Balancing finances - am I putting too much into pension

MaxiRobriguez

britishboy said:

Ahh Ok, many thanks for clarifying.  I feel almost obsessed with avoiding 40% tax on my salary for some reason (within reason obviously)

But you won't, you'll just end up paying it later on in life, and for that pleasure you get to lock away your cash for 12 years when you could be pushing it to a S+S ISA with much greater flexibility.

If it were me I'd stop the pension contributions, and diversify. 

Thrugelmir

britishboy said:

2nd pension is a SIPP.  Value £700k.  I do not pay into it.  Invested in actively managed funds.  I’m expecting 5% a year growth on average

And if it doesn't grow 5% on average?  What's plan B. 

ossian

Albermarle said:

current employer one.  Defined Contribution.  Value £78k.  I pay my annual bonus and 10% monthly salary AVC’s into (both to avoid paying 40% tax).  Total going in is approx £1,100 a month including employers contributions.

For a normal workplace DC pension , you do not make AVC's . You make a % contribution that can be the legal minimum or a lot more . If you are specifically making AVC's then it would indicate it is not a standard pension . Can you just clarify that ?

2nd pension is a SIPP.  Value £700k.  I do not pay into it.  Invested in actively managed funds.  I’m expecting 5% a year growth on average

Are you expecting 5% before or after inflation ? It makes a significant difference. If it is after inflation that is quite ambitious/optimistic.

At first glance it would seem not sensible to not gain 40% tax relief to pay off a mortgage with a low interest rate .

It is possible higher rate tax relief will not last forever, so probably best to fill your boots now .

Yes you can make AVCs to DC schemes.  I think you are thinking of AVC Pensions (DC and Added Years AVCs) and FSAVC Pensions related to DB schemes as opposed to the contributions themselves.

ossian

britishboy said:

Hi, I am after some advice please.

Age 44.  I have 2 x pensions, they are:

current employer one.  Defined Contribution.  Value £78k.  I pay my annual bonus and 10% monthly salary AVC’s into (both to avoid paying 40% tax).  Total going in is approx £1,100 a month including employers contributions.

2nd pension is a SIPP.  Value £700k.  I do not pay into it.  Invested in actively managed funds.  I’m expecting 5% a year growth on average

I think there is another possibility to entertain.... that we have a crash followed by a bear market in which case your pensions may fall below the Lifetime Allowance.  This doesn't need to happen before you start drawing either.  It means that the funds in excess of the lifetime allowance are more advantageous than they at first appear.  They are also still accessible.

Worst case you undo some of the tax benefits with a 25% tax charge.  It still compares favourably with general accounts.

I would have the same concerns as you do if I were in your situation and conclude that I'd continue to pay income at the 40% rate into a pension and ISA invest and pay off mortgage in excess of that.  Another useful thing to do with spare cash below the additional tax rate is to spend it on home improvements and repairs otherwise you'll find you spend money early in retirement on home improvements that you could have funded and enjoyed in work.

Don't forget to live life as time passes by...

longwalks1

hugheskevi said:

britishboy said:
could I possibly transfer a sum from my current SIPP to allow it to grow to bridge the gap between 55-57?  Maybe transfer out £50k into a protected scheme and let it grow independently for 11 years? 

If you existing provider permits partial transfers-out, then yes

How would I know what schemes are protected? Just ask the providers, or is there a list? 

Too early to tell at this stage, it was only announced last week. Even individual providers are very unlikely to have determined the status of their scheme yet. 

Thanks hugheskevi - Will ask my SIPP provider for details and see what they say.  I guess I have a bit of time to think about and find a protected scheme.  Another idea given now is to add to my S&S ISA and grow that to bridge any gap between leaving work and being able to draw my pension - something for some reason I hadn't even thought about 

longwalks1

MallyGirl said:

My company pension portal also calls them AVCs - that is also what it is labelled as on my pay slip.
Whilst it does seem to have a specific meaning related to DB pensions it is also used in common parlance relating to paying more that the required amount required to get max employer match.

Thanks MallyGirl, thats why I called the AVC's earlier, always been referred to as that in work, and on my wage slips.  Glad it isnt just me using that term

longwalks1

Alexland said:

Yes once we have specified our base contribution (3, 4 or 5%) for employer double matching our employer asks us to specify both AVCs and ASCs (swap) percentages to go into our workplace DC scheme (they default to 0%). AVC terminology is not exclusive to DB schemes so there's no need to keep correcting people who might be right.

Thanks Alexland, I pay in 5% of my salary and my employers matches it with 10%, and I'm presently making an additional overpayment/AVC of 10% - which is the overpayment I'm questionning 'do I need to make'

I've always struggled with numbers etc so these simple details to some are a bit of a headache at times  

longwalks1

cfw1994 said:

Just another quick on this one: two pals I’ve know for over 35 years, been together longer than that, retired last year.

Some research later (they both have DB pensions) led them to get a civil partnership recently PURELY to ensure the surviving partner would get something from the schemes when one of them passes away.
A series of small “Pension Parties” followed 🎉😎👍

Something I have considered, and will continue to do so - i know of a couple of colleagues who've done this too

longwalks1

MaxiRobriguez said:

But you won't, you'll just end up paying it later on in life, and for that pleasure you get to lock away your cash for 12 years when you could be pushing it to a S+S ISA with much greater flexibility.

If it were me I'd stop the pension contributions, and diversify. 

Thanks MaxiRobriguez - I'm thinking more and more now to stop my additional 10% contribution and pay it (after tax, so will be less) into an ISA and let it grow there to bridge any gap between stopping working and drawing my pension.

longwalks1

Thrugelmir said:

And if it doesn't grow 5% on average?  What's plan B. 

Then move it across into something safer than a shares weighted portfolio until things settle, or keep it held as cash until times pick up.  My smaller company pension I've grown between 10%-15% a year for the last 4 years (no great gauge I know) but 3 of their available funds have grown very well, even last year.

I know this kind of growth isnt achievable year on year, but a few good years now will ease the need for risk nearer retirement age.  My SIPP which is only a few months old has also performed well about 5% growth.  Again, it wont continue at that rate, so i am monitoring it closely