Pension Newbie

t2rry

Hi all,  this is my first foray into the pension boards, please be gentle with me!!!

I am a long time (and successful!) Debt-Free Wannabe and I'm trying to get myself and OH sorted for the future so would love some help/knowledge!

Here's the situation:

Both OH (early 40s) and I (mid 30s) are basic rate taxpayers, though both knocking at the door of the higher rate bracket.

OH is a long serving employee with a good pension and over 15 years contributions.  Currently worth circa £11k pension income per annum.
I now have a good pension scheme but only a few years contributions.  Currently worth circa £2,500 pension income per annum.
I also have 2 old employer pension pots worth circa. £2k combined.

We have no debt except a mortgage.
We have an emergency fund in premium bonds.
I opened a S&S ISA a couple of months ago to start doing something towards more formal savings for the future.  We put £500pcm into that.

We do have medium term plans for a house extension (or a move, though that's less likely), so I want some flexibility in our savings to enable that if/when we get to that point.  Our mortgage is fixed for another 4 years but may want to extend before that (the house, not the mortgage!).  Equally we may be content to wait until then to do so.

We have a disposable income, after all expenses, of around £1,500pcm.  This is after the £500 S&S ISA contribution.
The only thing this doesn't include is the occasional holiday (usually once per year and usually done with one month's disposable, around £2k)

We are very conscious spenders, I wouldn't go so far as to say we live frugally for this nowadays (we certainly used to) but I track every penny we spend and we are not frivolous in any way.  I have no intention of adjusting our standard of living, we appreciate how lucky we are to be in this position and think we have a good balance between living and saving, having worked quite hard to maximise the difference between our monthly income and outgoings.

We also have 2 kids under 8 for whom we save a nominal amount each month.  We could increase this, but I know I don't want Junior ISAs for them as I want to retain control over the funds beyond their 18th birthdays.  I don't know whether keeping their savings separate is worthwhile or not given this.

Should we be contributing to SIPPs?  Up the ISA contribution?  Open a Lifetime ISA (I know OH is too old for this but I could)? Split savings between one or more of these plus shorter term fixed savings accounts for the house extension funds?  

I like having a plan.  I am good with money and dare I say not un-intelligent, but it all does baffle me a little at this point because there are so many options and so many variables.  Obviously I wish we had both been better savers earlier in life, but making the best of it now hopefully.

Any advice / tips very welcome!!! THANK YOU!

tacpot12

The first think to check is whether you can put any more into your work pension. This could be especially valuable if your employer matches the additional payments. 

I would think that with your house extension plans, you would be better to pay into ISAs, once you have maxed out what you can pay into your employer's pension(s) - your OH should also check if they can pay any more in. 

Once you have enough saved in ISAs for the move, you can then open SIPPs and channel the money to the SIPPs. I would recommend getting a SIPP for your OH unless they are going to run into Lifetime Allowance issues. (If Lifetime allowance is a concern, then revert to ISA. 

I've never bothered to under the benefit of LISAs so can't offer any advice on them. (I'm not eligible for a LISA). 

Dazed_and_C0nfused

OH is a long serving employee with a good pension and over 15 years contributions. Currently worth circa £11k pension income per annum.
I also have 2 old employer pension pots worth circa. £2k combined.

I now have a good pension scheme but only a few years contributions. Currently worth circa £2,500 pension income per annum.

The way you have outlined the pensions hints towards them being DB schemes.  Is that correct?

t2rry

Dazed_and_C0nfused said:

The way you have outlined the pensions hints towards them being DB schemes.  Is that correct?

Yes that's correct

Albermarle

tacpot12 said:

The first think to check is whether you can put any more into your work pension. This could be especially valuable if your employer matches the additional payments. You are lucky to be with employers with DB pensions, so make sure you are maximising the benefit.

I would think that with your house extension plans, you would be better to pay into ISAs, once you have maxed out what you can pay into your employer's pension(s) - your OH should also check if they can pay any more in. This depends on the time scale. If the house extension is within the next 5 years then cash savings will be safer.

Once you have enough saved in ISAs for the move, you can then open SIPPs and channel the money to the SIPPs. I would recommend getting a SIPP for your OH unless they are going to run into Lifetime Allowance issues. (If Lifetime allowance is a concern, then revert to ISA. 

I've never bothered to under the benefit of LISAs so can't offer any advice on them. (I'm not eligible for a LISA).
Later in the linked article is all the pros and cons between LISA and pensions.
 

Lifetime ISA (LISA): how they work & best buys - Money Saving Expert

I agree with most of this answer so will just add to it .

t2rry

Albermarle said:

tacpot12 said:

The first think to check is whether you can put any more into your work pension. This could be especially valuable if your employer matches the additional payments. You are lucky to be with employers with DB pensions, so make sure you are maximising the benefit.

I would think that with your house extension plans, you would be better to pay into ISAs, once you have maxed out what you can pay into your employer's pension(s) - your OH should also check if they can pay any more in. This depends on the time scale. If the house extension is within the next 5 years then cash savings will be safer.

Once you have enough saved in ISAs for the move, you can then open SIPPs and channel the money to the SIPPs. I would recommend getting a SIPP for your OH unless they are going to run into Lifetime Allowance issues. (If Lifetime allowance is a concern, then revert to ISA. 

I've never bothered to under the benefit of LISAs so can't offer any advice on them. (I'm not eligible for a LISA).
Later in the linked article is all the pros and cons between LISA and pensions.
 

Lifetime ISA (LISA): how they work & best buys - Money Saving Expert

I agree with most of this answer so will just add to it .

Thanks both.

My understanding is that I can buy additional pension, up to a limit of £6,500pa.
Otherwise I can top up with an AVC scheme.  I don't know if that means I/we should be doing that.
To take that maximum £6,500 would be a monthly contribution of £400-£500pcm for the next 15 years.  Of course there's no guarantee I'll remain in the same pension scheme for the remainder of my career.
OH and I are in the same pension scheme so same rules apply. 

The timescale for the extension is a big decision point, we're not sure yet, we could theoretically start that within the next 2-3 years if we want to concentrate on it, I guess if we figure that out the rest becomes easier to decide.  I guess we stick with cash savings until we know for sure.

appreciate the input, thank you

hara____

Have you also checked each of your national insurance records / state pension forecasts?

As you like having a plan, might be a good idea to work out how your state pensions, work pensions, and any private funds can work together to give you a firm foundation, e.g. the ages at which each will be available and the likely values.

Monevator's 'floor and upside' posts may give you additional food for thought:

https://monevator.com/the-most-important-goal-for-every-retiree/

Albermarle

If you were to try and buy today, a guaranteed pension of £6500 pa at age 65 with some kind of capped inflation link, it would cost you in excess of £200K ( a few months it would have been significantly more ) 

Paying £6K pa for 15 years, would cost you £90K. The calculation is a bit 'back of a fag packet' but it looks like it could be worthwhile.

If you can say which scheme it is, you might well get more accurate comments ( public sector ??) 

Dazed_and_C0nfused

Albermarle said:

If you were to try and buy today, a guaranteed pension of £6500 pa at age 65 with some kind of capped inflation link, it would cost you in excess of £200K ( a few months it would have been significantly more ) 

Paying £6K pa for 15 years, would cost you £90K. The calculation is a bit 'back of a fag packet' but it looks like it could be worthwhile.

If you can say which scheme it is, you might well get more accurate comments ( public sector ??) 

And that £90k could easily be a real cost of just £72,900 if your £500/month didn't factor in the tax saving you will normally make on that type of pension contribution.

SarahB16

Dazed_and_C0nfused said:

Albermarle said:

If you were to try and buy today, a guaranteed pension of £6500 pa at age 65 with some kind of capped inflation link, it would cost you in excess of £200K ( a few months it would have been significantly more ) 

Paying £6K pa for 15 years, would cost you £90K. The calculation is a bit 'back of a fag packet' but it looks like it could be worthwhile.

If you can say which scheme it is, you might well get more accurate comments ( public sector ??) 

And that £90k could easily be a real cost of just £72,900 if your £500/month didn't factor in the tax saving you will normally make on that type of pension contribution.

I was just about to make a very similar comment.  If after your existing pension deductions your taxable pay is taxed at 40% then paying the £500 per month would actually only have a real cost of £300 per month.  

However, personally if I were in your shoes, then for the time being the only commitment/payment I would wish to make is to ensure I was not taxed at 40%, i.e. reduce your taxable pay to the 19% tax bracket via AVCs.  Keep this ticking along until you know more re your house extension, etc but at least for every £60 you've had deducted from your net pay there's been £100 AVCs made.  

SarahB16

What I'm not sure about and I think this may help in other people sharing their thoughts with you is how much do you think the extension will cost you?  Have you had any quotes to give you an approximate idea of the cost and have you thought about how you will fund the extension?

That seems to be the most important factor I think.