Should i

Scallypud

I am going to retire next year.


My question is should I invest my £45K savings in to my pension to gain the tax relief or keep it in case the market crashes.


I am leaning towards investing the money to gain £9K but what do you guys think as your more street wise than me

cloud_dog

• How old are you?
• What earnings do you have currently (this FY)?
• What pension provision do you have?
• What other savings do you have or is this £45k, everything?

SonOf

My question is should I invest my £45K savings in to my pension to gain the tax relief or keep it in case the market crashes

Do you have sufficient earnings to make a £56,250 contribution?

I am leaning towards investing the money to gain £9K but what do you guys think as your more street wise than me

You have given us absolutely nothing to go on. We don't know your objectives, tax position (now and future), other arrangements etc. So, nobody can possibly answer your question beyond saying it may be a good idea. It may not be.

Scallypud

I am 57 year old


I have a private pension of £161K


£45K is all my savings


I earn £45k a year


My plan is to use this pension until my Final salary pension kicks in at 65

SonOf

I earn £45k a year

Then you cannot make a £56,250 contribution and get tax relief on it. You can only make a £45,000 contribution. (£40k for this year's allowance and £5k assuming carry forward is available)

£45K is all my savings

Going 100% into any one option is not normally a good idea as you are not covering off things that may not go to plan. Emergency spending needs for example (boiler going wrong, house repairs etc).

My plan is to use this pension until my Final salary pension kicks in at 65

When do you plan to retire? (so we know what type of gap you are looking to fund)
What level of income are you looking for the gap fill? (you are earning £45k a year. Do you live the lifestyle of earning £45k a year or can you live on less)

MallyGirl

you could put the allowable amount (based on your earned income) in and leave as cash but I would leave yourself a more accessible emergency fund to run alongside. There is bound to be a lag when withdrawing money from a pension so you need cash to hand as well.

Scallypud

Thanks for the feedback so far


I live on my own so looking for an income of 25/30K .


Planning to retire next year which I think is achievable

MallyGirl

£161k + £45k = £206
This needs to fund you from 58 to 65 so 7 years. That would give you just under £30k (all in today's money) but would wipe you out. You really ought to maintain an emergency fund so I think you are being a bit optimistic. I would think about working a bit longer if you really want to retire at that level

cloud_dog

I think your idea has merit although, as pointed out by others, there is risk involved.

My thoughts / opinion on your basic plan is that it is reasonable but there is still the caveat around what you may need for any emergencies. If your credit profile is good then emergencies, should something happen, could be accommodated by credit card (usual caveats apply for this) or a a loan etc etc. It really depends on the details of your situation.

As MallyGirl mentions, perhaps one more year of working / saving / investing will put you in a sweet spot to retire in 2021? OR, perhaps you could retire and take up a less stressful part-time job etc, that would certainly mitigate risk.

AlanP_2

Remember your overall contribution is limited to the £45k income so anything being contributed via "normal" pension contributions needs to be allowed for.

On your point re market crashes - Given your short timeframe you could pay it into a pension to get tax relief but not invest it (or invest it in cash type fund) if you have concerns.

SonOf

Planning to retire next year which I think is achievable

You may well be able to spread the contribution over two tax years then if that ends up being a viable option.

There is merit in what you are suggesting as you dont need to invest in risky assets but still remain in cash for some of the money covering the short term). As you have full access to the pension due to your age, then it doesnt become locked up and is accessible.

Tax would be the normal blocker but you will have your personal allowance available with no income other than the pension to go against it. Any amount above the personal allowance drawn from the pension would be taxed at 15%. (75% @ 20% and 25% tax free = 15%). That tax is lower than the tax relief that it received. So, you would be better off financially by paying into the pension than leaving it in a savings account.

A key thing to remember are that once you stop working, you are pretty much ending your ability to grow your money further. What you have at that point has to last you for the rest of your life. So, if you plan to spend your entire money purchase pot over a shortish period, it will be gone forever. The ability to return to a high level of income from working will likely be lost too (for most people). So, this is not a decision that should be entered lightly into.

You should take any income/expenditure models and build in a buffer. i.e. You will almost certainly spend more than you predict and you should underestimate your predicted income as you are unlikely to factor in inflation fully. Plus, there may be shocks ahead that were not planned. If you are cutting it fine with the figures with not much room to adapt then its probably not time to go yet and another year or two may be better.

Also remember that your occupational DB pension may be forecasting based on employment to scheme retirement age. By finishing early, you will get less. Different DB schemes show your figures in different ways. e.g. they may show what you have accrued to date and show what you could get if you continued until scheme age. Make sure you understand your DB pension figures and are not misreading them. e.g. is the figure you are expecting on the DB scheme at 65 the figure assuming you continue to be an employee or does it take into account you finishing earlier?