Just turned 40 - want to retire at 58 - sense check

El_Torro

rawhammered wrote: »

- My DC pension pot is currently £250k +/- daily fluctuations of a few k depending on how markets moving. Invested in company's higher risk plan with management charges of 0.13% which seem nice and low.
- Currently my employer is contributing ~£2k into my pension each month (sal sacrifice putting me comfortably into basic rate).

To all those suggesting that the OP salary sacrifice more into his pension I suggest looking at the actual numbers, quoted here.


A £250k pot, with £2k going in every month, for the next 18 years, brings you dangerously close to reaching your Lifetime Allowance. Of course this depends a lot on how your pot grows over time, but assuming an average annual growth of even 5% with 2.5% annual average inflation then it's borderline.


Also since you already salary sacrifice enough to make you a basic rate tax payer that's even more reason not to make even more payments in. I would invest more in ISAs before putting even more into your pension. The point that there are potentially better things than overpaying your mortgage is still valid of course.


I'm probably preaching to the choir hear since rawhammered isn't planning to invest more in his pension, just thought I'd point this out for anyone who might be in a similar position.

atush

i dont have TPS or any DB pension, but is is easy enough to find out her projected pension.

it would be 24 years times the fraction for her scheme (some are 1/49th others are higher so lower pension per year service). So for instance, 22 years times 1/49 times 39K FTE = 19 K pa.

But i dont know the fraction the TPS uses. it could be 1/64. Someone here will or it may be in her paperwork or you can ask TPS.

Triumph13

TPS is complicated by various changes over the years, hopefully an expert will be along shortly!

'Worst case' accrual rate would be 1/80th per year. That would translate to £5.8k accrued so far, £9.7k if she does another 13 years to 53, £11.1k if she does 18 years to 58. Those numbers are much better than the guesstimates I used earlier plus she gets it at 60 rather than the 68 I assumed so you are laughing! Redoing the calc I did earlier for retirement at 53 now comes out with £43k pa post tax...


Additional pension may be worth looking into to get more guaranteed income - with the downside of losing a big chunk if she pre-deceases you. AVCs may or may not make sense. I'm not sure if TPS allows you to leverage the DB section to take them out tax free? I seem to recall someone saying that you can't. A free standing pension may be better, particularly if she is retiring well before 60 and can get much of it out tax free within her PA. It will also probably have a wider range of investment options.

ETA: You may want to look into deferring your own state pension for a few years to address the imbalance in the survivor's pension after the first of you shuffles off this mortal coil.

cloud_dog

rawhammered wrote: »

*sheesh she's bad at paperwork: last statement we could find was from 2014....under her maiden name despite us being married since 2006.....we need to get access to her online account but obviously all her details are wrong and cant get access at the moment until she phones them up to reset emails/passwords etc.

In which case, you may want to double check to ensure you are listed as the beneficiary.

MallyGirl

El_Torro wrote: »

To all those suggesting that the OP salary sacrifice more into his pension I suggest looking at the actual numbers, quoted here.


A £250k pot, with £2k going in every month, for the next 18 years, brings you dangerously close to reaching your Lifetime Allowance. Of course this depends a lot on how your pot grows over time, but assuming an average annual growth of even 5% with 2.5% annual average inflation then it's borderline.


Also since you already salary sacrifice enough to make you a basic rate tax payer that's even more reason not to make even more payments in. I would invest more in ISAs before putting even more into your pension. The point that there are potentially better things than overpaying your mortgage is still valid of course.


I'm probably preaching to the choir hear since rawhammered isn't planning to invest more in his pension, just thought I'd point this out for anyone who might be in a similar position.

OP doesn't have to pay the extra to pension through to his chosen retirement - it is not an all or nothing choice. He would obviously monitor performance and value and then stop paying more than the minimum required to get max employer contribution at the right point to avoid LTA issues.
More funds paid in earlier and switching off towards the end would maximise the benefit of compounding.
At present it is possible to sal sac £40k and this works well for higher rate taxpayers - this may not always be possible as future legislation might reduce either the £40k limit or the HRT benefit. I'd make hay while that sun is still shining.

Workerbee999

Clive_Woody wrote: »

Exactly, and we are of a similar mindset in that once the mortgage is clear, then should the worst happen there is one big bill that doesn't need paying each month.

Each to their own of course, but my mortgage will be gone by the time I am 45 and I anticipate my pension pot will hit LTA before I am 60, with a mix of other savings and investments to add to the mix.

Mortgage over payment is generally frowned upon on this board, with clear logic supporting this stance, but there is a pragmatic approach and a sense of relief/achievement of getting it paid off and owning the roof over your head plus suddenly have significantly improved cash flow.

As someone who has unexpectedly been made redundant, I can hugely recommend the security of having cleared your mortgage. I cannot argue against all the logical reasons why it doesn’t make financial sense, and have in the past shared that same logic with others, but the relief right now outweighs all that.

atush

Very true, but really we always advocate to have emergency cash (to live on in redundancy) and S&S isas (to help pay off any mtg).

rawhammered

Hey OP here again.

Just to update, managed to get access to OH's TPS online login which shows following:

Service History: 12 years 241 days

Benefits Statement as at 09th Oct 2019:
Total Annual Pension Amount £7,413.38

Arrangement / Normal Pension Age / Normal Pension Date / Annual Pension Amount
80th Final Salary / 60 years / 13/04/2039 / £5,389.73
Career Average / 68 years / 13/04/2047 / £2,023.65

Tax Free lump sum £16,169.19
(80th Scheme arrangements only)


Projection at retirement (60 ish) having service 22 years gives £11k annual pension and £33k lump sum. Not so bad. Still need to work out best way to increase her pot to cover her PA now.

LHW99

Don't forget to run the calculations to check what the survivor is left to live on if one of you unfortunately passes unexpectedly early!

Thrugelmir

El_Torro wrote: »

A £250k pot, with £2k going in every month, for the next 18 years, brings you dangerously close to reaching your Lifetime Allowance. Of course this depends a lot on how your pot grows over time, but assuming an average annual growth of even 5% with 2.5% annual average inflation then it's borderline.

Better to worry about such things when one actually gets there. If one is fortunate enough to have timed the market to perfection. Then suffering a tax liability shouldn't be an issue. Assumptions are normally wrong when forecasting that far into the future.