Salary sacrifice - is this a good idea for me

Cherry_Burton

Hi,

I would like to add my two penn'orths worth to the mortgage V pension debate. I was made redundant in my 40s with a large mortgage and a young family. It was very frightening and I vowed then never to be in that situation again. I worked very hard to pay off the mortgage and the 'peace of mind' I now enjoy is worth every penny of the potential future pension I have foregone through this strategy.

Whatever happens, no one can take my home off me.

CB

agent69

I think salary sacrifice get more appealing the older you get. The main drawback in your position is whatever you pay in won't be coming out for at leat 25 years. Are you happy to make that comitment?

cloud_dog

The bottom line is that for a basic rate tax payer, making company pension contribtions, SS is a no brainer and positive.

BRT normal contribution of £100 reduces your take home by £80.
SS contribution of £100 reduces your take home by £68.

Whether you should prioritise mortgage repayment over additional pension contributions is a different question. Additionally, whether a LISAis a better option could be considered (can't recollect OPs age).

MallyGirl

Many of us won't remember to mention LISAs as we were over 40 when they were introduced so not available to us.

Thrugelmir

pensionpawn wrote: »

repayments are eroded by inflation.

Repayments will be determined by interest rates in the longer term. From a low base point. The potential downside is sizable. How comfortable would you be if rates rose back to 6%-7%. As an aside every 1% increase in base rate has the potential to knock 10% off the value of bonds (i.e. Government Gilts and Blue Chip Corporate ).

kev2009

my pension has total of 18% between mine & employer contributions and tbh from the predictions the online tool provides, it looks like i'd ideally need to go to 68 (what will be my official retirement age) so that with mine & state pension i'd hopefully get by. I was hoping company pension would be 20k a year minimum and that i'd be able to get out around 62-65 but that isn't looking likely, from the predictions but that could also be due to investments not doing as well as in previous years, who knows.

At the mo, i'm concentrating on mortgage to try and reduce it as much as possible over next 2 years as i come to the end of my 5 year fixed and want to renew for another 5 years potentially and want to reduce what I owe to get a better deal and potentially may then overpay as much as i can for those 5 years so that i'm hoping to be in a far far better position and have a much lower mortgage that then i can be in a position to OP mortgage and increase pension contributions but i can't increase pension contributions at the moment so potentially will have to wait 7 more years. Pay rises are not likely to come as job doesn't really have any career progression opportunities due to cut backs and re-locating some stuff abroad. Hoping if things work out, it wont be too late to increase my contributions as i'll be 48 by then so would give me at least 12 years to increase contributions to hopefully make more of an impact. Also considering maybe not putting in pension, maybe put into a ISA as i don't have any ISAs now as I used the money as a deposit on my property few years ago and decided due to uncertainties, i'm better off having what money I have to hand rather than tied up, i am however using coupe of regular savers and using the cash back on current account etc so not too bad.

Kev

MallyGirl

Treat predictions with scepticism- they tend to be on the low side

crv1963

pensionpawn wrote: »

Agree entirely. We sort of overlooked the importance of Mrs P's pension, however, for the last couple of years we have been skewing our family finances to throw as much into her pension as possible. Why?

So that she can at least draw her personal allowance each year in retirement. Having £25k tax free between us as a baseline is our goal. I can easily cope with the idea of paying mortgage repayments through retirement that dwindle with age, I can not cope with the idea of having to work until 67 and just living on a modest uplift to the state pension.

Hi Mr P, I'm glad we're not the only ones! We've taken a more proactive approach to Mrs CRV pension, given that my pension will take me over the PA we are looking to create two pots for Mrs CRV.

Her DC pot which stands at around 100k give or take a few thousand which will be taken at around 4k pa, hopefully.

Then there is her current workplace pension which will be combined with her SIPP we've just opened when she retires. This pot will be able to be drawn down to zero at the rate of 8k pa from retiring until SP starts.

So we can draw 12k pa in total from her pensions. When SP starts she has that and the continued 4k from the DC pot, so keeping her at or under the PA. If I should die before her SP then survivors pension of 9-11k and her 12k pa should provide enough for her to live comfortably.

With my pension of around 16-18k pa and her 12k pa we are aiming for a baseline of 25-30k pa in retirement. If I reach SPA then that is an additional 8.5k on top.

For Mrs CRV and myself the thought of having to work to 67 is also too much. I have several younger colleagues who recently also started planning so they too can retire before their SPA of 68.

For us the race is to get it all saved in the next three years so we can retire when she hits 55.

kaycastle

I agree with the rest of you, I can't imagine working past 50, let alone 60. And I'm not even 30 yet. I work hard but I work to live and I get fulfilment from hobbies and family rather than a specific career goal.

I admit I had to Google "sipp" so that's like your own personal pension that you do outside of work and everything. I haven't started a sipp or anything. I'm guessing first I should max out at workplace pension to try to get an increased contribution from employer.

crv1963

kaycastle wrote: »

I agree with the rest of you, I can't imagine working past 50, let alone 60. And I'm not even 30 yet. I work hard but I work to live and I get fulfilment from hobbies and family rather than a specific career goal.

I admit I had to Google "sipp" so that's like your own personal pension that you do outside of work and everything. I haven't started a sipp or anything. I'm guessing first I should max out at workplace pension to try to get an increased contribution from employer.

I would look at your pension scheme retirement age, if it is to be taken at the same time as the state pension then you may have to plan alternative savings types to be able to go before then.

Decide when/ what age you are aiming for. There are SIPPs, PPs which currently are able to be taken at 55 soon to be up to 10 years before SPA, there are Lifetime ISA (LISA) that can only be opened by the under 40s and accessed at 60, or ISA which can be taken whenever you like.

For us the SIPP is the first choice because of the immediate up lift from the 20% HMRC puts in and the relatively short time scale for Mrs CRV to access it. For me it is ISA as I already will be a basic rate tax payer in retirement, so any income from the ISA will be tax free for me.

There are advantages with all depending how old you are and where on your journey you are. Whichever you use be safe in the knowledge money saved now is money you do not need to earn later.

So probably a mix of different tax wrappers would be good, a lot will change over the time until you are looking to stop work, the more you have put away the less time you may need to work.

Good luck.