When to stop paying into a pension?

southmordor

I'm 41 and have 310,000 in a SIPP, earliest I can retire is 58 and am contributing 14,000 pa into my company pension scheme (Me 5%, Employer 10%).
Using a compound interest calculator, I'll have 1.1m by the time I'm 58 at 5% interest per year. I'm not sure 5% is realistic as I've doubled my funds every 4 years even with the pandemic.
Would it be better to stop investing in the pension now and start putting my pension contributions into my S&S + Lifetime ISAs?

Dox

People get far too excited about lifetime allowances. Given the hefty slug of cash your employer is putting in, and the tax relief you get on personal contributions, you are still likely to be quids in even if you exceed it. Will your employer go on paying their 10% if you don't contribute? If so, you could always consider putting your 5% into an ISA, but if you're a higher rate taxpayer(?) remember you won't get tax relief on contributions to an ISA.

Albermarle

Just to be clear your pension does not earn interest but gains investment returns . It is a bit pedantic but it is best to use the correct terms to avoid confusion.
The last 10 years have been very good to investors , as they followed the financial crash . The consensus is that the next ten will not be as good. Also it depends on how your pension is invested . If it is a high equity% /higher risk portfolio it will have. seen the best gains . Expectations for the next few years are for between 1% and 4% above inflation , but that is only a guess of course.
If you change to investing in S&S ISA's you will lose the tax benefit , especially as you are a higher rate taxpayer, so that would be a pretty mad thing to do . I think you are too old to start a LISA?

southmordor

Albermarle said:

 I think you are too old to start a LISA?

I started one at 39, so just in time. My portfolio is 100% equities, invested in AAPL, AMZN, MSFT etc so have done quite well in the last few years.

Is there ever a cutoff point where its not worth putting more into your pension over putting the cash into ISAs?

tacpot12

Because of the variability of investment returns, you will be lucky have a portfolio of £1.1M by the time you are 58, but it could happen. I would wait until you get much closer before stopping. e.g. you might stop at age 54 if it seems like you will be over £1.1M in four years time.

If you have spare savings, over and above what you are currently putting into your pension, you could start to put these into a S&S ISA. Having some savings outside of a SIPP is a good idea. You will want about three years of living expenses in cash when you retire, and there is no reason not to hold this outside of the SIPP if it suits you to do so. Given your age, investing in a S&S ISA to build this eventual cash reserve makes sense.  

Albermarle

southmordor said:

Albermarle said:

 I think you are too old to start a LISA?

I started one at 39, so just in time. My portfolio is 100% equities, invested in AAPL, AMZN, MSFT etc so have done quite well in the last few years.

Is there ever a cutoff point where its not worth putting more into your pension over putting the cash into ISAs?

IF you are over the LTA and a basic rate taxpayer in retirement then if you take income from the pension you will lose 25% and then another 20% . So £100 becomes £60. When you contribute to a pension as a higher rate taxpayer £60 becomes a £100 . So all equal . Taking into account employer contributions you are still ahead.
Also as said best to worry about the LTA when you are close to it , as anything can happen between now and then. 
No harm to top up a S&S ISA on the side but not at expense of pension .
Another tactic is to wind down the risk level in the pension and restrict the growth/protect what you have a bit more .

kinger101

southmordor said:

Albermarle said:

 I think you are too old to start a LISA?

Is there ever a cutoff point where its not worth putting more into your pension over putting the cash into ISAs?

The LISA is better if you're not using salary sacrifice AND you're only entitled to basic rate tax relief.  Either because you're not a higher rate tax payer, or your pension contributions have already pushed you back into basic rate.  The reason for this is that while you'll get basic rate tax relief on the pension contributions (80 p net salary = £1 pension), you will of course pay income tax at your marginal rate when drawn.  For the moment we can assume that means 15% (as you can draw 25% tax-free).  80 p in a LISA gets a 20 p bonus an is non-taxable, so worth the full £1.

There's an argument to be made of using LISA if you're eligible for SS and will only get basic rate relief on pension contributions.  On paper, you end up as the same net position (both effectively a 25% uplift), but (a) LISA will not contribute to LTA, and (b) there's more certainty with the LISA as it's not dependent on the tax regime in the future.

Thrugelmir

southmordor said:

Using a compound interest calculator, I'll have 1.1m by the time I'm 58 at 5% interest per year. I'm not sure 5% is realistic as I've doubled my funds every 4 years even with the pandemic.

Continue to save until you hit your objective. As for the pandemic and the impact on the global economy. The story has only just begun. 

jamesd

southmordor said:

... Me 5%, Employer 10%).
...
Would it be better to stop investing in the pension now and start putting my pension contributions into my S&S + Lifetime ISAs?

No, continue getting the employer 10% because that after LTA Charge is worth more to you than the eventual LTA Charge on your own 5%.

Beyond that, yes, looking at non-pension things looks interesting. Don't neglect investigating VCTs.

andy001

jamesd said:

southmordor said:

... Me 5%, Employer 10%).
...
Would it be better to stop investing in the pension now and start putting my pension contributions into my S&S + Lifetime ISAs?

No, continue getting the employer 10% because that after LTA Charge is worth more to you than the eventual LTA Charge on your own 5%.

Beyond that, yes, looking at non-pension things looks interesting. Don't neglect investigating VCTs.

VCTs are classed as high risk investments and not everyone's cup of tea.

unkle

You need to look at your overall investment strategy. Taking benefit of pensions in regard to tax relief is great, but who knows what the rules will be in another 18 years time. Are you investing into ISA's anyway? If not I would probably start to even if it means trimming down your pension contributions.
Don't load up your pension and neglect elsewhere, you may be fine, but who knows what  future government may do. Too many eggs in one basket etc.