Appreciate your views please .

Tony4625

Hello folks ,I am  55 and now receiving my  DB pension of £7600 per year and also have a tax free lump sum of £50k .  I’m self employed and will be earning about £15-20 k ish per year after reducing my hours.
My (our) finances are  
Wife has full state pension with full years and I have two years left for full state pension.
 My wife is 56 employed £21k part time and pays 6%  (which employer puts in 16%)salary sacrifice to her DC pension ,pot  stands around £100k  at this time ,she also has DB pension of around £4K a year if taken now .
We have a mortgage of £37k left at 2% interest due to finish sept24 (house value around £600k)We are discussing options about her increasing her s/s to 40/50 % of her income , this will lower her tax bill I take it ? Or would putting some money into a  stock & shares  ISA be a better option ?
 I’ve taken my pension earlier than anticipated due to the last couple of years and want to reduce my work hours . We want to enjoy some of the tax free but invest £20k in something that is better than a bank account rate 🤔 Ideally wife wants to retire in the next 5 years .
 We would appreciate any ideas you may have .

MX5huggy

Your wife can’t SS more than would reduce salary below National Minimum Wage £9.50 per hour, she should SS to this limit. You and her should then make the maximum pension contributions you can afford using up your lump sum and any other savings to a SIPP Pension beats ISA all day long. 

QrizB

Tony4625 said:

I’m self employed and will be earning about £15-20 k ish per year after reducing my hours.

Are you a sole trader or a limited company? Pension payment options differ.

Tony4625

QrizB said:

Tony4625 said:

I’m self employed and will be earning about £15-20 k ish per year after reducing my hours.

Are you a sole trader or a limited company? Pension payment options differ.

I’m a sole trader , my DB pension comes from previous employment I left in 2007.

xylophone

but invest £20k in something that is better than a bank account rate 

Had you considered paying off £20k of the mortgage and contributing the money saved to a pension?

DT2001

When do you want to retire? If it is before SPA you’ll have some unused personal allowance unless you have a SIPP already so maybe worth looking at that.

If your wife salary sacrifices 50% unless she has other income she’ll pay no tax as she’ll be below personal allowance.

What is your number for retirement and how do you aim to meet that prior to SPA?

Dazed_and_C0nfused

DT2001 said:

When do you want to retire? If it is before SPA you’ll have some unused personal allowance unless you have a SIPP already so maybe worth looking at that.

If your wife salary sacrifices 50% unless she has other income she’ll pay no tax as she’ll be below personal allowance.

What is your number for retirement and how do you aim to meet that prior to SPA?

Which means she effectively gets no tax relief on part of the contributions.

It would mean you (as a couple) may then be able to benefit from Marriage Allowance but I'm not sure sacrificing pay to save NI but no tax is as good an option as a lower sacrifice and then making personal contributions to a (relief at source) pension where she will get basic rate tax relief added despite not necessarily paying any tax herself.

Albermarle

Or would putting some money into a  stock & shares  ISA be a better option ?

To be clear you can have the same ( or similar) investments in  a S&S ISA and a DC pension/SIPP .

The pension has a tax advantage but the disadvantage is that the money is tied up until you are 55 . As you are both have already reached this age , then this disadvantage disappears.

You have not mentioned how her pension is invested ? Is this something you have actually looked into ( many people do not ) ?

Tony4625

Albermarle said:

Or would putting some money into a  stock & shares  ISA be a better option ?

To be clear you can have the same ( or similar) investments in  a S&S ISA and a DC pension/SIPP .

The pension has a tax advantage but the disadvantage is that the money is tied up until you are 55 . As you are both have already reached this age , then this disadvantage disappears.

You have not mentioned how her pension is invested ? Is this something you have actually looked into ( many people do not ) ?

Thanks for your reply , my wife’s DC pension is in the process of being moved (by her firm ) to a L&G work / master trust . The consultation period is complete and will switch soon . She needs to decide what to invest in or just go into the default selection . She also received this letter concerning her tax free lump sum guarantee; looks like she would have been entitled to more than 25% tax free ?

Tony4625

xylophone said:

but invest £20k in something that is better than a bank account rate 

Had you considered paying off £20k of the mortgage and contributing the money saved to a pension?

Good point , just going through all the options .

Albermarle

Tony4625 said:

Albermarle said:

Or would putting some money into a  stock & shares  ISA be a better option ?

To be clear you can have the same ( or similar) investments in  a S&S ISA and a DC pension/SIPP .

The pension has a tax advantage but the disadvantage is that the money is tied up until you are 55 . As you are both have already reached this age , then this disadvantage disappears.

You have not mentioned how her pension is invested ? Is this something you have actually looked into ( many people do not ) ?

Thanks for your reply , my wife’s DC pension is in the process of being moved (by her firm ) to a L&G work / master trust . The consultation period is complete and will switch soon . She needs to decide what to invest in or just go into the default selection . She also received this letter concerning her tax free lump sum guarantee; looks like she would have been entitled to more than 25% tax free ?

Yes it does , but not clear how much more than 25%. Probably not a large % more . Anyway it seems there will be some compensation for the loss , so probably not a big deal .
Regarding the investment , there are typically two types of default fund . One is a medium risk , middle of the road type fund . Usually around 50 to 60% equity content, although there is some variability from provider to provider. The other type is a so called Lifestyle default fund ( sometimes have different names ) that derisks as you approach retirement age . Two things to watch with these. They seem generally to derisk too much, especially if you intend keeping the pension for many years. They use a retirement date that is in their system , that you can change . This may or may not be when you actually intend to retire.