Pensions / Saving / Investments

jamesd

Notfarfromtheborder wrote: »

Both in mid 40's, wanting to get to 55 with options regarding retirement.

Notfarfromtheborder wrote: »

OH is in NHS 1995 scheme, just under higher rate tax threshold and has been in it since 21 so she will get a decent £13k pa pension from 55.

Easy part of planning first. Since she is in a group that can take that pension at age 55 without reduction you should plan to do that. With no loss from doing so, it's clearly a good option. So you can start by adding that to your available household income from when she reaches age 55.

Notfarfromtheborder wrote: »

Mortgage virtually gone, however, no liquid assets as all gone into clearing the big one.

That's a choice I'm personally not keen on if it was done by overpaying because it's exposed you to avoidable financial risk from long term illness and unemployment that you would not be exposed to if you had instead accumulated a pool of investments. I set protecting myself from those risks ahead of getting rid of a mortgage in my own objectives. By protecting myself I mean accumulating enough assets to take care of all of my living expenses including mortgage cost from that point until the day I died, living of savings and investments first, then adding personal pensions and finally the state pensions. It took me about 7-8 years to get there but I was more keen than most people to do it. I'm close to or at the point where I could retire now, but don't et think I have the safety margins or place to live flexibility that I want so I'm not going yet. I'll probably retire in 12-13 years after starting investing seriously.

You may not want that as an objective, but it doesn't matter so much because one of the objectives you should have for your retirement planning is a minimum income target. Also a desired and a maximum useful number. Then you can plan to hit the target, stay above the minimum even in unfortunate investment circumstances (the low probability of a great depression starting just after you retire) and possibly hit the higher target if you don't experience the unusual investment case.

Notfarfromtheborder wrote: »

OH is in NHS 1995 scheme, just under higher rate tax threshold and has been in it since 21 so she will get a decent £13k pa pension from 55.

Excellent. For her the initial choice is easy: stay in that. Since you have a salary sacrifice pension scheme it is more sensible to do pension investing via that scheme than to do more than the minimum needed in hers. Because hers is defined benefit she should keep on paying into it, though. She should also check whether AVCs in her scheme can be used to pay the tax free 25% lump um instead of reducing the main pension income level. Where that option is available it tends to be a good enough deal to do it.

Notfarfromtheborder wrote: »

I have 80K in dc pension pots, currently on a 5% + 5% arrangement with employer through salary sacrifice, circa 6K per annum going in at moment. Other pension is an old db pension that is forecast to pay circa £8K pa after 65.

OK, you can write in that DB pension income into your cash flow plan, starting at that normal retirement age of 65.

You having a salary sacrifice pension available through work makes that the first choice for pension investing. You'll get 42% in combined personal and income tax and NI relief for your 40% income tax band or 32% for your basic rate income band. This is because the NI rate is 2% on higher rate job income or 12% on basic rate. Does the employer add any of their own employer NI saving to what you get?

You mentioned losing child benefit. Next thing to do is plan to pay into the pension at least enough to get that back because it also adds to the government breaks you get for using the pension. It's quite likely that you're going to end up getting more than 50% effective income tax/NI/CB relief for your pension contributions.

Notfarfromtheborder wrote: »

My thoughts were to put £1K per month in cash savings / investments and £1K into my pension through salary sacrifice by way of sacrificing £1700 per month. Suppose we could increase my ss greater to £3400 per month and not save elsewhere using flexible mortgage as liquidity if needed but this seems extreme as I would like to have some 'tax paid cash' in reserve if retirement ages change and I still want to retire.

Do you want to retire before age 55? Or do you want the contingency unemployment illness planning case that I used? Those two are the two big ones where you need money outside the pension. If you have neither need you should use the pension for most of this, to exploit the benefit of its tax relief, particularly given the availability of salary sacrifice.

The next thing to do is add £7500 of state pension for both of you at your state pension ages to your retirement income plan.

Once you've added those into your plans, how does your income profile over the years compare to the low/main/nice to have target income levels? That will be what sets the target investment amounts for retirement at 55 or earlier. If you can hit the targets at 55 you can consider whether to hit them earlier or whether you want to choose to work longer than to age 55.

You can ignore the mortgage or not discussion at the moment, it's too soon in your planning process to go there.

jamesd

Notfarfromtheborder wrote: »

But am I not just delaying paying tax on this at a later date, also some more liquid assets would be beneficial if legislation changes and I need to access cash before pensions could be released?

Maybe and yes, respectively. I think that you might end up doubling any money you put into the pension. That's because of the combined effects of income tax relief, NI saving and regaining child benefit. Lets briefly pretend that it is 50% combined relief and doubling and completely ignore investment growth, other than enough to keep up with inflation.

You pay in net £100 and end up with £200 in the pension pot. At 55 you take out 25% as a tax free lump sum, £50 tax free. You now have £150 in the pension pot and I'll assume that in retirement it's taxed at 20% (ignoring the personal allowance or the moment). £150 * 0.8 = £120.

So in this situation you'd pay in £100 net and get out £170 net.

You're right that some non-pension assets are needed. How much depends in part on whether you want to retire before 55 and whether you have my survive indefinitely if unable to work or unemployed objective or not.

jem16

Notfarfromtheborder wrote: »

OH is in NHS 1995 scheme, just under higher rate tax threshold and has been in it since 21 so she will get a decent £13k pa pension from 55.

Hopefully your wife just creeps into the protection for keeping on the final salary scheme? She would need to have been 45 before April 2012. If she was between 42 and 45 at that date it will be a bit past age 55 but she will have tapered relief.

claire111

jem16 wrote: »

Hopefully your wife just creeps into the protection for keeping on the final salary scheme? She would need to have been 45 before April 2012. If she was between 42 and 45 at that date it will be a bit past age 55 but she will have tapered relief.

To clarify for the OP - the above would only apply to contributions made after April 2015 since all contributions up to that date would be covered by 1995 scheme rules.

Notfarfromtheborder

claire111 wrote: »

To clarify for the OP - the above would only apply to contributions made after April 2015 since all contributions up to that date would be covered by 1995 scheme rules.

Hi Claire

When are the full details of the scheme finally published?

Thanks

jem16

claire111 wrote: »

To clarify for the OP - the above would only apply to contributions made after April 2015 since all contributions up to that date would be covered by 1995 scheme rules.

Technically it would apply to ALL contributions as the OP's wife would remain on the 1995 Final Salary scheme until retirement (if fully protected - ie age 45 at April 2012) and would only move to the CARE scheme after the protection finishes.(if tapered protection applies)

jem16

Notfarfromtheborder wrote: »

Hi Claire

When are the full details of the scheme finally published?

Thanks

Here's the Protection Arrangements.

http://www.nhsbsa.nhs.uk/4019.aspx

You will also find a link there to the Tapered protection calculator if this applies to your wife.

See Page 36 of this document if the Tapered Relief applies.

https://www.unison.org.uk/upload/sharepoint/On%20line%20Catalogue/20733.pdf

So what age was your wife as of April 2012?

Notfarfromtheborder

Thanks, I'll have a look later.

41 I think....:o

jem16

Notfarfromtheborder wrote: »

Thanks, I'll have a look later.

41 I think....:o

If that's the case then your wife has no protection and will move to the new CARE scheme in April 2015. Benefits accrued up till then will be safe but the 10 years of CARE pension she would build up until age 55 would suffer a large actuarial reduction if taken at age 55 instead of age 66/67 - not sure what is her state pension age.

Notfarfromtheborder

Thanks Jem,

Not looking good..., might need a rethink on plans:eek:

Think I'll just wait until they send documentation with real life examples as they did when she has option of transferring to 2008 scheme.