Balance between Pension/S&SISA/cash

noclaf

As per title I am trying to reach a happy medium on contributing to pension/s&sisa/savings and would be helpful to have others perspective.
I am 40, married and first child on the way...hence the timing of this post!

Combined DC pensions (2) = £111k
 I contribute via employer Sal Sac, typical gross contributions over the last few months has been between £1.2k and £2k as aggressively trying to push contributions playing catch up. I doubt this can be maintained once child arrives and wife's income will drop significantly untill she goes back to work. If I contribute a minimum 8%, this will see a 12.4% employer/smart match uplift = £980 gross per month. I am thinking to reduce my contribution to this level as a minimum baseline whilst I test the waters with additional child expenses to come. If not counting wife's income my typical take home is £2.9k-£3.2k depending on how much I sal sac into pension
1 years take-home salary in cash
£20k in LISA (ETF) that was originally earmarked for a property deposit but no longer the case (allowance used up for this tax year)
£8k in a Vanguard S&SISA, I contribute £150-£200 per month.

Would it be worthwhile lowering my pension contribution to increase my S&S ISA monthly contribution? I appreciate it's not tax efficient but to reframe the question given my current pension value Vs S&S ISA value would it be more sensible to ensure I get the max employer contribution only by contributions only the minimum needed?

*I may be due to receive an inheritance shortly, plan is to put some aside for nursery expenses, home improvements and a bit to top up S&SISA. The rest.will.be held as cash(yes I know not ideal for inflation).

MX5huggy

Clearly you should keep contributing the minimum required to get the maximum employer matched contributions.

You haven’t said what your gross salary is before Salary sacrificing. But you want to make sure that after SS it is below £50000 so that you receive (actually your wife as she needs the NI credits that come with it) 100% of Child benefits and pay no 40% tax. 

Then remember it doesn’t matter if you save in a S&S ISA then “move” the money to pension by living off the savings and increasing pension  contributions after 1 or 2 years the outcome is the same as if it had gone straight to pension. Presuming the investments in the ISA and pension is equivalent and tax advantages don’t change. 

dunstonh

As per title I am trying to reach a happy medium on contributing to pension/s&sisa/savings and would be helpful to have others perspective.

Basically, you need to stop thinking of your tax wrappers/products as separate things.   Start looking at your objectives and how your whole portfolio fits with those objectives.   It is possible that you will have a product/tax wrapper for a particular objective but in most cases you can use multiple wrappers for the same objective.

I doubt this can be maintained once child arrives and wife's income will drop significantly untill she goes back to work. If I contribute a minimum 8%, this will see a 12.4% employer/smart match uplift = £980 gross per month. I am thinking to reduce my contribution to this level as a minimum baseline whilst I test the waters with additional child expenses to come.

The only warning regarding that is a child costs more as they get older.  So, you pretty much wont increase it again unless you have increased income from other sources (e.g. above inflation increases in income).

Would it be worthwhile lowering my pension contribution to increase my S&S ISA monthly contribution? I appreciate it's not tax efficient but to reframe the question given my current pension value Vs S&S ISA value would it be more sensible to ensure I get the max employer contribution only by contributions only the minimum needed?

What objective is your S&S ISA for?   Clearly pension trumps ISA in terms of tax efficiency.  So, this would suggest you plan on spending the money in the ISA before retirement.  Is that the case?

noclaf

MX5huggy said:

You haven’t said what your gross salary is before Salary sacrificing. But you want to make sure that after SS it is below £50000 so that you receive (actually your wife as she needs the NI credits that come with it) 100% of Child benefits and pay no 40% tax. 

This year it will be just under £67k gross. Some of that was unexpected, bonus and/or deferred pay rises so I could and should of put more into pension but never mind now. Typically my gross pay is £63k or thereabouts.
My only concern with sal sac down to £50k,  will it leave enough take home for general living costs etc? I am also still paying off my student loan so that's an extra hit to consider on the gross monthly salary. 

noclaf

dunstonh said:

As per title I am trying to reach a happy medium on contributing to pension/s&sisa/savings and would be helpful to have others perspective.

Basically, you need to stop thinking of your tax wrappers/products as separate things.   Start looking at your objectives and how your whole portfolio fits with those objectives.   It is possible that you will have a product/tax wrapper for a particular objective but in most cases you can use multiple wrappers for the same objective.

I doubt this can be maintained once child arrives and wife's income will drop significantly untill she goes back to work. If I contribute a minimum 8%, this will see a 12.4% employer/smart match uplift = £980 gross per month. I am thinking to reduce my contribution to this level as a minimum baseline whilst I test the waters with additional child expenses to come.

The only warning regarding that is a child costs more as they get older.  So, you pretty much wont increase it again unless you have increased income from other sources (e.g. above inflation increases in income).

Would it be worthwhile lowering my pension contribution to increase my S&S ISA monthly contribution? I appreciate it's not tax efficient but to reframe the question given my current pension value Vs S&S ISA value would it be more sensible to ensure I get the max employer contribution only by contributions only the minimum needed?

What objective is your S&S ISA for?   Clearly pension trumps ISA in terms of tax efficiency.  So, this would suggest you plan on spending the money in the ISA before retirement.  Is that the case?

I am currently 100% Equities across all investments/wrappers. The S&SISA could act as a bridge untill I hit the age where I can begin taking the pension. That's my current thinking as I don't own any BTL's or have other/additional income and am v aware that my current income is ultimately determined by availability of jobs, my longevity, health etc The LISA will supplement my pensions.
I may change jobs next year, if I do then my preferred option would be to move both DC pensions to a SIPP and combine the funds then invest into a simple core/satellite setup. Currently they are invested in a Baille Gifford Global Growth Fund (£32k) and Vanguard ESG Developed world (£79k). The Vanguard fees + employer rebate makes it v competitive and reasonably good performance. The BG fund is active so fair bit pricier but gives me additional EM tilt hence not been too fussed about changing this. If I change jobs next yr will review again and consider streamlining into a SIPP.
You raise a good point about the cost of kids only going up and up so maybe I will try to continue pushing a decent amount via sal sac each month. I don't know if I can afford to go down to £50k gross but if it makes the child benefit worthwhile + NI credits then will give it serious consideration. I left it late this tax year as I did not sal sac enough in the first few months of the tax year but one t think about come March/April next year.

tebbins

It is still more efficient to prioritise over-contributing into your pension first, however I can see why you would want to have money in an ISA available before you can access your pension.
As your salary is £67k you *definitely* want to prioritise salary sacrificing that all the way down to £50k, you need to up your contributions to about 26% of your salary. This is the single most tax efficient thing you can do in your current circumstances.
Look at other ways to save/make money to make that work - remortgaging, frugal living without missing out on the nice things, there's plenty on the forum about making kids cheaper... could your partner take up a part-time WFH job? 

noclaf

tebbins said:

It is still more efficient to prioritise over-contributing into your pension first, however I can see why you would want to have money in an ISA available before you can access your pension.
As your salary is £67k you *definitely* want to prioritise salary sacrificing that all the way down to £50k, you need to up your contributions to about 26% of your salary. This is the single most tax efficient thing you can do in your current circumstances.
Look at other ways to save/make money to make that work - remortgaging, frugal living without missing out on the nice things, there's plenty on the forum about making kids cheaper... could your partner take up a part-time WFH job? 

Yes point taken on the pension sal sac....to be honest I've been obsessing over the pension provision for the last year or so when it dawned upon me how much will be needed in retirement Vs my current pension value. 
My wife will likely go back to work though not with the same employer as she is underpaid for her line of work and involves a v long commute though is keen to continue working. Whether that's after 1 or 2 years we still need to work out.depending on child care needs etc My wife currently earns just over £25k, need to look at her pension provisions too as  unsure what the situation is but potentially there are 3/4 separate schemes so a full review is on our to-do-list to understand how they are invested and current values, benefits etc

dunstonh

The S&SISA could act as a bridge untill I hit the age where I can begin taking the pension.

Does that suggest you plan to retire earlier than age 58?

MX5huggy

You don’t pay student loan repayments on income that is Salary sacrificed so that’s another 9% saving on top of 42% tax and NI (NI going up in April).

So you can have £17000 into pension plus £1100 per year Child Benefit to spend. Or £8330 cash to spend. 

If you end up earning over £50k make sure your wife still claims the child benefit so she gets the NI credits even if you end up paying the value back via tax. 

Babies are cheap if you want them to be (especially breast fed ones). The biggest cost is child care if you stick with state education once that takes over from the child care you have so much money! But no time, I spent 4 hours at football and 4 hours mountain biking this weekend with mine. 

noclaf

dunstonh said:

The S&SISA could act as a bridge untill I hit the age where I can begin taking the pension.

Does that suggest you plan to retire earlier than age 58?

As of now I'm not sure that will be possible, am assuming that I will need to work longer to ensure retirement will be financially comfortable etc So I am assuming that I will work till my 60's subject to health and other factors.to be considered. Retiring earlier would be great but I'm trying to be realistic too.

noclaf

MX5huggy said:

You don’t pay student loan repayments on income that is Salary sacrificed so that’s another 9% saving on top of 42% tax and NI (NI going up in April).

So you can have £17000 into pension plus £1100 per year Child Benefit to spend. Or £8330 cash to spend. 

Thanks, this is the key part I was trying to figure out. 
Re Student loan saving, so let's say I have 10k of student loan remaining. If I sal sac down to £50k and reduce my student loan repayments I assume it will take longer to pay off the £10k balance untill it's either cleared or the 25 years since taking the loan has passed? (not sure if its '25' years but I'm on a Plan 1 student loan)