

deeboy

deeboy1

This is the 'age 50-60' pot:

Cash

• ISAs £72,000
• Other cash reduced to £17,000 plus £1,000/month regular savers

Mixed assets

• Troy Trojan fund £12,500 (1% AMC +0.5 dilution levy) plus £100/month

Large cap £19,800 plus £550/m

• Scottish Mortgage £2,500 (0.5ish%) plus £200/month
• Foreign & Colonial £2,500 (0.5ish%) plus £200/month
• City of London £2,500 (0.45%)
• Trojan Income £2,500 (1% + 0.5% dilution levy)
• Invesco Perpetual High Income (0.75%) £2,500
• HSBC American Index (0.1%) £2,500 plus £100/month
• L&G Global Healthcare Index (0.3%) £2,500
• HSBC Japan & European Indices £50 each/month
• Current shares £2,300

SMEs £17,500 plus £400/m

• M/borough multicap income £5,000 plus £100/month
• Franklin UK midcap £2,500 plus £100/m
• MFM Slater Growth £2,500 plus £100/m
• M/borough microcap £2,500 - all above 0.75%
• HSBC FTSE250 index £100/month (0.1%)
• Baronsmead VCTs £5,000 (?%)

EMs £15,000 plus £400/m

• First State EM leaders (0.85%) £7,500 plus £100/m
• Scottish Oriental (1.01%) £2,500 plus £200/m
• Newton Asian Income (?%) £5,000
• HSBC Pacific Index (0.1%) £100/month

Property £5,000 plus £200/m

• Blackrock Global Prop Sq (0.2%) £2,500 plus £100/m
• Henderson UK Property (0.75%) £2,500 plus £100/m

ILS £2,500 plus £100/m

• CatCo Reinsurance Opps (0.4%) £2,500 plus £100/m

Fixed interest £10,000 plus £200/m

• Fidelity strategic bond (0.6%) £5,000 plus £100/m
• L&G EM bond index (0.2%) £5,000 plus £100/m

Roughly adds up to £175,000 and £3,000/month

@jamesd - in answer to your Q, I don't think I can salary sacrifice and know for sure I need to claim extra tax relief via self assessment.