Investing for future - thoughts?

moneyschool

Hi
I’m a 40 yr old teacher, uk, and have just set up a vanguard s+s ISA and a vanguard SIPP.  My thinking is this - although the teacher pension is good, it’s significantly reduced if you retire early.  I would like the option to retire early.  The SIPP (retirement fund 70/30) is to tide me over a 10 yr period until state pension kicks in (57 - 67, but I guess this might change by the time I get there).  The ISA (lifetime 80/20) is for more med term expenses (ie kids’ uni living expenses etc) but not really earmarked too specifically.  I’ve just paid off mortgage and have emergency fund in a cash ISA.  My thought is to put the same amount into each every month - £200 each is what I’m thinking.  Currently there’s about £5000 in each.
 I think my strategy is sound but would appreciate opinions.  Is there a reason why I shouldn’t have both a SIPP and a s+s ISA?  Should I favour one more than the other?  The monthly even split just seemed a neatly symmetrical way to do it, there’s no clever thinking involved.  Considering I’m after a low maintenance approach to investing over the next 15 - 20 years, this seems sensible - or am I missing something?
Thanks all

eskbanker

If you're looking at a 17 year window to build up a SIPP pot to live on for ten years then I strongly suspect that you'd need to commit much more than £200/month into it, as even with decent investment growth and tax relief (plus the initial £5K) that £40K is unlikely to support you unless you plan to live very frugally?

moneyschool

Thanks for reply.
Well, that’s to top up my reduced teacher pension if I decide to go early, not to live on entirely.  I was hoping to get approx £50 000 to spread over the ten years, £5000 a year.

eskbanker

moneyschool said:

Thanks for reply.
Well, that’s to top up my reduced teacher pension if I decide to go early, not to live on entirely.  I was hoping to get approx £50 000 to spread over the ten years, £5000 a year.

Oh right, I see what you mean - you should end up with significantly more than £50K as that's pretty much what you'd be funding it with, so depending on what you invest in you might get closer to £60-90K, although obviously there's inflation to consider....

DrSyn

How many years have you been in the teachers pension scheme? 
Is the teachers pension still defined benefit and index linked? If so your employer, not you, is taking the pension risk. I seem to remember that if you become too sick to teach, you would be able to retire early on full pay. These are all big plus if its still the same. So do not be tempted to transfer out of it.
While with SIPP & ISA's you are the one taking all the risk.
I think with the SIPP  the government will add to your £200 contributions going in. This allows your investment to into the SIPP to be larger than the £200 into the ISA. However you will be taxed on money coming out.
With the ISA you pay £200 in with money which has already been taxed. So when you take money out there will be no tax to pay.
If the same investments are in both, the SIPP will therefore grow faster. Have you considered that?

moneyschool

Thanks.  Yes, I had kind of thought about that.  It’s a trade off between the gov contributions and locking in the money with a SIPP vs having access to the ISA if I need it.  Which I probably will.  So I think it’s a balance.
As for the teacher scheme I’ve been a full time teacher since I was 23.  I won’t ever transfer out of it as I know it’s a good deal.  Taking it early just means they’ll pay out a lot less than if I keep teaching until 67 (that’s not going to happen for obvious reasons).
They changed the rules in 2014 (?) so it went from DB to career average, so it gets a bit complicated, but I think I’m ok with that.  It’s just I’m not sure if there’s anything glaringly obviously wrong with my plan going forward, that’s all.

DrSyn

As you are aware of the trade offs, I cannot see anything wrong with the plan. 

Eco_Miser

Look at the numbers to see if you would be better off living entirely off (and exhausting) your SIPP + ISA over a few years so that your teacher's pension is not reduced so much.

MX5huggy

The other option is additional teachers pension. https://www.teacherspensions.co.uk/members/working-life/paying-in/increasing-your-pension/additional-pension.aspx

Which you may favour. Although combination of DB and DC pension does seem good.

kinger101

I addition to the additional DB pension MX5 has shown, there's also a prudential AVC DC scheme available.

https://www.teacherspensions.co.uk/members/working-life/paying-in/increasing-your-pension/additional-voluntary-contributions.aspx

It would be well worth considering this if you can benefit from salary sacrifice, as this is a much more tax-efficient way of saving for a pension than SIPP or ISA - particularly if you pay tax at basic rate.

moneyschool

Thanks everyone.  I hadn’t considered trying to survive without touching the pension for a time - I’ll have a think about that one.
Someone had put me off AVCs saying they were only effective if I wasn’t retiring early - can’t remember the reasoning behind that though.
Thanks again, much appreciated.