Pension advice..what else to do?

juju17

I am asking this question on behalf of a friend.
They are 30, earn £58k, plus additional income from BTL's.
Currently they pay 6% into their company pension, this is matched by their employer.
From what I have read on here, I have suggested that they could also open a sipp, and use this money to bridge the gap between early retirement and state pension age?
They plan to retire as early as possible.
What else could/should they do?
I appreciate the expertise on this forum, so would be grateful for comments/suggestions. Thank you.

tacpot12

They could look to invest in Stocks & Shares ISAs if they want to bridge the gap between very early retirement (say 50) and when they can draw on their SIPPs (55?). They are of an age where they need to be aware that the government might make changes to personal pensions (including SIPPs) to delay the point at which they can be drawn upon (i.e. increasing the age to above 55). I would suggest they open a SIPP now in case this provides some protection against future changes.

They could look at investing in Venture Capital Trusts (VCTs) to minimise their tax liability; but only once other safer equity investments are in place.

They could look to reinvest in more BTLs, but would suggest they don't have more than 50% of their assets invested in residential property at any time; it sounds like they need to diversify into equities now.

juju17

Thanks tacpot12, that is really helpful. I have been trying to read up as much as I can. I have already read that the age that you can access your sipp is increasing to 57 years in 2028...so sure there will be more changes on the way.
I will pass on your comments and they can read up on VCT's. Thanks for taking the time to reply.

sandsy

It depends on how early early is.
If 57 will be early enough, a pension may be more tax effective since your friend is a higher rate taxpayer. This is particularly the case if they anticipate being on a lower tax rate during retirement.

quotememiserable

Absolutely right sandsy. Why not just suggest they pay more into their employer pension, and save paying all that 40% tax. Any post-tax investment starts at a big dissadvantage. Any shares they want to invest in can be done inside the pension. Plus, does their employer match contributions above 6%. Could be some free money there too.

atush

at 58K plus rental income, there is a lot of 40% tax being paid. So I recommend he put into a sipp or PP enough to take them out of HRT completely (incl the rental income).

dunstonh

And if the friend has children, they would be losing child benefit. The pension could allow that to come back to them again.

juju17

Thank you all for the replies...

sandsy...I think they are hoping to retire in their 40's...they are quite frugal, despite the large earnings.

quotememiserable...I will get them to check if their employer will match contributions over the 6%

atush...I will let them know what you are suggesting, this is exactly what I thought from the little bit of reading up that I have done. I understand that you can pay in up to £40k per year into your pensions?...have I got that right?

dunstonh...no children yet, but they hope to in a couple of years, so that is also food for thought. I am hoping to look after said child one day a week to boost my pension

Really appreciate the suggestions, thank you.

TARDIS

One thing to bear in mind is that if they have children in their thirties this may make retirement in their forties more challenging. Need to bear in mind many parents are supporting their kids up to 21 and often beyond.

juju17

Yes Tardis...I think if children come on the scene, things might be looked at differently.

enthusiasticsaver

When we started looking at early retirement we decided to do three things. First we overpaid into our company pensions by way of AVCs and additional contributions. This was particularly advantageous for my husband who was a higher rate taxpayer. We did this in our 20s, 30s and 40s.

Secondly we looked to reduce outgoings in retirement by not taking on debt and overpaying the mortgage to clear before retirement. We had a few years of university support for our children to pay just as it was paid off though but once they finished early retirement was the next horizon. At that point we were in our late 40s.

Once our daughters were finished at university and the mortgage was paid off we concentrated on building up savings initially in bonds, fixed term cash isas and then stocks and shares isas and sipps. If your friend wants to take early retirement then a combination of all these things will be needed. They will be restricted as to when they can take pensions so having a savings pot of stocks and shares isas and some easy access cash will bridge the gap between retirement and when they can access their pensions.