What should I be thinking about in regards to my pension? I'm 41.

Elisheba

Hello all,

I've been reading through this pensions board with a lot of interest, and I'm learning a lot of new things but for a pensions novice such as myself it can be rather confusing.

What I would like is advice on is what I should be thinking about now?  I'm 41 and have a local government pension I've been paying into for 11 years, and before that I paid into a stakeholder pension for 6 years. Annoyingly I didn't buy extra years on my LG pension with my stakeholder pension when I started in local government and I believe I had to do it at the start or it was too late

Financially, all my focus is currently on paying off debt and getting a mortgage.  However, are there other things I should be doing or thinking about now that will help me out in my later years?  I'd hate to miss something just because I wasn't aware of it.

Thanks so much,
Eli

Linton

Do you know how much income you will need in retirement?
Do you expect to have sufficient to live on from State Pension and your DB and stakeholder pensions?
May you want to retire before SP age? If so have you thought through how you will finance it?
Have you checked that you are on course for a full State Pension? https://www.gov.uk/check-state-pension

Elisheba

Okay, thanks @Linton.  I am on track for the full state pension currently predicted to be £9371.27 pa (which would then be taxed I suppose, but I presume I'm no longer making National Insurance contributions from my pension?) which would be due in 2048 when I'm 69. 

I would hope to retire before that date, but I guess the next steps are to find out what the current predicted payments are for my DB and Stakeholder pension, and work out what I'll need to live.  That of course is up in the air, and depends on whether I get and pay off a mortgage before then.  I suppose over that length of time everything will be up in the air though, and all you can do is make decent plans. 

Marcon

Elisheba said:

Hello all,

I've been reading through this pensions board with a lot of interest, and I'm learning a lot of new things but for a pensions novice such as myself it can be rather confusing.

What I would like is advice on is what I should be thinking about now?  I'm 41 and have a local government pension I've been paying into for 11 years, and before that I paid into a stakeholder pension for 6 years. Annoyingly I didn't buy extra years on my LG pension with my stakeholder pension when I started in local government and I believe I had to do it at the start or it was too late

Financially, all my focus is currently on paying off debt and getting a mortgage.  However, are there other things I should be doing or thinking about now that will help me out in my later years?  I'd hate to miss something just because I wasn't aware of it.

Thanks so much,
Eli

Don't get too annoyed with yourself! I don't know how was in your stakeholder pension at the time you joined the LGPS, but it is highly unlikely to have bought you anything like 6 years of extra LG pension - maybe as little as 6 months. Look on it as a smart bit of (accidental) planning to give you flexibility in terms of accessing your pension when you are older.

At 41, you are too far away from retirement to be able to get any truly meaningful figures in respect of either your stakeholder or your LG pension. The general advice of 'save as much as you can, as soon as you can' is no bad idea. Just ensure you don't tie up so much cash in your pension that you have to borrow before you can access the cash.

Albermarle

Well you have a LG  Defined Benefit pension , that you are building up more pension entitlement every year you work .
So you are already on a good path .

If you wanted to retire early but did not want to reduce your LG pension by taking it early , then you need to build up a separate pot to enable you to bridge the gap , also to the State pension.

So ideally you should be maybe contributing to your stakeholder pension, but obviously if you have debt issues and are looking at a mortgage then this will not be easy .

Is there any chance you can get promoted/get a higher salary ?

Thrugelmir

Elisheba said:

Financially, all my focus is currently on paying off debt and getting a mortgage.  

Additional pension contributions can wait a while then. No need to panic. Just manage your personal finances wisely. 

jamesd

Stay in the local government pension.

Concentrating on debt and getting a mortgage in the short term is correct because it'll save you money overall, most likely, and get you additional security. You can do this most efficiently by using a lifetime ISA as much as you can and then using its bonus to help with the deposit.

Get a mortgage with the longest term and lowest monthly repayments possible. This is because it's safer than forcing yourself to pay faster when you might be unemployed for a while and because the cheapest way to repay mortgage capital is using the tax free lump sum from a personal pension. The maximum possible tax free lump sum is about a quarter of a million Pounds because you stop getting it on benefits above the lifetime allowance. In your case the LGPS will use some of this so you'll have less available from a personal pension.

Once you're stably in your new home, start maximising contributions to a personal pension while still being in LGPS, which is an excellent scheme. Later you use the pension money to retire earlier than the LGPS normal pension age with lower actuarial reduction and to do mortgage clearing efficiently.

For at least the next ten and likely the next fifteen years, you should read news stories about market crashes as "great, there's a sale on for investments and I can now buy cheaper for a while than before!".

Elisheba

Thank you, everyone.  Your comments are very helpful indeed and I have a lot to get my head around.  I hadn't considered holding off on paying as much of my mortgage as possible so I could pay it off tax free when I decide to draw down a pension and lumpsum.  

I have logged in to my pension accounts, and now know what the DB pension payout pa would be at 55/60/65/69.  Info on the stakeholder pension is on its way, but its only a £15k pot currently so I don't see it changing things much.  It seems to me that with the time scales I am looking at being 41, and hoping to retire around 60, that holding off on paying off a mortgage might not be the wisest idea, even if the lumpsum would make it cheaper, being untaxed.

I don't think that any extra payments I could make into my stakeholder pension (even holding off on overpaying a mortgage) would offset the annual reduction a lumpsum from my DB pension would take from my annual amount.  I'm also not sure that I could pay enough into my Stakeholder in the time I have to make it feasible to defer my DB pension until 69. 

Also, if I take my DB pension at 60 I will need every penny of it to live on as it is half what it would be if I drew it down at 69, so it seems to me it would be better to have the mortgage paid off and take no cash lump sum, and then have hopefully enough annually to live comfortably until I get the additional pension from the state at 69. 

Obviously this all relies on me living long enough to enjoy annual payouts, but I'm working on the presumption that I will.

So a lot to think about, and I'm really glad I'm aware of all this now.  Thanks everyone.

jamesd

I started older than you and still retired at 55 on a pot of more than half a million so it's not impossible to make a big difference, though I was investing more than 60% of my pay.

If you pay into a pension first the tax relief means you end up with at least 6.25% more money than if you don't. That's due to the tax relief. Then the investments are very likely to grow by more than the mortgage interest rate providing further gain. It's very rare for this to fail to be the case where the investments are going on for at least ten years. What this means is that you can get the mortgage paid off ore cheaply and still have more money left for delaying when you take the LG pension.

It's a few years since I retired. Still quite a few years to go before I have to pay off my own interest only offset mortgage and I'm in no hurry to do it because of the investment gain potential. The longer you end up leaving it, the better for this sort of planning. In your case it might even pay to delay paying off the mortgage to take the LGPS money later, but at a higher rate, then use that to pay off a remortgage.

Albermarle

So a lot to think about, and I'm really glad I'm aware of all this now.

Actually just being aware of the issues is good progress - many people give zero thought to these matters.

Dansmam

Once you have debt sorted you might want to look into lgps avc - you get a lot for your money if you can salary sacrifice - could work as a home for cash to pay off any mortgage you have when you collect your lgps pension when it can be taken as a tax free lump sum.