Help planning my finances: ISA, pension, what?

guymo

I'm wondering how best to organise my finances and would appreciate the opinions and suggestions of the forum.

Background: I'm married, we're both 41, we have two kids ages 10 and 6 (just). We both work, I pay higher rate tax, my wife does not. I have a defined benefit pension (USS) whose value is hard to predict because of likely changes in the near future but will most likely pay a very good income in retirement (~ £40k) from age 67 should I continue in the scheme until then; already accrued benefits would be worth £17k or so. My wife has a DC pension currently worth about £85k. We have a mortgage of £220k fixed at 2.59% until 2018, with a total of 20 years left to run.

When all expenses and short-term cash savings are accounted for, I have about £500 every month that can be tucked away for the long term. The question is how best to do that and what to think about when deciding. Life events that I can see coming include:
- end of the fixed rate on our mortgage which will likely result in higher mortgage payments
- kids leaving school in 9 and 13 years: they may wish to go to university, they may not, but I am guessing that whatever they choose will be expensive
- my ageing parents and in-laws (all in their 70s/80s) may generate some life changes for us that I can't readily predict

So what can and should I be thinking about? I currently invest this money in a S&S ISA but wonder if a pension might be better because of higher rate tax relief; age 55 is not so far away, but the kids will leave school before I get there. And how would you take account of the DB pension when considering asset allocation for these other investments?

All and any thoughts, suggestions and opinions are welcome. Thanks!

Linton

It all depends on what do you want to do with money. You would seem to be OK after you get your USS pension, but will you want extra? Another option is to retire early, so you need money to bridge the gap, a gap of perhaps 5-10 years. On the other hand you may be very happy working and want to carry on til 67. Perhaps the money is purely needed for an inheritance for the children in the far distant future.

Only when you have an objective(s) would it be possible to make a sensible decision.

Given your current tax situation further pension, perhaps a private pension, that can be taken independently of your DB pension may be the right answer. However, I guess there is some danger that you will exceed the maximum pension lifetime allowance of £1.25M.

guymo

You immediately put your finger on my number 1 "problem" which is that I am not sure what my objectives might be. I imagine I might need a dollop of cash when the kids are leaving school. I can't imagine being able to retire any more than a little bit early, and my wife has no desire to do so (she gets offended at the suggestion, in fact). My own pension arrangements are likely to remain ok, but perhaps my wife's need some attention.

One goal therefore might be to provide a cushion for retirement, to provide some flexibility in later years.

I could:
- contribute to my wife's pension
- open my own SIPP or personal pension
- use ISAs
- other!

(I think I am unlikely to hit the lifetime allowance with my DB pension, unless the LTA is reduced further in real terms. If it stays at £1.25M nominal, though, I will most likely exceed it because of the way DB schemes are valued.)