Interim pension planning guidance?

MovingForwards

Thought it best to try and improve on what I have and hope it will all come together when I do retire. But looking for a few pointers to cover the next few years.

My salary is under £21k and I've just purchased a home (flat). My commute costs are under £230pm when I'm back in the office.

I've 23 years until reaching current SPA, employed full-time, but also disabled (not claiming benefits). Plan is to continue working FT until 60, then PT until a year or two before SPA.

My main priorities for this year and probably next year are saving:
1. Emergency fund, 
2. Communal repairs / maintenance,
3. Interior repairs / maintenance,
4. Car related expenses. 

I am making small overpayments (under £25pm) to my mortgage (sub-prime lender) and saving a bit to remortgage in a year or two to a mainstream lender.

I've currently got five old company pensions:
Nest £350
Royal London £468
B&CE £4033
Standard Life £825
Aviva £5106

I pay into my current employers DB pension (1/75th for each year, currently 0/75). Considered AVCs but want flexibility at the moment.

I'm also saving in an S&S ISA / PBs to provide me with savings cash when I retire.

Overall I'm looking to have £1000 pension (SP and private pensions), plus my pension savings cash. Aside from mortgage and commute costs everything else is cheap.

I would prefer to move the first 3 pensions into a SIPP and add to that each month, but realistically I don't have £100+ spare until 2022 when I'm comfortable with the savings I will have at that time. I should have £300+ spare at that point for making a dent in a pension.

As much as I've looked and read, I cannot find anything about the Vanguard SIPP and being able to pay in £25-£50pm.

My reluctant plans are to start paying £25-£50pm into Nest, due to how little it takes from the payment. I can't quite get enough to pay into one of the latter three each month as that would be my preferred back up while I save as they do ok.

The alternative is to move the first two or three pensions into a SIPP, save, then each quarter drop the savings into a pension, or SIPP.

I know not many of you will be in this position, but what ideas would you think of to increase the pension a bit over the next few years?

It only needs to be maximum of 3 years doing this little pension plan, as I will be making bigger pension payments when I've 20 years left to retire.

I've not looked at my SP forecast yet, but expect it not to be full SP at the moment, but have 23 years to get that rectified!

Answers on a postage stamp please 😁

Thrugelmir

What rate of interest are you paying on your mortgage currently? 

MovingForwards

Thrugelmir said:

What rate of interest are you paying on your mortgage currently? 

5.57%
It's worth it to have my own home.

My savings accounts total just over 5.6%

Albermarle

The minimum monthly contribution to a Vanguard SIPP is £100.
I'm also saving in an S&S ISA / PBs to provide me with savings cash when I retire
If you are saving to retire then it is better to do this via a pension as you get a tax benefit compared to other investments , like S&S ISA. PB's are fine for cash that you might need in the next years but for the longer term , pension is better.
For the amounts involved I would not worry too much about which provider you use . Consolidate into one for ease of use and much more importantly add as much as possible.

LHW99

What % of the value of your new home is the mortgage. and is it on a fixed rate?

If you have a high % value loan, paying some off could let you get a lower rate at some point in the future. Even fixed rate mortgages will let you overpay a little without penalty (perhaps 10% of the amount outstanding at the beginning of the year)

MovingForwards

@LHW99 I put in 15% and it's a 5 year fix. Will owe about £66k next month.

I'm aware of the 10% O/P without risking ERC. It's just I feel I'm stuck between a rock and a hard place.

I am looking to clear the whole mortgage in 10 years, then I can really make a big dent for the remainder of my working life.

Originally I wanted to pay the mortgage down for the first few years, remortgage then sort the pension out when I'm on a more normal rate, but reading on MSE it's more sort the pension out and leave the mortgage. 

I'm so aware of my age and don't want to leave the 'interim' bit, while waiting until I have 20 or 21 years left. Although I know it's not going to make much of a difference.

The original plan was:
Save for up to 2 years (yrs 1-2)
Sort interim pension out (yrs 1-3)
Remortgage (yrs 2-3)
More to pension and mortgage O/P (yrs 2/3-10)
Clear mortgage (yr 10)
Pay £500-£800pm into pension (yrs 10-23)

Malthusian

Originally I wanted to pay the mortgage down for the first few years, remortgage then sort the pension out when I'm on a more normal rate, but reading on MSE it's more sort the pension out and leave the mortgage.

That guidance isn't targeted at sub prime borrowers paying 5.57% on their mortgages.

As long as you are maxing out employer contributions (which in your case probably means staying an active member of the DB scheme), and have an emergency fund so you can cover redundancy and one-off costs without having to borrow, reducing the mortgage and getting onto a more normal rate seems the priority to me.
You are potentially not just saving interest on the amount paid off but the rest of the mortgage balance as well, if you can get a lower interest rate thanks to the lower LTV.

When you are paying interest at 2% or lower it's a reasonable bet that pensions will outperform paying off the mortgage, when it's 5.57% it's less clear cut.

MovingForwards

@albemarle the 'pension cash' I referred to means the dedicated cash I will have as 'savings' for retirement. 

Although I will be doing things like rewiring my home, changing the kitchen and bathroom before retirement to see me through, no doubt there will be things I need to replace, or a contribution towards the communal repairs (I would have to be lucky / unlucky to get through up to 23 years years without needing the roof replaced, chimney repairs or something else then needing it done on retirement or a few years into it).

Due to this I need to cover all angles of having pensions, having savings to cover repairs / replacements and not relying on the cash pot taken as a % from my pensions as being sufficient.

@Malthusian that's my original thought too. I just didn't want to make a mistake by not paying 'something' extra into pensions now, regardless of how small, but at the same time logic tells me 20 years of half or more of my salary going into pensions could make up for 2 or 3 years of not much, or nothing, going in.

For me it was a no-brainer to O/P the mortgage and deal with the pension when I'm on normal mortgage rates.

Anyone else reading:

I appreciate it's an unusual situation, based on what other queries people have posted and if it was 2 or 3 years from now, I wouldn't have even started this thread as I've that side planned already.

All I need to do is try and work out the 'right' or 'best' thing to do in this interim period where all I can do is stick with the DB and work out what's best to do with £25-50pm 🙂

My thinking was:
-- save and O/P the mortgage,
-- remortgage t
-- the money saved on APR plus not doing hefty savings for the 'pots' would give me a lot to put into pension and O/P
-- when the mortgage is cleared it would give me even more to put into pension

Malthusian

You are right to double-check your thinking because "I'll clear the mortgage first and then I'll have more income available to pay into pensions" is a very common error. It is an error for two reasons:

1) Get it while its hot - the Government has consistently restricted the ability to save into tax-relieved pensions. If you wait you may have missed the boat.

2) It is a reasonable expectation that investments within a pension (with tax relief) should beat interest saved on a mortgage at 2%pa or less, so starting later means you lose out to the magic of compounding.

1) is less of a concern for you because you are not a higher rate taxpayer. It is mostly people with high salaries trying to shift large chunks into a pension who have been affected by restrictions on pension contributions.

2) is not a concern because your mortgage is not on 2%pa. People not on sub prime mortgages don't have the extra benefit of being able to save interest not just on the amount paid off but on the entire balance if they can get a lower rate by reducing the LTV.

Another consideration which people overlook is that pensions are protected from bankruptcy (as long as you don't try to deliberately exploit this) while houses are not. I have seen people (usually in the less technical forums) claim if disaster strikes you're safer with a roof over your head than if you paid into the pension - it is in reality the complete opposite.

This may be more or less relevant to you given that you are on a sub prime mortgage, but it shouldn't override other factors. Being in the DB scheme will give you some protection against bankruptcy.

Notepad_Phil

Provided that you have enough money put away for emergencies and given that you are paying and will continue to pay into your employer's DB pension then in your shoes I would go along with your overpayment plans for the mortgage for the next few years until you get the interest rate down to a more advantageous figure. You can then revisit your plans and see what makes the most sense at that time to fit in with your long term plans. That may be to focus on one particular thing e.g. continue overpaying the mortgage or put the extra money into your pension, or it may be that a combination of things will give you the flexibility that you may find you need at that time.

MovingForwards

@Malthusian I've spent time on the DFW board, before getting to where I am now, which is starting over with a clear financial position. I'm one of the lucky ones who has come out the otherside, is able to buy a home and plan for retirement. 

No plans to ever have debt again, aside from the mortgage, hence saving to cover the different aspects which would require money. 

Aside from council tax, gas, electric all my other bills / insurance etc are paid in full, annually. I don't need to worry about finding a bit here, there and everywhere for it all each month, which helps keep my budget down and savings pots up (I know the savings for these bills get used each year).

Being a below average earner, I have to make the most of what I can do with the spare money I have. I rarely drink, I don't smoke, at best I go out a few times a year and my only vice is chippy night.

Is £700, including government top up, for 2 years going to make a huge difference to my retirement pot? Or is the £25pm better off going as O/Ps, with the smaller O/Ps to bring down the mortgage ready for remortgage and LTV adjustment. 

If I put £25pm and had medium growth for 23 years it's £7,735, £19pm pension and £1,934 tax free.

If I put £525pm in, medium growth for 20 years it's £138,495, £346pm pension and £34,624 tax free.

I will have to do some more calculations this weekend, but am open to as many pointers as possible, which I know is difficult as it's a non-standard query 😬