Advice On How To Proceed at 41. Have done zero preparation for retirement

Albermarle

CheekyMunkey said:

hugheskevi said:

So If Im paying the minimum how comes my %s are so low? So combined Im looking at 4.9% for the year which should have been more like 8%? I have emailed the pensions guy to confirm what has happened. So lets see what he comes back with. I also asked if I could increase my contributions. 

£50,000 less £6,240 = £43,760 of banded earnings subject to pension contributions (as your salary exceeds £50,000 there are no pension contributions required on the part above £50,000).

Employer has to put in at least 3% of banded earnings, which is £1,312.80 (2.1% of salary)

You put in 5% (inclusive of tax relief) of banded earnings, which is £2,188 (3.5% of salary). Does the 2.7% you mention include the relief-at-source tax relief added by NEST? If not, then 2.7 / 0.8 = 3.375% of salary. That is quite close to the figures due on banded contributions.

Have you been claiming higher rate relief from HMRC? If not,there is a time limit of four years to claim back any tax relief from HMRC. A claim must be made within four years of the end of the tax year that a member is claiming for, so that is something else where the approaching end-of-financial year deadline is a factor to consider now.

Hi Mate. Ok. So I reran the numbers and realised that the %s I calculated were based on my total income and not the £43,760 you mention above. I also was not including the tax relief. Once I added that it I realise I am actually pretty looks right.  So I had a look at that link you sent regarding higher rate of tax relief. I didnt think I could get relief as a higher rate tax payer. Ill now have a look into that. Ive only been in this job for about 2 years so well within the 4 year window. Prior to that my salary was only a little over the basic rate tax payer level so it probably wont make much of a different. Thanks again. Who would have thought pensions were soo complicated...

Complicated maybe but higher rate tax relief on pension contributions is very generous and you should take as much advantage from it as you can afford. 

ewaste

IMHO It's a strange employer to have a good salary but an absolutely abysmal, legal minimum, pension setup. I'm surprised that NEST is a Relief at Source scheme so there are probably a few higher rate tax payers out there missing out on tax relief.

Albermarle

ewaste said:

IMHO It's a strange employer to have a good salary but an absolutely abysmal, legal minimum, pension setup. I'm surprised that NEST is a Relief at Source scheme so there are probably a few higher rate tax payers out there missing out on tax relief.

Yes I thought the same . Normally employees on management level salaries would expect a better deal .

SomeMadeUpName

CheekyMunkey said:

 Who would have thought pensions were soo complicated...

I would have, which is why I have run scared of them for years. Don't panic though, it's only taken me a couple of weeks to get a (rudimentary) grasp on the subject and formulate a short to mid term plan. I'm considerably closer to retirement than you, but with more (unwrappered) asset, so now I'm having an entertaining time working out how I can max tax efficiency by getting those funds into a taxation wrapper (I'm at the opposite end of the earned income scale which makes it tricky). 
The advice on here has been invaluable, not least every question you get asked, as this sends you off on another productive avenue to investigate. 
Good luck.

SomeMadeUpName

Albermarle said:

ewaste said:

IMHO It's a strange employer to have a good salary but an absolutely abysmal, legal minimum, pension setup. I'm surprised that NEST is a Relief at Source scheme so there are probably a few higher rate tax payers out there missing out on tax relief.

Yes I thought the same . Normally employees on management level salaries would expect a better deal .

TBH I think that's 'big company' thinking. None of the set-ups I've run or worked for over the last couple of decades would have or do offer anything but basic stat min pensions. Not saying that's a good thing at all, just that it's a fact.

SomeMadeUpName

CheekyMunkey if you are trying to sell the idea of salary sacrifice pension contrib to a small employer then the route to go down is pointing out that whilst the tax saving to you can come from company pens or SIPP, if it is run as salary sacrifice into company then there is an NI saving for the both you and the business. It would pursued me as a small business owner.

Albermarle

SomeMadeUpName said:

Albermarle said:

ewaste said:

IMHO It's a strange employer to have a good salary but an absolutely abysmal, legal minimum, pension setup. I'm surprised that NEST is a Relief at Source scheme so there are probably a few higher rate tax payers out there missing out on tax relief.

Yes I thought the same . Normally employees on management level salaries would expect a better deal .

TBH I think that's 'big company' thinking. None of the set-ups I've run or worked for over the last couple of decades would have or do offer anything but basic stat min pensions. Not saying that's a good thing at all, just that it's a fact.

You are probably right . I have always worked for big companies !

CheekyMunkey

wjr4 said:

What are the exact figures in £ not % for the current tax year? I’m asking as you could use your cash to make a lump sum pension contribution before the end of tax year which will receive higher rate tax relief. 

Ok. So I was able to find this on my Nest account. Its all my contributions for the current year. April 2020 - April 2021.
Employee = £1459
Employer = £1094
Tax Relief = £364
Total Contributions = £2918
I dont really understand the higher rate tax relief to be honest but I guess every little helps. As I mentioned in another message I didnt think there was much on offer for higher rate tax payers. 

CheekyMunkey

SomeMadeUpName said:

Albermarle said:

ewaste said:

IMHO It's a strange employer to have a good salary but an absolutely abysmal, legal minimum, pension setup. I'm surprised that NEST is a Relief at Source scheme so there are probably a few higher rate tax payers out there missing out on tax relief.

Yes I thought the same . Normally employees on management level salaries would expect a better deal .

TBH I think that's 'big company' thinking. None of the set-ups I've run or worked for over the last couple of decades would have or do offer anything but basic stat min pensions. Not saying that's a good thing at all, just that it's a fact.

So my company is very lean. No perks at all let alone. I guess I should look for another job but the job itself isnt too bad. However in terms of benefits its poop. I worked for Debenhams between 2016-2019. My pension there was complete crap as well. However, I had a colleague who worked their in a different role but obviously had a better arrangement with their pension based on his job offer. His pension pot is literally 2.5x mine over the same sort of period of employment. 

Dansmam

hugheskevi said:

I have a bit of anxiety right now. Haven't really slept for a month or so its hitting me hard. Im going to turn 42 soon. I really havent done much financial planning for my life and my future so I guess Im freaking out big time.

Very common, nothing to worry about. Most people suddenly realise at some point they have been neglecting an important, if not the most important, investment option. Many don't realise this until 50.

Am I too late to prepare for my future now an retirement?

Not at all. Your State Pension age is 68 so you have many years ahead. With planning, you can reduce that significantly.

So what can I do now?

Mundane things - 
(1) Start by working out what you have, document all your pensions, investments and assets including checking your State Pension. Make a speadsheet of all your assets at current value.
(2) Work out what you think you need in retirement, based on maintaining your current standard of living.
(3)  Work out most efficient way to achieve what you need

I am trying to keep my cash free as I want to try and buy a house after I sell this flat (which has mortgage). I also realise that if I buy this house a lot of the money will then be locked into a home with a mortgage etc.

Many make the mistake of over-prioritising mortgage overpayments. You have a range of objectives (buy house, reduce mortgage, save for retirement, etc) which requires a range of solutions. Just keep this in mind as you buy house and consider mortgage.

I have a fulltime job and currently can save around 1.5k a month after my expenses/bills come out. Im in the 40% tax bracket. 

Ensuring there is no wasted expenditure and using the additional savings generated from this to fund retirement has a doubly beneficial effect. Obviously, it increases retirement resources. But it also reduces the amount needed in retirement as you need less to maintain your existing standard of living following retirement.

I have an IGINDEX account and I was thinking about putting some money into a stocks and shares ISA. I believe its 20k a year. I also saw that there are various ETFS but not sure which one to go for. Could I invest in a Vangaurd ETF and put it into my stocks and shares ISA with IG?

Don't leap to solutions before you have ascertained what you are seeking to achieve. It sounds like you will be looking to balance the following going forward:

• Mortgage amount
• Monthly mortgage payment
• ISA contributions
• Pension contributions

Ensure you have a plan for the next 5 years or so that covers all of these and anything else relevant. Make sure you understand why you are contributing to what you are contributing to, and why you are not directing the funds to one of the other options.

Guess I have limited time now so what would be the fastest way for me to try and drive up my income to get to retirement sooner and gain some passive income. Can I adopt the FIRE method for people in my situation? Like an accelerated version.

Reducing expenditure and investing all saved income is the fastest way, although whether that is optimal is a wider question.

Ensuring you take full advantage of employer matching to pension is first step. Second is likely to be seeing if your employer offers salary sacrifice into a pension. Third is likely to be ensuring you avoid higher rate tax through pension contributions (be it salary sacrifice or otherwise). Make sure you understand your employer's pension offer and the way in which your contributions are made by researching the scheme fully (scheme literature, etc). Unlike personal investments, you are stuck with this arrangement whether you like it or not, so it is important to fully understand it.

The hard part will be deciding how much - if any - capital you want following house purchase and how you will use that. You could put it all toward house to lower mortgage, you could keep some back to maximise use of ISA in 2020/21 and 2021/22, or keep it all back, etc. 

Remember that the end of 2020/21 is coming up, so you only have a few weeks to use ISA and pension allowances.

 I think an ETF might be a better option. Less riskier. I think IG have some vanguard etfs but there are soo many. Guess I just want something thats more stable rather than those that are super aggressive. I thought the Vanguard life strategy would have been a good one but its not on IG. 

ETFs can be have as much investment risk as you want, including gearing, so that is not a valid reason. Multi-asset funds, etf trackers, etc, are all possible choices.

You can go with whatever provider best fits need, so don't obsess about IG. Sort out the plan first, then choose investments and provider to execute the plan.

Brilliant summary. Oh how I wish you'd been there in my 20s. Still true however old you are 👍🏻😉