Pension plan

ForestBluebells

I recently asked for advice on here and am really thankful for everyone’s knowledge and I feel in a better situation now.  I have recently opened a LISA to increase my retirement savings and invested in a global tracker fund. I am putting £100 a month by direct debit into the LISA and then all commission I earn plus once I get paid for my new freelance job ill put 80% of that straight into the LISA too and keep the 20% aside for tax. Once I fill the LISA I intend to open a SIPP and start funnelling that money into that for the rest of the year etc. 

My question is should I look at a stocks and shares ISA as part of my plan? I know I don’t get the tax benefits that i would saving in a pension or the government contribution from a LISA but it’s at least accessible should I for some reason need it before retirement age. Also currently I’m investing in 100% equities as I am 35 and can take the risk, especially as I’m also saving some money in regular cash savings accounts each month.  Does this seem a sensible plan? Am I missing anything?

i just checked today and I have 14 years of NI contributions, should I pay into some previous not complete years (not sure why they aren’t complete, I guess I didn’t earn enough those years when at uni and before starting a proper job) or doesn’t it matter? I calculate I need to pay in until I’m 56 to get the full state pension but I guess something could always happen and is it best to pay into incomplete years or just assume I’ll be able to have enough complete years before retirement age?

I’m a basic rate tax payer and probably will be for at least a few more years. 

Albermarle

If you are a 20% taxpayer now and will probably be a 20% taxpayer in retirement , then the pension has a 6.25% benefit compared to a S&S ISA . If there is a possibility you could be a non taxpayer for a few years, say before SP starts the pension has a bigger upside again. The downside is the lack of access until you are maybe 58 ( although if seriously saving for retirement this could be an advantage not being able to spend it ) It's really as simple as that and your decision.

ForestBluebells

I’m definitely wanting to boost my retirement savings but not to the detriment of having no accessible money if needed for any reason.  I have an emergency fund and by the end of this year I’ll have enough for 6 months outgoings in it but is it not wise to have other money in savings or should everything else go into a pension? I haven’t started overpaying my mortgage as I think with interest rates so low it’s best to use my money elsewhere but I could save some and once rates start rising and my mortgage is due for renewal use it to pay off a lump sum. 

LHW99

There is one other benefit to an ISA - they are tax free when you withdraw. So it can give a second strand of income if, say you want to cut down your hours before SPA / pension NRA - you can add to your income without adding to the tax you pay, and has no age limit for withdrawals as you say. Whereas a pension is taxed on 75%, and non-state ones still have restrictions on just how early they can be accessed.

However, I think ISA's are included in benefits assessments, whereas pensions are not until the NRA for the scheme.

SonOf

Pension beats S&S ISA if you are a basic rate taxpayer.    This is because you get 20% tax relief on the way in (equivalent to a 25% increase on the net figure) but only pay 15% tax on the way out on the amount above the personal allowance.  If you have surplus personal allowance available, then that segment would be tax free.

So, in simple terms assuming you have no surplus personal allowance in retirement and disregarding growth as that would be the same in a pension or ISA.
£100pm into an ISA is £100pm and on draw you would get £100
£100pm into a pension is £125pm and on draw you would get £106.25
Pensions are outside of your estate in death (ISAs are not).  Pensions are not included in means tested benefits before retirement (ISAs are).

ForestBluebells

Do people recommend only saving an emergency fund in cash then and the rest in pension funds? Is it not wise to have additional accessible savings? 

crv1963

ForestBluebells said:

Do people recommend only saving an emergency fund in cash then and the rest in pension funds? Is it not wise to have additional accessible savings? 

It is personal choice. Everyone has a slightly different approach, no one method suits all. It is really whatever does not give you sleepless nights. 

For us and our plans we save as much into Mrs CRV pension as we can, keep a cash reserve for life events and save for major purchases- currently having building work done using savings. When my TFLS arrives from my pension in May we intend clearing the mortgage although not in one go because we have a penalty if we do before the fixed rate runs out. So any surplus will go into National Savings- can't be "dipped into" but can be accessed in a few days when needed to completely clear the mortgage.

We intend having 3-4 years worth of Mrs CRV drawdown amount in a mixture of cash, National Savings and ISA. We intend drawing 9-12k pa from her DC pot until she reaches SPA so around 27-48k will be the amount we'll save with an additional 20k savings for events such as new roof. Although I suppose that is why we pay insurance................

kinger101

For you, the ranking is LISA (+25%) > Pension (+6.25%) > ISA ( +0%).
If you've maxed out the LISA, you might want to consider whether you can set up a company to do the freelance work.  This company can then pay into a pension saving tax and NI.  
I wouldn't bother paying previous year's NI unless you think your career might be patchy.  Which is sometimes the case for freelancers.  On that basis, I'd also recommend at least 6 month's expenditure as savings.

ForestBluebells

I don’t think I’ll pay NI on my freelance work as I’m only intending to earn £3000 ish this year.  I have a full time job on top of this. I believe I can have £1000 trading allowance so only pay tax on the rest?