Having to take early retirement.

Albermarle

For Point 1 ) It may have been a mistake in pure rational financial terms , but many people just like to get the mortgage paid off for 'peace of mind' especially if their job security or health is not great .

For Point 2 ) - I agree . Even if the employer is not operating a salary sacrifice scheme , then pension contributions are still probably the best way forward. Especially if when taking the pension, you can utilise the personal tax allowance

OP - If you do switch savings into a pension , then you need to do it before this tax year ends , so you can get the maximum tax relief whilst you are still working . You can not claim the relief retrospectively. It is very easy to open a new pension online. 

itsmeagain

Albermarle said:

For Point 1 ) It may have been a mistake in pure rational financial terms , but many people just like to get the mortgage paid off for 'peace of mind' especially if their job security or health is not great .

For Point 2 ) - I agree . Even if the employer is not operating a salary sacrifice scheme , then pension contributions are still probably the best way forward. Especially if when taking the pension, you can utilise the personal tax allowance

OP - If you do switch savings into a pension , then you need to do it before this tax year ends , so you can get the maximum tax relief whilst you are still working . You can not claim the relief retrospectively. It is very easy to open a new pension online. 

Thanks.
So, OP... Lets say that you earn £40kPA and you manage to squeeze £10 into your work pension. Deplete your savings by putting the other 30K (or what you can afford) into your DC (if they accept external payment) or open something like a Vanguard LS60 SIPP (in the next 2 months)!
You can then start taking it back out next year under the 25% tax free & £12.7k PA with no NI to pay either.
You won't get it all out tax free before age 67, but you can 'top up' your State pension by circa 4kPA from your SIPP without tax, and if you don't reach an age to spend it all, then it will go to family tax free.
No one here knows who you are, so why not share your period 10 payslip data here and we'll be more precise on the figures/opportunity.

Albermarle

or open something like a Vanguard LS60 SIPP (in the next 2 months)!

I think the OP is a bit risk averse and in any case they would be looking to use the money reasonably quickly .

So investing it, even in a medium risk fund , might not be the best idea. Possible best to keep it in cash or in a lower risk fund 

Ok could mean negative returns due to inflation but the tax advantage should easily outweigh that .

Kim1965

itsmeagain said:

Xenon123. There's a point that has been made by others that I'm not sure has got through with respect to your proud paying off of mortgage & rate you are putting away savings.

(1) It's too late for you, but for anyone else reading this, paying off your mortgage was a financial mistake. To save say 1.5% mortgage interest, you have paid it off using taxed & NI'd income that could have gone into pension and made 10%. This pension pot could have been used later to pay off your mortgage and still have money left over.

(2) THIS IS THE POINT FOR YOU NOW. YOU SHOULD NOT BE 'SAVING'! You should be putting all the income permissible into additional pension (either AVC/DC/SIPP). Preferably into company scheme if you can use salary sacrifice, 'effectively' pre tax & NI. Your current savings are inefficient, using income that you have already lost 32% (post tax & NI)! You should max out on your contribution (all your salary), although your company may impose a min salary limit, but the rest you can put in a SIPP (even the initial 12.7k that you were not taxed on), but you'd not get the Ni benefit on the external SIPP part.
Your pot can later be drawn down at 25% tax free & 12.7kPA, effectively getting the pension back out tax free.

For most of your income that you could put in pension. you'd be charged at 20% tax & 12% Ni (lost 32%). Lets say that you could have put 10k in pension, or earned it to put into savings. That 10k would be £6.8k into your savings or £10k in pension, meaning that 45% more would have gone into a pension at the same affordability to you. Apologies if this was all clear to you.

So, you only have 1-2 months left this year to max out your company contribution. The rest of your 'taxable pay' needs to go in a SIPP, where they will add a free 25%. You can only put in 80% of your taxable pay, to allow for the extra 25% = your full taxable pay.

There are some technical inaccuracies in the above, including how salary sacrifice really works, but the concept works. In my last year of working, I put all my taxable income into pension for the above reason (subject to £40k limit & carry forward) rules.

Albermarle, can you please rationality check the above concept, plus explain the £2880 continued input available. 

For point 1 are we all happy that the pension would make 10 % per annum ?

itsmeagain

Kim1965 said:

itsmeagain said:

Xenon123. There's a point that has been made by others that I'm not sure has got through with respect to your proud paying off of mortgage & rate you are putting away savings.

(1) It's too late for you, but for anyone else reading this, paying off your mortgage was a financial mistake. To save say 1.5% mortgage interest, you have paid it off using taxed & NI'd income that could have gone into pension and made 10%. This pension pot could have been used later to pay off your mortgage and still have money left over.

(2) THIS IS THE POINT FOR YOU NOW. YOU SHOULD NOT BE 'SAVING'! You should be putting all the income permissible into additional pension (either AVC/DC/SIPP). Preferably into company scheme if you can use salary sacrifice, 'effectively' pre tax & NI. Your current savings are inefficient, using income that you have already lost 32% (post tax & NI)! You should max out on your contribution (all your salary), although your company may impose a min salary limit, but the rest you can put in a SIPP (even the initial 12.7k that you were not taxed on), but you'd not get the Ni benefit on the external SIPP part.
Your pot can later be drawn down at 25% tax free & 12.7kPA, effectively getting the pension back out tax free.

For most of your income that you could put in pension. you'd be charged at 20% tax & 12% Ni (lost 32%). Lets say that you could have put 10k in pension, or earned it to put into savings. That 10k would be £6.8k into your savings or £10k in pension, meaning that 45% more would have gone into a pension at the same affordability to you. Apologies if this was all clear to you.

So, you only have 1-2 months left this year to max out your company contribution. The rest of your 'taxable pay' needs to go in a SIPP, where they will add a free 25%. You can only put in 80% of your taxable pay, to allow for the extra 25% = your full taxable pay.

There are some technical inaccuracies in the above, including how salary sacrifice really works, but the concept works. In my last year of working, I put all my taxable income into pension for the above reason (subject to £40k limit & carry forward) rules.

Albermarle, can you please rationality check the above concept, plus explain the £2880 continued input available. 

For point 1 are we all happy that the pension would make 10 % per annum ?

You don't require anything near 10% return over the term of a mortgage to make the concept work. However, global funds easily exceeding 10%, and even if we pick the ever popular Vanguard LS100 fund over the last 10 years, we get 11.58%.
Over a typical mortgage term, the main risk of not making 10% is by choosing a low risk fund or lack of global diversity.


I have always had an interest only mortgage and used my excess cash for ISA & SIPP's. The interest from those funds has always exceeded the borrowing rate, plus the pension was pre tax/Ni.
Take a look half way though this video https://www.youtube.com/watch?v=AjLlS_Qofcw&ab_channel=JamesShack

Xenon123

itsmeagain said:

Xenon123. There's a point that has been made by others that I'm not sure has got through with respect to your proud paying off of mortgage & rate you are putting away savings.

(1) It's too late for you, but for anyone else reading this, paying off your mortgage was a financial mistake. To save say 1.5% mortgage interest, you have paid it off using taxed & NI'd income that could have gone into pension and made 10%. This pension pot could have been used later to pay off your mortgage and still have money left over.

Our mortgage had effectively run its course.  It was a relatively small amount needed to clear it.  The gains in using the funds we had by putting it to a pension instead would not really have made a huge difference in the overall scheme of things.

Albermarle

Kim1965 said:

itsmeagain said:

Xenon123. There's a point that has been made by others that I'm not sure has got through with respect to your proud paying off of mortgage & rate you are putting away savings.

(1) It's too late for you, but for anyone else reading this, paying off your mortgage was a financial mistake. To save say 1.5% mortgage interest, you have paid it off using taxed & NI'd income that could have gone into pension and made 10%. This pension pot could have been used later to pay off your mortgage and still have money left over.

(2) THIS IS THE POINT FOR YOU NOW. YOU SHOULD NOT BE 'SAVING'! You should be putting all the income permissible into additional pension (either AVC/DC/SIPP). Preferably into company scheme if you can use salary sacrifice, 'effectively' pre tax & NI. Your current savings are inefficient, using income that you have already lost 32% (post tax & NI)! You should max out on your contribution (all your salary), although your company may impose a min salary limit, but the rest you can put in a SIPP (even the initial 12.7k that you were not taxed on), but you'd not get the Ni benefit on the external SIPP part.
Your pot can later be drawn down at 25% tax free & 12.7kPA, effectively getting the pension back out tax free.

For most of your income that you could put in pension. you'd be charged at 20% tax & 12% Ni (lost 32%). Lets say that you could have put 10k in pension, or earned it to put into savings. That 10k would be £6.8k into your savings or £10k in pension, meaning that 45% more would have gone into a pension at the same affordability to you. Apologies if this was all clear to you.

So, you only have 1-2 months left this year to max out your company contribution. The rest of your 'taxable pay' needs to go in a SIPP, where they will add a free 25%. You can only put in 80% of your taxable pay, to allow for the extra 25% = your full taxable pay.

There are some technical inaccuracies in the above, including how salary sacrifice really works, but the concept works. In my last year of working, I put all my taxable income into pension for the above reason (subject to £40k limit & carry forward) rules.

Albermarle, can you please rationality check the above concept, plus explain the £2880 continued input available. 

For point 1 are we all happy that the pension would make 10 % per annum ?

It could well have made 10% over the last decade, or even more . Over the next decade will probably be a bit more subdued.

Xenon123

itsmeagain said:

Albermarle said:

For Point 1 ) It may have been a mistake in pure rational financial terms , but many people just like to get the mortgage paid off for 'peace of mind' especially if their job security or health is not great .

For Point 2 ) - I agree . Even if the employer is not operating a salary sacrifice scheme , then pension contributions are still probably the best way forward. Especially if when taking the pension, you can utilise the personal tax allowance

OP - If you do switch savings into a pension , then you need to do it before this tax year ends , so you can get the maximum tax relief whilst you are still working . You can not claim the relief retrospectively. It is very easy to open a new pension online. 

Thanks.
So, OP... Lets say that you earn £40kPA and you manage to squeeze £10 into your work pension. Deplete your savings by putting the other 30K (or what you can afford) into your DC (if they accept external payment) or open something like a Vanguard LS60 SIPP (in the next 2 months)!
You can then start taking it back out next year under the 25% tax free & £12.7k PA with no NI to pay either.
You won't get it all out tax free before age 67, but you can 'top up' your State pension by circa 4kPA from your SIPP without tax, and if you don't reach an age to spend it all, then it will go to family tax free.
No one here knows who you are, so why not share your period 10 payslip data here and we'll be more precise on the figures/opportunity.

OK.  Thanks guys.  My employer does offer salary sacrifice.  I currently pay 6% in and the company pays 15% which is the maximum they will pay.  How much of a lump sum can I put in before the end of this tax year and how much extra would I be allowed to put in next year before beginning drawdown?
I grasp exactly what you are saying and can see the sense in it.  The problem is, topping up my state pension at 67 is not my priority. Nice as it is, I think we will be comfortable enough on the approx £37k a year we will have guaranteed at that age. Before considering diverting savings to my pension, I would already have breached the tax free monthly allowance before accounting for the increased contributions, so I would only benefit from the full tax free amount if I left it to after 67.  Of course, my wife would benefit from it then and that would be great, but we are looking to enjoy our retirement as much as possible over the next 10 years if I am about that long.
I suppose though that even if I did want to access the extra amount over the next 10 years I could still take it and pay the tax and be no worse off given it wasn't taxed in the first place, and possibly have enjoyed some growth as well.
I don't know why I am even debating this, it makes perfect sense to add to my pension rather than save it.
I suppose I just wanted to have unfettered access to it if it was ever needed quickly..

Xenon123

itsmeagain said:

 why not share your period 10 payslip data here and we'll be more precise on the figures/opportunity.

My taxable salary is £4217pm
I paid 6% of this to my pension via SS.

Xenon123

Albermarle said:

OP - If you do switch savings into a pension , then you need to do it before this tax year ends , so you can get the maximum tax relief whilst you are still working . You can not claim the relief retrospectively. It is very easy to open a new pension online. 

I can put the savings we have now (about £12k) into my existing workplace DC pension before April.  If I increase my pension payments monthly from April 22 onwards and I retire before the end of the 22/23 tax year, will those increased payments go towards the 25% lump sum I can claim?  Sorry if this sounds like a silly question, my head is spinning now! :-:smile: