Pension or ISA...?

artyboy

Long time lurker etc... interested in People's thoughts, so my pension situation:

- 4 different schemes, 3 DC totalling about £860k, 1 DB that is likely to account for about another £60k of LTA at its SRA.
- Still paying in 40k/year through current employers scheme.
- already maxed out state pension, can't increase my forecast
-  8 years till I can access these (@57), (DB scheme would have a slight reduction at that age).
- am in the 45% tax bracket but not at the point where affected by pension tapering.

I have no desire to work another 8 years, but am a bit short on ISA and other investments to bridge the gap. And now thinking I'm likely to overshoot LTA, even if I didn't pay another penny in to a pension.

However, employer does salsac and generous matching, which I get the benefit of up to about £24k a year in combined contributions - so even with LTA tax penalties, that makes sense to continue.

Plan therefore is to reduce pension cons by about £16k, and put the taxed take home equivalent into cash ISAs to get me through until I hit the magic 57...

The downside of course is that a cash isa is guaranteed to lose significant value to inflation in the current environment, but if I want to use it within 5 years, conventional wisdom suggests investing it is not a good idea either. So it's a case of the least worst option I think.

Any thoughts, suggestions or requests for more information welcome.

Cheers
Arty

NedS

artyboy said:

Plan therefore is to reduce pension cons by about £16k, and put the taxed take home equivalent into cash ISAs to get me through until I hit the magic 57...

Do any of your DC schemes have protected rights to access them at age 55? Some providers (Fidelity I believe) have said that SIPPs opened before the deadline retain access at age 55 - which could help you in bridging the gap.

MX5huggy

What’s your required income in retirement? Because at the moment you seem to be earning £150k plus yet not filling your ISA each year! 

artyboy

MX5huggy said:

What’s your required income in retirement? Because at the moment you seem to be earning £150k plus yet not filling your ISA each year! 

Fair question - for greater context, I've got about £100k in ISAs (was a LOT more but for personal reasons I won't bore you with it ended up getting used a few years back).

And for even more context, am married and Mrs Arty is in a very very similar situation with pension and ISA values. 

(And NedS - no protected rights at 55 I'm aware of, biggest one Nutmeg has confirmed, as has occupational scheme, and think I read on here something about Vanguard being the same? same goes for Mrs Arty)

We figure we can run along on about £75k (pretax) pension between us, so drawdown will be in the 3-4% range - which I'm ok with and of course will be helped when SP kicks in..

ISAs as things stand have taken a back seat because we are fully funding kids through Uni for next few years, and I think that's the point of the thread - a realisation that it's the liquid assets that are being deprioritised over the illiquid ones - so need to rebalance pension cons over to ISAs.

Fag packet calculation says if we can both find a way to max ISAs for 3-4 more years, that's us done and dusted and off sailing around the world...

Albermarle

However, employer does salsac and generous matching, which I get the benefit of up to about £24k a year in combined contributions - so even with LTA tax penalties, that makes sense to continue.

Yes makes sense to continue at this reduced level. 

ISAs as things stand have taken a back seat because we are fully funding kids through Uni for next few years

Normally it is better for students to take out Student Loans, as they may never have to be paid back, in full anyway. They probably still need some help but obviously significantly less if they take out the full loan available. Even if they are likely to be higher earners ( when it can make sense not to take all the loan), you could have taken the loans, kept the ISA's, retired early and then paid off the loans later with the tax free cash from the pensions. Just a thought.

artyboy

Thanks Albermarle, I've tried replying quoting you twice now and it's lost my text in the process... not sure if this site has a bug, but anyway, funding the kids was also a bit of early estate planning on our part, and not just an impulse decision. Plus their attitude seems to be that if they are spending the time/money on a degree, they want decent professional careers from it. So I'm not minded to saddle them with an extra graduate tax.

And even with the interest rate cap that was put in place now inflation is out of control, not sure I'd trust my investments to keep up with that in order to be able to pay it off later!

HCIMbtw

Arty I would definitely check the point about protected rights to access at 55 with each of the providers. 

Vanguard for example would have 55 age of access for SIPPs opened before rule changes. 

Could make your planning and bridging much much simpler. 

EdSwippet

artyboy said:

I have no desire to work another 8 years, but am a bit short on ISA and other investments to bridge the gap. And now thinking I'm likely to overshoot LTA, even if I didn't pay another penny in to a pension.

An additional thought ... what is your current asset mix? If you hold both stocks and bonds/gilts, the expected returns on these differs. Specifically, stocks are more volatile but with expected higher returns over time.

By prioritising stocks in ISAs (and even perhaps unwrapped trading accounts) and bonds/gilts in pensions, you might be able to keep an identical risk profile but at the same time damp down any problems with exceeding the LTA.

artyboy

Not even going to try and quote given problems I had yesterday, so...

HCIMbtw - thanks, I will double check at some point, but I got an explicit confirmation that it's 57 from Nutmeg (I've got some sort of relationship manager there as it's my biggest pot, so I'm assuming he had a clue about this...). And same from WTW who administer my work scheme. I thought I'd seen a thread on here that mentioned Vanguard but maybe I was wrong. I rather suspect that my little DB scheme might be accessible at 55, but that's way down my priority list...

EdSwippet - Nutmeg is risk level 8, so largely equities (although they are slightly overweight on cash right now apparently). Vanguard is a 100% world equity tracker, and work pension is a mix of equity funds, with a slant towards US and sustainable (and the latter really has underperformed relative to the others). Ironically I had a lot in gilts for much of my early career, and by sheer luck, they did very well. Equally by sheer luck I'm virtually out of fixed income now.

ISA is mostly the same Vanguard equity fund but with some cash that I had transferred in but haven't yet invested. Thinking now that it might be sensible to move that back into an interest bearing cash ISA, but not decided yet... will definitely need to rebalance a bit over the coming years so that I have a stable cash buffer to start drawing down, both ISA and pension...

dunstonh

Arty I would definitely check the point about protected rights to access at 55 with each of the providers. 

Protected rights no longer exist.  Any protected rights were automatically changed to non-protected rights.

artyboy

Oh hell, I'm officially a muppet. Having gone into my works pension portal today to make the adjustments, it turns out I totally miscalculated... the £24k I was going to reduce my contribution to, turns out to be the amount my employer contributes... but only if I contribute on top (yes I know it's all 'employer contributions' with salary sacrifice, but you know what I mean...)

So the upshot is that it make absolutely no sense to reduce, except by a tiny bit, that's hardly going to help the ISA situation.

Oh well, drawing board time. Might just can it for this year, should have enough coming out of a sharesave scheme in 23/24 that will cover our ISAs. Somehow I suspect we'll work it out