How much should I be paying in at 55?

Whiterose23

Would be good to have a few opinions over my work pension contributions. The scheme is DC with minimum contributions from the employer - 3% from them and 5% from me. I know this is rubbish compared to what many others have on here.
I’m 55, single with two children and have a couple of small deferred DB pensions with current CTVs of £95k and £38k, with forecasts of £7k and £1200k per annum at 65 respectively.
I have full contributions for govt pension.
My company Aviva DC pension pot is only at £25k at the moment and I’m thinking of increasing the contributions to try to build up a better retirement pot.
I currently earn £35k and have a mortgage of £85k, which I am overpaying by a small amount each month to try to have it paid off by the time I retire.
The company will only contribute 3% maximum
unfortunately. Would I be better contributing more via my salary or by paying more into the scheme myself? Or does that not make any difference?
I would hope to retire on more than £20k if possible but I don’t think I’m on target to do so.
Any advice would be gratefully received.

MallyGirl

Is it salary sacrifice? If it is then increase via the employer to get the increased NI too.
can you even pay directly?

barnstar2077

As they are paying the minimum I doubt very much that they would allow you to use salary sacrifice if you upped your contributions, as it would involve some kind of effort on their part.

Assuming your company don't allow you to salary sacrifice you could open your own SIPP (Self Invested Personal Pension) online and pay money into that.  It would gain a 25% uplift automatically on monies that you pay in. 

Personally, I buy a Vanguard Lifestrategy fund on Vanguards own site.  In your position I would be tempted to go for a more volatile (but hopefully more lucrative) fund like VLS80, which would be 80% shares in companies, and 20% bonds, because you already have other pensions so it maybe worth playing a longer game with this money. 

Whiterose23

MallyGirl said:

Is it salary sacrifice? If it is then increase via the employer to get the increased NI too.
can you even pay directly?

Hi, no it isn’t salary sacrifice.
I can pay directly into the scheme myself if I wish but not sure whether it is best done by the employer ...

Whiterose23

barnstar2077 said:

As they are paying the minimum I doubt very much that they would allow you to use salary sacrifice if you upped your contributions, as it would involve some kind of effort on their part.

Assuming your company don't allow you to salary sacrifice you could open your own SIPP (Self Invested Personal Pension) online and pay money into that.  It would gain a 25% uplift automatically on monies that you pay in. 

Personally, I buy a Vanguard Lifestrategy fund on Vanguards own site.  In your position I would be tempted to go for a more volatile (but hopefully more lucrative) fund like VLS80, which would be 80% shares in companies, and 20% bonds, because you already have other pensions so it maybe worth playing a longer game with this money. 

Hi, I don’t know much about investing but I am interested. How much would I need to open a SIPP and also how much should I pay in per month for it to be worth it over the next ten years? Sorry for all the questions!

Steve182

One strategy I might consider would be stopping overpayment of the mortgage and using salary sacrifice to pay in as much to the DC pension as I could reasonably afford (factoring in the money saved from not overpaying the mortgage, plus whatever else I could afford). That then maximises the saving in tax and NI.  

Assuming the pension is mainly invested in equities I would normally expect the pension growth rate to be higher than mortgage interest rate, averaged over a reasonable timeframe.

On retirement the DC pot may then be large enough to pay off all (or at least most) of the outstanding mortgage balance from the 25% tax free lump sum. Of course that assumes the lump sum is not needed for something else. 

Whiterose23

Steve182 said:

One strategy I might consider would be stopping overpayment of the mortgage and using salary sacrifice to pay in as much to the DC pension as I could reasonably afford (factoring in the money saved from not overpaying the mortgage, plus whatever else I could afford). That then maximises the saving in tax and NI.  

Assuming the pension is mainly invested in equities I would normally expect the pension growth rate to be higher than mortgage interest rate, averaged over a reasonable timeframe.

On retirement the DC pot may then be large enough to pay off all (or at least most) of the outstanding mortgage balance from the 25% tax free lump sum. Of course that assumes the lump sum is not needed for something else. 

Hi, my company don’t operate a salary sacrifice pension unfortunately. However I do see the logic in what you’re saying. I do sometimes worry about the performance of the pension. It has shrunk dramatically over the past year with what is going on, but thankfully has climbed back to pre-Covid levels. 

I would like to become mortgage neutral if I can and do like the idea of saving and investing in different ways so that all my meagre savings/investments aren’t in one place.

Roygroyg

Hi Whiterose,

What other savings reserves do you have? 

Without the extra 12% NI saving from salary sacrifice I would probably make sure I had a good ISA fund instead and could invest in same way as planned with pension.  You won’t get the 25% tax free lump sum from pension although if your finances go well you could load that into your pension over last few years closer to retirement. how fast you could do this would be limited by income in 20% tax band for that year so £35k - personal allowance if earnings remain same.

Potential option to consider as gives you easy access to cash if needed but if keep working can still shovel into pension over last couple of years. 

As you are at age you can now access DC pension pots then you do have ability to get cash in emergency although that can trigger the strict limits on future pension contributions - somebody more knowledgable than me can probably clarify.

Whiterose23

Roygroyg said:

Hi Whiterose,

What other savings reserves do you have? 

Without the extra 12% NI saving from salary sacrifice I would probably make sure I had a good ISA fund instead and could invest in same way as planned with pension.  You won’t get the 25% tax free lump sum from pension although if your finances go well you could load that into your pension over last few years closer to retirement. how fast you could do this would be limited by income in 20% tax band for that year so £35k - personal allowance if earnings remain same.

Potential option to consider as gives you easy access to cash if needed but if keep working can still shovel into pension over last couple of years. 

As you are at age you can now access DC pension pots then you do have ability to get cash in emergency although that can trigger the strict limits on future pension contributions - somebody more knowledgable than me can probably clarify.

Thank you for your reply. I have £5000 in savings and no other debts apart from my mortgage.
I consider the £5k to be an emergency fund but thinking I could use some of it - say £2k? to open a SIPP or ISA.
I hadn’t thought of the fact that at 55 I could access 25% of my pension in an emergency so that is a good thing.
my £5k is just sat in a regular savings account with Santander, which I know is probably not the best place for it but I do need to be able to access at least some of it for house issues/small emergencies etc.

Albermarle

As you are at age you can now access DC pension pots then you do have ability to get cash in emergency although that can trigger the strict limits on future pension contributions - somebody more knowledgable than me can probably clarify.

As long as only the tax free cash is taken from a DC pot , then the limits on future contributions are not affected .

As soon as you take one penny in taxable income ( even if you do not pay any actual tax on it ) then your are limited to £4k pa contributions in future .

barnstar2077

Whiterose23 said:

barnstar2077 said:

As they are paying the minimum I doubt very much that they would allow you to use salary sacrifice if you upped your contributions, as it would involve some kind of effort on their part.

Assuming your company don't allow you to salary sacrifice you could open your own SIPP (Self Invested Personal Pension) online and pay money into that.  It would gain a 25% uplift automatically on monies that you pay in. 

Personally, I buy a Vanguard Lifestrategy fund on Vanguards own site.  In your position I would be tempted to go for a more volatile (but hopefully more lucrative) fund like VLS80, which would be 80% shares in companies, and 20% bonds, because you already have other pensions so it maybe worth playing a longer game with this money. 

Hi, I don’t know much about investing but I am interested. How much would I need to open a SIPP and also how much should I pay in per month for it to be worth it over the next ten years? Sorry for all the questions!

Vanguard require either a £500 deposit or a £100 a month direct debit.  I opted for the £500 initial deposit as I want to be able to control how much I add on a monthly basis if necessary (So I just log in every month and add money to my SIPP from a debit card.)

It depends what you mean by worth it.  This calculator could give you a rough idea though:

Compound Interest Calculator (Daily, Monthly, Yearly Compounding) (thecalculatorsite.com)

As an example, a £500 deposit, with a £200 monthly amount added (entered as £250 because of the free 25% uplift) and a 5% return calculated yearly would give you a pot just shy of £40k in ten years.  Increasing your contributions by inflation each year (say 2%) would also help, but that would also depend on if you have the spare money or get regular pay rises.

I would go longer than the ten years though if you can with this money, assuming you already have other money coming in when you are retired, as you will hopefully want to fund a long and happy retirement.  It also gives you the flexibility of not having to withdraw funds during a down turn.