am I crazy?

atush

I get all your points, but being afraid of what politicians 'might do' and allow yourself to pay more 40% tax is just shortsighted. I'd try to put more in now, while you still have the chance. If they lower the LA further, you'd have time to register your pot to 'safeguard' it.

AS for the 25% TFLS, I see them lowering tax relief for higher earners like you long before they would touch the LS. Think of all those people with new pension freedoms, and all those new auto enrolled people- they have a lot fo votes to cast out any govt that removed their beloved tax free lump sum.

Then you are afraid you will have to wait til 60- well they have already said they will raise it 2 years to 57 aournd 2028? Dont see any further increases unless/until SPA goes up and that the changes would probably take place after you drew yours.

By all means fill your S&S isas every single year, and invest for your daughter too. And look at VCTs too. And overpay your humongous mtg. And use NI index linked bonds as and when they ever become available again. Do all these things and put more into pension. After all, you get 47% tax relief on your money into pension, and that is a whole lotta ground to lose before you even get to break even much less a loss.

kidmugsy

boglehead wrote: »

The rationale for this is mainly 4-folds: ....

3- even without maxing out the pension contribution allowance, we still will hit our lifetime allowance before 50 y/o

What would happen then? You would presumably ask your employers for some reward as pay instead of pension contribution. Which would leave you with a non-problem presumably.

guymo

suebfg wrote: »

I see a mortgage as a debt - to be cleared asap, particularly whilst interest rates are low.

I don't see why low interest rates would make you more inclined to clear the mortgage debt. Surely you'd be less inclined to do that? OP's mortgage is currently at 1.9%, so if he (I think it's a he) can get a better return than 1.9% on his money anywhere, he's better off not overpaying the mortgage. Of course this ignores the risk of holding debts secured against the house in which you live, but OP seems to have a very significant household income and can handle the level of mortgage debt without a concern. And since his investment strategy as discussed in this thread does not involve tying money up in a pension, he's got the flexibility to take chunks out of the mortgage later, when interest rates are higher and it's more worthwhile.

kidmugsy

guymo wrote: »

...he's got the flexibility to take chunks out of the mortgage later, when interest rates are higher and it's more worthwhile.

Or when interest rates are higher and his investments consequently worth less?

suebfg

That is a huge mortgage by most standards and those low interest deals may not always be around. That is why in Ops position I would be wanting to reduce that debt asap.

bowlhead99

suebfg wrote: »

That is a huge mortgage by most standards and those low interest deals may not always be around. That is why in Ops position I would be wanting to reduce that debt asap.

I think 'by most standards' needs to be put into context. The mortgage sits alongside a house valuation that would be 'huge by most standards' and if the expectation is that future income will allow pension limits to be maxed out quite young, the salary coming in is also 'huge by most standards'.

A 1.9% mortgage is about the cheapest in history and I definitely wouldn't be maxing my overpayments on it. I would simply do same as OP and refinance to lock into a new low rate for an extended period. That said, if something does go wrong health-wise or job-wise that affects the ability to refinance or day-to-day living costs-wise, it will prove to have been a decent move not to have used up this year's pension allowance and lost access to the cash to late 50s.

Remember also that unused pension allowances can be carried forward to future years while for example ISA allowances and VCT allowances can't be.

While you may think it's a dead cert that you can max your lifetime pension allowance later (accepting the uncertainty that you don't know how big of an allowance it might be and whether they will still be offering high rate tax relief on it) it's not something that is rock solid guaranteed. But if the status quo is maintained, it would be great to get the best value out of those lifetime contributions for the other half who is currently 'only' saving 40% plus her 2% NI. Depending on her current scheme, in another job she might be able to use salary sacrifice to get the 40% plus the NI plus a share of the employer's NI saved. Or she might find herself in the awkward 60% marginal tax bracket between 100-120k. Or she might get promoted to the 45% bracket or we might see 50% tax again.

So there is upside in leaving the OH's pension contribs unmade, beyond the amount needed to capture the employer cash. That has to be balanced with the risk that tax rates fall or tax relief gets restricted further or she gives up work to have more kids or for health reasons and doesn't get to access the relief.

boglehead

Thanks a lot for the suggestions, it really made me think a lot.

I still feel uneasy about putting some cash on something i have no control on until i am 57 - especially since i want to retire earlier than that.
I am also concerned about the fact that in case somethg happens to me after this age, my family will only get 45% of what was put in... As i believe the pension cannot be wrapped in a trust.

That being said, the points you all made are making think I might want to contribute a bit more.

To put it in perspective, once we max out both NISAs / Junior ISA allowances, our pension contributions (sacrifice matched by our employers), have paid for food, utilities, holidays, etc... and mortgage payment, we are left with roughly £50/60k after tax to invest every year.

The idea was to overpay the mortgage by £12k a year and put the balance in vanguards accounts. I am now thinking we could throw an extra £10/15k in our pension account (cringing)

bowlhead99 wrote: »

But if the status quo is maintained, it would be great to get the best value out of those lifetime contributions for the other half who is currently 'only' saving 40% plus her 2% NI. Depending on her current scheme, in another job she might be able to use salary sacrifice to get the 40% plus the NI plus a share of the employer's NI saved. Or she might find herself in the awkward 60% marginal tax bracket between 100-120k. Or she might get promoted to the 45% bracket or we might see 50% tax again.

So there is upside in leaving the OH's pension contribs unmade, beyond the amount needed to capture the employer cash. That has to be balanced with the risk that tax rates fall or tax relief gets restricted further or she gives up work to have more kids or for health reasons and doesn't get to access the relief.

Blowhead - i am not sure i understand the point of having her put money in to get 42% relief, while i can get 47%. Especially since she will be 57y/o 2 years after me (hence only getting access to the money then)
I will consider this once she earns over 100k and she loses her £10k personal allowance (to your point)

Archi_Bald

boglehead wrote: »

..............Blowhead - i am not sure i understand ..............

boglehead, bowlhead, blowhead....:rotfl::rotfl:
Thanks to all the heads for the light entertainment.

Archi Baldhead

bowlhead99

boglehead wrote: »

Blowhead - i am not sure i understand the point of having her put money in to get 42% relief, while i can get 47%. Especially since she will be 57y/o 2 years after me (hence only getting access to the money then)
I will consider this once she earns over 100k and she loses her £10k personal allowance (to your point)

No I agree with you, perhaps I worded it badly.

There is a risk that in the future the ability for her to get as much as 42% relief would fall away, but if the status quo is broadly maintained in terms of tax policy there are a variety of ways she may be able to get more than an effective 42% in future years. Such as, if high rate tax goes up generally, or at the 100k point, or the 150k point, or if a future employer shares their Ers NI saving with her instead of just letting her make her EEs 2% NI saving.

All of these things could allow her to get more benefit by making contributions later rather than now, if you are going to hit the overall cap anyhow. And as you can carry forward unused pension contribution allowances across years, if she suddenly got a monster taxable windfall in a couple of years time there might be a chunk of tax to be saved by having some pension contribution allowance left over from this year.

dicky73

Archi_Bald wrote: »

boglehead, bowlhead, blowhead....:rotfl::rotfl:
Thanks to all the heads for the light entertainment.

Archi Baldhead

I'd never have believed it, lol.

dicky73head