how to save for retirement if you can't save enough in a pension

ZiggerZagger

Hi all

I was finally divorced in 2015 (having been separated in 2012). My ex husband (I feel) deliberately downgraded his job before the divorce just as I happened to get a large promotion.

This meant that when our finances were looked over by the lawyers the settlement was massively in his favour.

Cutting a long story short, I have ended up with zero pension, and remortgaging the house to buy him out BUT I have a very well paid job for the time being (plus the kids full time). I don't believe this job will last for longer than another 12-24 months, if I'm lucky.

Because of my salary, it is likely that I can only contribute £10,000 per annum to a pension but I should be able to save over and above that but where? I'd like it to go into some sort of retirement pot but is there a better, more tax efficient way of doing this?

I saw 2 IFAs a few years ago but I feel both gave me bad advice. I can't overpay the mortgage until July 2017. I did set up a stock market fund on the advice of the IFA (from Hargreaves Lansdown) but it has totally underperformed so I'm a bit hesitant to plug more money into that. I put money into ISAs each year.

I could look at property but I'm a bit unsure of my footing and would need to take out another mortgage and given the nature of my work, I'd be hesitant to take on more debt, and in London, where I am, the returns are not good and there is now the extra stamp duty. Also because I'm on my own (still single :rotfl:) and have the kids plus a full time job, I am super busy and really don't have much time to manage a property or even start to look for one!

I'm 42, 43 this year.

d70cw6

presuming you're a HRT payer, paying into a pension makes the most sense.

ISAs (particularly cash ISAs) are a bit parp imo.

ZiggerZagger

from next year though, the annual allowance is tapered down to £10k (depending on what you earn)

I don't have any carry forward allowance to use as I wasn't a member of a pension fund in the years where it would have counted so it's likely that I'm going to have to find another home for any money I would have put into a pension

greenglide

But if you ever contributed to a pension scheme in the past you are still a member and this counts. Once a member always a member. You do not need to be a contributing member.

ZiggerZagger

hi greenglide, yes that's true but I have almost nothing in the pension.

When I was married, my ex had an enormous pension, so large that it actually made no sense at the time me contributing to one. Of course in hindsight that was a foolish decision - I had always assumed in the divorce I would get some of it but I didn't. Coupled with that fact, I took some years off work to raise the children where I neither had any work nor any pension at all. I have a pension of around £6k from about 1999 and that's it and then last year's max contributions which were £40k.

So I have ended up with almost nothing in a pension as I've only just started one and now from next tax year, if I earn well, I can only put £10k in.

maximumgardener

start saving into ISA's if you have not done so already. max them out where you can each year.
investment isa's rather than cash . you have time on your side

uk1

ZZ,

You sound like reading between the lines and under normal circumstances, an exceptionally resourceful and self-sufficient person. So a lateral question that might open up your thought process to other possible avenues or if not then they will prove to be simply cul-de-sacs to ignore. Or sow seeds.

Does your working talents open up any possibility of either additional self-employments ie consulancies etc or do you have any aspiration to start your own business? This often gives talented females the opportunity for sometimes exceptional earnings alongside the demands of working motherhood? Such avenues might then produce other long-term financial opportunities.

Most probably a bum steer but thought I'd ask.



Jeff

Snakey

She doesn't need any more money if she's looking at the full higher-earners restriction on pension contributions! You have to be on £210k or more to get restricted as heavily as that, if I recall correctly.

You can save outside an ISA up to a point now that there's a £5k dividend allowance (the £500 savings allowance will probably be neither here nor there to you) and keep cashing in gains to your annual exempt limit each year. Of course you're going to have to make your own investment decisions and it's not risk-free - but keep in mind that it wouldn't be any more risk-free if it was in a pension (or an ISA).

Buying a second house isn't going to be much fun because before you know it the new rules restricting tax relief on mortgage interest will have kicked in. Your own home is still exempt from CGT though, so if you're confident that the property market will go up then you could maybe move somewhere more expensive and then downsize when you need the cash - unlike a buy-to-let it won't get you a current income, but you will benefit from any gain.

Other tax-efficient investment ideas for high earners include EIS and VCTs, which get you tax relief but involve risk - you could lose the lot, at which point the fact that you got a tax reduction on the way in will not make you feel any better.

There's a new "investor's relief" which would give up to £10m of gains tax-free (similar to Entrepreneur's Relief but without you having to work for the company), but again, you're taking a risk.

Or if whatever it is you do for a living is the sort of thing you could do solo, you could start your own company and see if you can build that up over the years, reinvest the profits in the business rather than paying yourself a massive salary and get a nice low 10% tax rate on an eventual third party sale when you come to retire.

Any tax-efficient deal is always vulnerable to a change in the law which can happen overnight.

You really ought to go and see a tax adviser for tax advice. They won't give you investment advice because they are not allowed to (unless they are also financial advisers) but they can explain the options open to you for reducing your tax bill and then you can make your own decisions. Also, make sure that you aren't creating assets that your ex could then potentially get his hands on.

You must not take any action based on statements made by random strangers on the internet. (This is good advice to live by generally, but especially if you've a lot going on behind the scenes.)

peterg1965

ZiggerZagger wrote: »

I did set up a stock market fund on the advice of the IFA (from Hargreaves Lansdown) but it has totally underperformed so I'm a bit hesitant to plug more money into that. I put money into ISAs each year.

You maybe didn't give this long enough to 'perform'. Investing in equities is generally a medium to long term outlook. If you put money in a pension you should be investing in exactly the same sort of funds and you cannot access until you are at least 57, so 14-15 years, that is where I would consider your focus to be and at the same time taking advantage of Higher Rate Relief if you are a HRT tax payer.

RickyB2000

When I read the title, I assumed it was someone who couldn't afford to put any money in a pension after bills etc. Not someone who earns so much they are hit by the tapering allowance

I would make a list of what you need to live off now and what your number is for retirement. You should be able to save a significant amount over the next 12 to 24 months even after tax if you cut costs to a minimum and keep it down in retirement. Once you have a decent start, you can then increase your lifestyle or change jobs etc.

grey_gym_sock

ZiggerZagger wrote: »

I have a pension of around £6k from about 1999 and that's it and then last year's max contributions which were £40k.

having a pension since 1999 means you have been a member of a pension in all recent years (even if you added nothing to it).

that implies that you could use carry-forward of unused annual allowance from up to 3 years before a pension contribution is made - i.e. in 2016-17, you could use any unused allowances from 2013-14, 2014-15 and 2015-16 - obviously minus the £40k you already put in.

if you can make a contribution by 5 april, you could also use any unused allowance from 2012-13 (assuming you have high enough income in 2015-16 to do this).