On the home run to retirement - give me your top tips!

Spogchait

Hi everyone

I’m 49 and waking up to the fact that my pension and retirement is something I should really focus on.  I would like to retire in around 10 years. I  am going to seek independent advice but before doing that, I’m interested in educating myself and getting different views.

I’m very fortunate to have a pension scheme from my employer that I’ve been paying into for ages.  There is a pot there which has a current transfer value of £650,000.  If I take as a salary it’s estimating just over £20k per year.

My company offers salary sacrifice AVCs to a scheme run by fidelity.  It’s not part of the main pension, it operates as a separate scheme.  My employer don’t contribute to it in the way they do the main scheme.

I have just paid off the mortgage on our main home.  I am the sole earner and have a husband and teenage child as dependents.  My old flat is rented out and due to mortgage costs (£150k on the mortgage) and repairs I at best break even each year after tax so I’m very tempted to start to overpay mortgage which has 15 years to run.  I want to keep my old flat - lots of good reasons to do that, main one is related to having had to move away for work but might well have to move back at some point and I might choose to retire back there.  Also it has risen in value since I moved out so I’m happy I hung in there with it.

I am a higher rate taxpayer in Scotland (41%).

With the mortgage in my home just paid off, there is spare cash each month that I would like to do something sensible with.  

Would people here vote for the salary sacrifice pension scheme, paying down my btl mortgage, or something else?

As per my post title, what advice would you give to someone around 10 years out from retirement?

Sea_Shell

Know your outgoings, in detail.   Then plan if you'd be looking to increase or reduce this in retirement.

Spogchait

Thanks @Sea_Shell.  We live pretty frugally, shop in Lidl, rarely eat out etc.   I am hopeful we will also decrease in retirement as boy flown the nest (or contributing!).  But it’s a good tip, it’s now, when I see retirement on the horizon that I think I really need to try it on for size as there is still time to influence how it will be.

Thrugelmir

Spogchait said:

I’m very fortunate to have a pension scheme from my employer that I’ve been paying into for ages.  There is a pot there which has a current transfer value of £650,000.  If I take as a salary it’s estimating just over £20k per year.

Is this a defined benefit pension scheme? If so when is the £20k payable from. i.e. normal retirement scheme age. 

Dazed_and_C0nfused

There is a pot there which has a current transfer value of £650,000. If I take as a salary it’s estimating just over £20k per year.

I think you mean you don't have a pension pot, you have a guaranteed pension estimated at just over £20k/year.

It cannot be both a pot (DC) and be just over £20k year (DB).

As a higher rate taxpayer pension contributions can be very tax efficient.  Salary sacrifice means you won't be contributing though, you will be agreeing to a lower salary in return for your employer contributing.  

That is why there is no pension tax relief with salary sacrifice.  The tax benefit for you is that you don't have the salary to have tax and National Insurance deducted from in the first place.

Spogchait

Hi @Thrugelmir yes it would pay out from age 60 although could be taken earlier at 55 with a penalty

Audaxer

Spogchait said:

I’m very fortunate to have a pension scheme from my employer that I’ve been paying into for ages.  There is a pot there which has a current transfer value of £650,000.  If I take as a salary it’s estimating just over £20k per year.

Hi there. When you say it has a transfer value of £650,000, I assume it is a DC pension and that is the current value of the investments? £20k per year income should be a fairly safe withdrawal rate as it's just over 3% of the pot, but it depends what it's invested in, i.e. if it's at least a medium risk portfolio with around 60% equities, that should be okay. However as you are still paying into it and not retiring for 10 years, you might be comfortable with a higher percentage of equities. So I would be looking closely at what's in my pension and whether the costs being applied are reasonable. I would then be paying as much into the pension as possible over the next 10 years to benefit from the tax relief added.
Edit - I see from the posts above that it is not a DC pot but a Defined Benefit Pension.

Linton

AS Sea-shell says.  You need to know how much you will require in your pot to retire at a standard of living you find acceptable and then you determine a viable way to get there in your desired timescale.

There are two extremes to the mortgage vs pension question.  Looking at it mathematically, if you expect to get a higher return from your pension than the interest rate you pay on your mortgage you are best off putting the money into your pension.  The advantage of a pension is increased considerably if you are paying higher rate tax now and you will only be on basic rate in retirement.  Salary Sacrifice adds more advantage thanks to reduced NI.

On the other hand some people value the security of having paid off their mortgage asap more than the extra money.

So you could have a good reason to go either way or somewhere in the middle.

NottinghamKnight

Audaxer said:

Spogchait said:

I’m very fortunate to have a pension scheme from my employer that I’ve been paying into for ages.  There is a pot there which has a current transfer value of £650,000.  If I take as a salary it’s estimating just over £20k per year.

Hi there. When you say it has a transfer value of £650,000, I assume it is a DC pension and that is the current value of the investments? £20k per year income should be a fairly safe withdrawal rate as it's just over 3% of the pot, but it depends what it's invested in, i.e. if it's at least a medium risk portfolio with around 60% equities, that should be okay. However as you are still paying into it and not retiring for 10 years, you might be comfortable with a higher percentage of equities. So I would be looking closely at what's in my pension and whether the costs being applied are reasonable. I would then be paying as much into the pension as possible over the next 10 years to benefit from the tax relief added.

No, it's a db scheme, see above.

Sea_Shell

I'd also consider having some savings (cash or S&S ISA) in addition to a pension, to give added flexibility.

You then get a choice as to when to access those "squirrelled nuts".

As long as you're disciplined not to spend it in the meantime!! 😉

Spogchait

@Linton when you say 

“f you expect to get a higher return from your pension than the interest rate you pay on your mortgage you are best off putting the money into your pension“. 

This is where one could argue that going all in with pension saving makes most sense.  The 41% tax relief is hard to beat.  Mortgage interest rates are low.  But putting all my eggs in one basket scares me.
@Sea_Shell I see all sorts of sense in having some savings to the side For times of need.  I don’t have much in the way of savings factored in to my plans.