The plan and the numbers - please critique

Mistermeaner

Marine_life wrote: »

How does that work then? The take-home looks very low.
Is your bonus is c. £50k?

basic is 80K

Bonuses typically 20-50K

only basic is pensionable

I'm salary sacrificing 67% this tax year (to which the company adds 11%) so crica 65K going into pension this year

I will have used up all my annual allowances and carry forward at the end of this year

Mistermeaner

Norwooder wrote: »

If in reality you expect to pay more into your pension (for example do you think you will pay more than £20k in 2020/21) you should stress text the projected nominal value of your pension against the following, to ensure you are not going to breach the lifetime allowance:

- additional contributions (in excess of £20k from 2020/21)
- higher investment return
- lower levels of inflation resulting in less of an increase to the lifetime allowance

As someone else rightly pointed out you should make full use of your annual allowance if you believe there is a risk you will be subject to the tapering. For example you may want to consider making use of any remaining carry forward you have that will be lost next year (i.e. 2016/17).

good advice thanks - I have used up all my carry forward etc

I will stress test furture payments for life time allowance impact - could be wrong but it's such an "unfair" and difficult to manage punitive tax I can't see it sticking around by the time it becomes relevant to me (and lots of others like me)

Or another way of thinking about it is that I will pay in carefully to avoid hitting it, but if investments perform really well and take me over then while annoying to lose money in tax I can at least be happy with the pot I will have available

In the plan I've budgetted to pay into my pension upto the age of 50; thereafter will likely prioritise my partners pension as others have suggested... I need to think about tax efficinecy on the way out as well as the way in

lassfarfromhome

I was going to ask exactly the questions Imelda asked above- are you married, do you have wills?

It seems you are not married. Are you and your partner clear on exactly what that means for you both if one or even both of you should die?

What would happen to your investments (Pension and otherwise) if you died tomorrow (these things happen)? Would they go to you partner? If not, who would they go to?

Definitely worth getting professional advice on this if you haven't already.

atush

Or just get married.

Parking_Trouble

Did I misread it or does the OP still with a couple pf teenage kids expect to live on a drawdown of £18k pa?

Mistermeaner

atush wrote: »

Or just get married.

I thought we were trying to save money ?

Mistermeaner

Parking_Trouble wrote: »

Did I misread it or does the OP still with a couple pf teenage kids expect to live on a drawdown of £18k pa?

I don’t think so but please advise if I missed something!

When I’m 57 youngest will be 18

According to the plan I’ll be mortgage free and have a few decent pots

No firm plan to retire exactly then

atush

Mistermeaner wrote: »

I thought we were trying to save money ?

Make a booze run to france and have a hog roast. Doesnt have to be expensive.

Honestly, if youve been together long enough to have teenagers you should go ahead Lots of tax and inheritance issues solved immediately.

Immediately she can transfer some of her unused PA to you, should pay for the above wedding in just a few years.

jamesd

Mistermeaner wrote: »

I assume it is perfectly legal for me to go into draw down and cycle my (hopefully) tax free draw down amounts into her pension?

Totally legal provided you receive the money in one account and she makes the contributions from another. Though in your case this doesn't matter as you'll be within the lump sum recycling limits because the contributions will (should) have been 3600 gross for many years and the amount of increase won't exceed 30% of the lump sum anyway.

But it's wasteful to give that money to her. I've been getting income tax and NI relief on my eventual mortgage capital repayments. So can you by using your and/or her pension tax free lump sum for mortgage capital paying. But you're turning down this free gain by overpaying on the mortgage instead.

You can only get a 25% tax free lump sum on up to the pension lifetime allowance, so around £250k at the moment for you possible plus more from hers. You will be at risk of exceeding the LTA.

In addition she has an income tax personal allowance of £12k a year so can get that out tax free. As can you. So pension money is first choice for mortgage capital paying, not overpaying now. Later can come after tax gain LISA money.

You've also assumed 2% plus inflation investment growth. The real (after inflation) value of the mortgage capital doesn't go up, it goes down, and you're paying just 1.75% interest. Even without pension tax relief that favours investing over overpaying.

Mistermeaner wrote: »

I hadn't really considered tax efficiency on drawdown - well worth considering how to maximise this

It's important because it can radically favour pension then LISA contributions.

Mistermeaner wrote: »

I'm salary sacrificing 67% this tax year (to which the company adds 11%) so crica 65K going into pension this year

If you can change sacrifice level during the year, get the sacrifice done in as few months as possible to maximise the NI benefit. NI is calculated for each individual pay period, unlike income tax. So by concentrating the sacrifice you maximise the 12% employee NI saving and reduce the 2%. Will matter more in later years than this one where carry-forward is already making each month high.

Another tool you're missing is VCTs. These get 30% income tax relief capped at income tax due in the year of purchase. Has to be repaid if you sell within five years. So you can potentially get that 30% plus or minus investment performance three times on the same money between now and 57. Why not try to do enough buying each year to eliminate your income tax bill, in exchange for deferring 70% for five years?

Children's SIPP contributions can be interesting but switching that money to other things so you can help them later with after tax relief money on your own investments looks like a better move, particularly as they can benefit most from capital for property deposits.

lisyloo

Mistermeaner wrote: »

I thought we were trying to save money ?

You can get married for very little if you want.

This might be cheaper that the arrangements you’d otherwise need to put in place to protect each other in the event of death/incapacity etc.

You are young but when whilst your sorting things out then LPAs would be a good idea (I’ve been through the alternative and it’s arduous, slow and expensive).