Help - Should I reconsider our contributions?

Kay55_2

Help for a newbie please who wants to retireearly but is not sure if they're doing quite the right thing.

I am nearly 40 and as I reach this milestone have giving a great deal of thought to my pension (a money purchase GPP)and to my husband's position. After readingthis forum I stopped overpaying the mortgage and re-directed the overpayments to my pension. I have recently upped my pension contributionto £1,000 per month and with basic rate tax relief and my employerscontribution this equates to £2,000 per month and I intend to add my annualbonus each year (circa £6,000) so a total contribution of £30k per annum (and Ireclaim HRT relief on all of my contributions through my tax code). I currently have circa £200k in the pot.

I have always been in charge of the finances (Ipool my salary with my husbands) and am very comfortable with my currentpension contribution rate. However myhusband (40) is self employed, earns a bit less than I do and has a muchlower sum in his pot (circa £35k) and makes no contribution to it currently. He does pay £300 per month into aS&S ISA which I suppose is our emergency fund. He owns a business in partnership and ispaying off a business loan (about 8 years left) with his share of the business worth some £300kand any capital gain should be taxed at 10%. He also has about £5k pension per annum accrued through an NHS scheme. I wonder if you might offer some thoughts asto whether I am putting too much into my pension and whether we should focusmore on my husbands – he would get HRT relief on a fairly significant level ofcontributions too. Another factor to consider is that I getfinancial advice on my pension investments through work and my investments arereviewed by a financial adviser every 6 months. I know my husband wont be as pro-active as me at reviewing his pension investments.

I want to retire by 55 at the latest. I think our number is currently around £36k perannum (after tax) if that helps but more would be great as we would love totravel lots when we retire.

Your thoughts would be much appreciated.

atush

Well you could always review them for him?

Is his company set up as a limited company? it seems large enough to be worth it (even if just to limit his own exposure if things went bad).

If so, he should start a pension thru the comany (ie excutive pension) and pay into it direct from the company. Plus, as he is taking income over dividends from his company, it seems like he needs a tax specialsit accountant perhaps? The company could pay for it. It would lower both his personal tax, and the corporation tax the company pays.

Kay55_2

Thanks Atush. I wouldn't review his pension investments (I am not investment savvy and simply take my financial adviser's advice) and I think rather than copying my investments I would rather he was invested in different funds to mine (spreading the risk).

I know that the partnership did look into incorporating a couple of years ago with their accountants but they have a great deal on their business loan with a rock bottom rate which the new company wouldn't get (or get anywhere near) so on the whole the decision was taken that it wasn't worth it for now. Maybe its time for them to look at this again though.

dunstonh

However myhusband (40) is self employed, earns a bit less than I do and has a muchlower sum in his pot (circa £35k) and makes no contribution to it currently.

He will also get a lower state pension as self employed under the current system get less than employed. That will be improved under the new state pension from 2016 but he wont have enough years on that to get boosted to the full level.

I wonder if you might offer some thoughts asto whether I am putting too much into my pension and whether we should focusmore on my husbands

It would make sense to even out your pension contriubtions a bit. In retirement you both have a personal allowance so making sure you both use it makes sense.

Higher rate tax helps that as well.

atush

He has 5K per annum pension coming (when was the last valuation?) plus a pot of 35K so he isn't doing too badly.

But he needs more provision. So he can invest in a Sipp or PP for now, claiming HRTax relief. And he could ask his accoutants about remuneration in dividends instead of just salary as well.

somethingcorporate

Agreed on atush's comment, that £5k per annum is probably worth in excess of £100k of your DC contributions so it won't be anywhere near as uneven as your £35k - £200k comparison.

Make the most of your HTR benefit whilst is still lasts.

Triumph13

Kay55 wrote: »

I know that the partnership did look into incorporating a couple of years ago with their accountants but they have a great deal on their business loan with a rock bottom rate which the new company wouldn't get (or get anywhere near) so on the whole the decision was taken that it wasn't worth it for now. Maybe its time for them to look at this again though.

You'd need to check this would fly with a tax accountant, but one solution may be to set up a service company to separate the partners' ownership of the firm from their working for it. The partners work for Service Co Ltd which bills the partnership for their services. The partnership then continues to trade as normal with its existing banking arrangements. Service Co Ltd is then free to pay pension contributions to its directors (the partners) and set them off against its corporate tax bill.

Would need to be done carefully to avoid any complications around VAT etc, but may possibly be worth it.

atush

Or just set up a an LLC and pay themselves a pension thru the firm. Any extra HRT not mopped up could be removed by paying some remuneration in the form of Dividends over salary. Obv they would have to check the bank would allow the loan to cross to the new company but they won't if they used personal assets such as the family home as guarantee.

Which Is why I suggested the tax accountant. He would know what is legal and correct.

Kay55_2

Thanks for all the posts. Dunstoh I didnt know that SE receved lower state pensions - thats good to know.

Spoke to my husband last night and we are re-directing the £300 he puts into his ISA into his personal pension to get the HRT relief. We are also considering transferring into his pension some of the other ISA monies in as we have a fair cushion and want to make the most of the HRT relief for him while its still there. He will see if he can switch to my financial advisor for his pension and hopefully we can do 6 monthly pension reviews together (which would make me much more comfortable about putting money into his pension).

Atush, Triumph 13, husband says he will speak to his partners about the limited company angle again although they seem certain that the Bank would not allow them to transfer their loan with the interest rate intact (they are paying just 0.5% over LIBOR for their business loan)

Thanks again

greenglide

I didnt know that SE receved lower state pensions

Self Employed people don't always receive lower state pensions.

Self Employed people have not had the opportunity to get Additional Pension (AP) from the SERPS / S2P schemes so at present they would look forward to around £111 or so of pension.

The changes from 6/4/2016 will mean that self employed people who achieve SPA from that date onwards will get the full £144 if they have 35 years of contributions - they are one of the "winners" from the changes.

atush

If they can't move the loan (and that is a superb rate I am sure the bank wont agree as they'd like to get more) then I would look at paying as much into pension as he can afford to mop up HRT relief as you said, and if still paying HRT looking at dividends over salary in part.

Then, once loan is paid off, look at becoming an llc.

The tax acct would need to look in depth to see how much corporation tax they are paying now vs what they would pay with a higher loan and executive pensions (as these are deductible from the company income before tax).

If the company owns their own business premises, an Exec pension as a SIPP could really come into fore here. As commercial property can be held in a pension, with the rent the company pays going into the pension as income.