My situation - what should i do?

retirementby60

Hi,
My wife has used this forum for years and been given some great advice so i have decided to follow in her footsteps. My situation is that I have worked since I was 16 and want to be financially able to stop working by the time I am 60. I am about to turn 45.
I have two pensions.
First pension is a final salary one that my company stopped. Statement for April 2013 shows an annual figure of £12,300 with a retirement age of 65. I no longer pay into this.
Second one is the scheme that replaced the above. The statement for April 2013 shows the value as being £69,300.Contributions at the moment are approx £5,200 p.a from myself and employer combined.
I am married. I pay 40% tax but my wife pays none as she earns less than the tax allowance. For two of our children my wife has an underlying entitlement to CHB but has elected not to get this as my wages are above the upper limit. Yesterday, I read something that said I could pay extra into my pension to take my gross earnings below the lower limit re CHB and effectively reduce my 40% tax liability.
First question, is this information correct? We have two children still in education so this would mean a weekly income of £33.70 in CHB.

Second question, can I make these additional contributions and is it as straightforward as this?

Third question is how much will we need in pension pots to fund retirement at 65? (Considering funding 60-65 moving house). I will have at least the full state pension and my wife currently needs 2 years (7 under coming rules?) but hopes to be employed with enough hours to cover these n.i conts over next 15 years(now 45). Additionally she has a pension from her old job that she is in the process of finding out its' worth and a miniscule one for her current 10hrs a wk job with the LA.

My employer wont match any higher contributions so the only benefit of making avcs is to pay less tax/get chb and increase my pension pot. The children still dependant on us are 17 and 13 so only a couple more years of chb entitlement for child one. Additionally, like everyone else, there are no guarantees how long I will earn what I do and I could only afford to pay avcs whilst current conditions/this employment continue, so need to know I could stop if necessary.

Final question, is it worth paying avcs to mine to bring me out of 40% tax (if i can afford to) or is it worth using some of what i can afford to pay towards my wife's pension instead? She thinks it will attract 20% extra for her as a non tax payer?

I know this is a lot of asking but I'm not really sure what to do/what I can do so want to get enough info' together so we can make the best choices.

Many thanks for taking the time to read all of this post.

xylophone

http://www.theguardian.com/money/2013/sep/28/child-benefit-pension-contributions-higher-earners

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181237/single-tier-pension-fact-sheet.pdf

http://www.hmrc.gov.uk/incometax/relief-pension.htm

It wouldn't have to be AVC's - you could start a personal pension stakeholder. http://www.cavendishonline.co.uk/pensions/

Would it be worth your while seeing an IFA and discussing your/your wife's situation? http://www.unbiased.co.uk/

atush

I would pay enough into a pension (perhaps in your case a separate PP) to get at least some if not all your CB paid. AS this not only is money that can be invedsted for the children in Jisas, but gives your wife NICs towards her SP.

On top of that, you can if the money is available, pay into a pension for your wife as a non taxpayer of 2880 per year (which comes up to 3600 with TR).

Truthseeker_2

retirementby60 wrote: »

Hi,
My wife has used this forum for years and been given some great advice so i have decided to follow in her footsteps. My situation is that I have worked since I was 16 and want to be financially able to stop working by the time I am 60. I am about to turn 45.
I have two pensions.
First pension is a final salary one that my company stopped. Statement for April 2013 shows an annual figure of £12,300 with a retirement age of 65. I no longer pay into this.
Second one is the scheme that replaced the above. The statement for April 2013 shows the value as being £69,300.Contributions at the moment are approx £5,200 p.a from myself and employer combined.
I am married. I pay 40% tax but my wife pays none as she earns less than the tax allowance. For two of our children my wife has an underlying entitlement to CHB but has elected not to get this as my wages are above the upper limit. Yesterday, I read something that said I could pay extra into my pension to take my gross earnings below the lower limit re CHB and effectively reduce my 40% tax liability.
First question, is this information correct? We have two children still in education so this would mean a weekly income of £33.70 in CHB.

Second question, can I make these additional contributions and is it as straightforward as this?

Third question is how much will we need in pension pots to fund retirement at 65? (Considering funding 60-65 moving house). I will have at least the full state pension and my wife currently needs 2 years (7 under coming rules?) but hopes to be employed with enough hours to cover these n.i conts over next 15 years(now 45). Additionally she has a pension from her old job that she is in the process of finding out its' worth and a miniscule one for her current 10hrs a wk job with the LA.

My employer wont match any higher contributions so the only benefit of making avcs is to pay less tax/get chb and increase my pension pot. The children still dependant on us are 17 and 13 so only a couple more years of chb entitlement for child one. Additionally, like everyone else, there are no guarantees how long I will earn what I do and I could only afford to pay avcs whilst current conditions/this employment continue, so need to know I could stop if necessary.

Final question, is it worth paying avcs to mine to bring me out of 40% tax (if i can afford to) or is it worth using some of what i can afford to pay towards my wife's pension instead? She thinks it will attract 20% extra for her as a non tax payer?

I know this is a lot of asking but I'm not really sure what to do/what I can do so want to get enough info' together so we can make the best choices.

Many thanks for taking the time to read all of this post.

If you want to retire with a good pension at 60 you will need to substantially increase your contributions. At present you will probably get a fund of around £200k in today's money at age 60, which would generate only around £6k index linked. Not sure what the actuarial impact would be for you to draw your defined benefit pension early, but I assume it would be reduced by around 35-40% or so, thereby yielding around £8k. So at present you are aiming for around £14k at age 60 in today's money. My personal opinion is that you would be well advised to wait until 65 or even state retirement age (67 or 68) before retiring; not the news you want to hear but you have to be realistic. Even making large AVCs may not be enough to make a big enough difference for you to retire comfortably at 60.

kidmugsy

Your plan is, I assume, to use the DC pension from age 60 to bridge the gap to the FS pension, and then the SRP; you seem to me to be making good progress. In your shoes I'd certainly contribute enough to avoid 40% tax and simultaneously earn your wife the NIC credits.

Once you're into the 20% band I'd look around for anything else effective for any spare income or capital you might have. Pension contributions for your wife might be a fine idea.

retirementby60

Truthseeker - Thanks for your info'. Just to clarify, I am looking at the pensions to kick in at 65. Will use proceeds of property sale to fund the period from 60-65. My first works pension was forecast @ £12,300 (final salary scheme/at today's rate). The 'pot' on the second one showed as £69,300. Are you saying that if I maintain conts at the current rate this will achieve a value of £200k at aged 60 with an income of £6k p.a for the second pension thus giving a total of £18,200 on both?

I will get full state pension plus an additional amount (if nothing goes wrong and i am able to work for the full 35 years). I am going to send off for an up to date pension forecast tonight to see what the additional figure is. What sort of figures should I be looking at achieving to provide a reasonable retirement for us both?

Atush - I think the most sensible option is to do this to get CHB payments but an underlying entitlement to CHB still gives NI credits until the child becomes 12. The youngest is 13 so no credits for her anymore. She needs 7 more years under new regs so when she gets a job with more hours this should be resolved. If I pay the extra pension conts for myself ,we wont have enough available income to make additional conts for her. This is why I was undecided which way to go. I suppose as long as my pension income is under the 40% tax threshold and she gets enough to use all her tax allowance it wont really matter?

Xylophone - Thank you for these links. I now can see for myself that I can pay extra so my wife can get CHB again and our pension provision will be increased. Wish I had found this all out earlier! I think we will need to see an IFA but want to know the options first. Additionally we need legal/financial advice about property to prepare for our future so may need to see a couple of folk.

On a final note, what are the benefits/downfalls/differences between making avcs on the current work pension vs taking out an additional personal pension?

kidmugsy

retirementby60 wrote: »

On a final note, what are the benefits/downfalls/differences between making avcs on the current work pension vs taking out an additional personal pension?

If your employer let you contribute to an AVC by salary sacrifice it might conceivably be the better bet. Or if there's one of those deals that let you replace (part or all) of the lump sum of the FS pension by the AVC, and thus allow you a larger FS pension.

But otherwise I'd expect the extra flexibility of a Personal Pension of some sort to be more attractive. It certainly was for me.

atush

retirementby60 wrote: »

Truthseeker - Thanks for your info'. Just to clarify, I am looking at the pensions to kick in at 65. Will use proceeds of property sale to fund the period from 60-65. My first works pension was forecast @ £12,300 (final salary scheme/at today's rate). The 'pot' on the second one showed as £69,300. Are you saying that if I maintain conts at the current rate this will achieve a value of £200k at aged 60 with an income of £6k p.a for the second pension thus giving a total of £18,200 on both?

I will get full state pension plus an additional amount (if nothing goes wrong and i am able to work for the full 35 years). I am going to send off for an up to date pension forecast tonight to see what the additional figure is. What sort of figures should I be looking at achieving to provide a reasonable retirement for us both?

Atush - I think the most sensible option is to do this to get CHB payments but an underlying entitlement to CHB still gives NI credits until the child becomes 12. The youngest is 13 so no credits for her anymore. She needs 7 more years under new regs so when she gets a job with more hours this should be resolved. If I pay the extra pension conts for myself ,we wont have enough available income to make additional conts for her. This is why I was undecided which way to go. I suppose as long as my pension income is under the 40% tax threshold and she gets enough to use all her tax allowance it wont really matter?

Xylophone - Thank you for these links. I now can see for myself that I can pay extra so my wife can get CHB again and our pension provision will be increased. Wish I had found this all out earlier! I think we will need to see an IFA but want to know the options first. Additionally we need legal/financial advice about property to prepare for our future so may need to see a couple of folk.

On a final note, what are the benefits/downfalls/differences between making avcs on the current work pension vs taking out an additional personal pension?

Biggest difference is the budget- makes PPs the best (unless they lump avcs in)

Look to wife's pension as soon as you have extra cash even if you dont have it now?

retirementby60

Ok Guys,

Following on from my original post. Have sent off my State Pension forecast to see what my second state pension figure should be. Additionally been looking at my weekly wage slips to see how much i need to pay each week so my wife can get her chb and work out my net wage on that basis. This is where i am getting confused. My work pension is paid by salary sacrifice. I have been totally ignorant of what this all means. Was told it was a procedural way of doing it so i would get the best out of my pension contributions but now i am concerned that i am not getting full 40% tax relief on my contributions. I have been scouring the internet for info' tonight but can't find anything concrete. Do I need to ring HMRC to find this out? If i have only been getting 20% can I claim for the 40% and how far back can I go? As pension conts paid by salary sacrifice would this affect paying avcs? Need to get my head around this and be ready for start of new tax year so your help greatly appreciated. Thanks

kidmugsy

Salary sacrifice is a wonderful tax avoidance measure that, amazingly, the govt encourages. Use it while it's still permitted. You'll find that your pension is receiving your contribution gross, in a way that means you avoid not only 40% income tax but also your 2% National Insurance Contribution. The employer saves his NIC too; in some firms the employer kicks part of his savings into the employees' pensions.

(It's a particularly wonderful deal for 20% tax payers because their NICs are 12%!)

bigadaj

If it's salary sacrifice then you've been getting the full relief, 40% plus 2% NI, plus potentially some of your employer NI saving presumably.

You haven't said what your salary is which would help, cb is tapered between £50k and £60k, get below the lower figure and you get full cb, earn above the higher and you don't get any.