Pension Planning for future

twopointfour1980

Hi all

I'm 42, my partner is 39.
I have about £60k in personal pensions and about £3k in CARE pension. My partner doesn't have much pension to speak of.

Currently earn £85k a year and have £280k remaining on mortgage. partner earns about £10k a year and on workplace pension.

Wish I was further along but a multitude of factors in my life so far have presented this and want to take action now.

My employer will pay 5% to pension. I was planning on paying around 15%. 
When i run it through a calculator, this would earn about £40k a year pension (including my partner's and my state pension) with a lump sum at 55 of c.£150k which would be about the balance of the mortgage without any overpayments. This would be a good sum for us to retire on if we can achieve it.

To me, given the time I have left to build this, this approach seems quite pragmatic but I'm not sure if I'm missing out on anything obvious? 

I would like to retire early but accept that this may not be possible (young kids as well) so am resigned to working to 68 but if there was a better investment route that could be looked at, would be interested to hear. I don't have a particularly high risk appetite.

We have cash savings of around £12k between premium bonds and Stocks and Shares ISA and no debt other than mortgage.

Thanks

Albermarle

For a high earner, contributing spare money to a pension is usually a bit of a no brainer, due to the very generous 40% tax relief you get. 
A £60K pot at 42 is on the low side, especially considering your salary, so increasing contributions to 15% looks to be a good move all round.

When i run it through a calculator, this would earn about £40k a year pension (including my partner's and my state pension) with a lump sum at 55 of c.£150k which would be about the balance of the mortgage without any overpayments

Are the current contributions to a DC scheme, and not the CARE scheme? In which case predicting what pension it will produce is quite difficult, with quite a range of possible outcomes.

 I don't have a particularly high risk appetite.

With a timescale of over 20 years, this will probably restrict what returns /pension you can get.

eskbanker

twopointfour1980 said:

I'm 42, my partner is 39.
I have about £60k in personal pensions and about £3k in CARE pension. My partner doesn't have much pension to speak of.

Currently earn £85k a year and have £280k remaining on mortgage. partner earns about £10k a year and on workplace pension.

Wish I was further along but a multitude of factors in my life so far have presented this and want to take action now.

My employer will pay 5% to pension. I was planning on paying around 15%. 
When i run it through a calculator, this would earn about £40k a year pension (including my partner's and my state pension) with a lump sum at 55 of c.£150k

What are the calculations resulting in the £40K and how does it break down?  If you're planning annual contributions of £17K from now, with relatively modest provision thus far, and assuming state pensions of circa £20K at 68, drawing down £20K annually (plus £150K lump sum in 13 years time) from other pensions sounds ambitious?

twopointfour1980

I used the hargreaves lansdown calculator. Might be a bit broad brush stroke and perhaps too optimistic?

I input 85k income, 60k existing pot, and 15% contributions and retiring at 68.
It comes out with total pension pot of 649k, tax free cash of 162k and annual income of £44k including state pension. What I may have misread is that the tax free lump sum is paid at 68?

twopointfour1980

Albermarle said:

For a high earner, contributing spare money to a pension is usually a bit of a no brainer, due to the very generous 40% tax relief you get. 
A £60K pot at 42 is on the low side, especially considering your salary, so increasing contributions to 15% looks to be a good move all round.

When i run it through a calculator, this would earn about £40k a year pension (including my partner's and my state pension) with a lump sum at 55 of c.£150k which would be about the balance of the mortgage without any overpayments

Are the current contributions to a DC scheme, and not the CARE scheme? In which case predicting what pension it will produce is quite difficult, with quite a range of possible outcomes.

 I don't have a particularly high risk appetite.

With a timescale of over 20 years, this will probably restrict what returns /pension you can get.

If I was to take a more risky approach, would investing maximum is stocks and shares ISA be representative of that? I accept the difference in risk and understand the factors. 
I would be willing to split my investment to say split between pension payments and investing in ISA or similar.

I'm paying into a DB, my CARE is historic.

I appreciate the limitations with time so not expecting a crazy pension income but would like to make the most of what time there is left.

I would be willing to increase retirement % to up to 17 or 18 perhaps if that helps

retiringtoosoon

Have you thought about putting 50% of your salary in?

Simon11

If I was you (and I earn similar amount plus similar family
lifesyle albeit younger), I would challenge you to put all your  income that is taxed over 40% into your pension. 

Well worth running a scenario of putting in £17k per year and then £35k to reduce your income to £50k. While it is scary to see your income drop by a further £18k, the reality is that it will only cost you around £9-10k thanks to savings in income tax and NI. Plus with children, you may be able to receive child benefit?

Without making major sacrifices now, you could well need to work till 68, which is 26 years away and thus means you aren't even half way through your working career.

Well worth thinking about your priorities with your partner and decide which path to take.

twopointfour1980

Simon11 said:

If I was you (and I earn similar amount plus similar family
lifesyle albeit younger), I would challenge you to put all your  income that is taxed over 40% into your pension. 

Well worth running a scenario of putting in £17k per year and then £35k to reduce your income to £50k. While it is scary to see your income drop by a further £18k, the reality is that it will only cost you around £9-10k thanks to savings in income tax and NI. Plus with children, you may be able to receive child benefit?

Without making major sacrifices now, you could well need to work till 68, which is 26 years away and thus means you aren't even half way through your working career.

Well worth thinking about your priorities with your partner and decide which path to take.

That is a scary leap but I get the logic. I'll do some scenarios for sure and discuss with my partner.
One factor is that we have a fairly high outlay at the moment in terms of monthly outgoings. Mortgage is about 1300 a month and with food and petrol it's at 2k without even looking at council tax, utilties, insuances etc..

That's not to say that I don't see the value. 

Would you invest the whole 35k in pension or split it? I guess the tax relief on pension is a big incentive for that route? 

I'd never thought about child benefit either with going back under the 50k.

Bimbly

twopointfour1980 said:
If I was to take a more risky approach, would investing maximum is stocks and shares ISA be representative of that? I accept the difference in risk and understand the factors. 

I would be willing to split my investment to say split between pension payments and investing in ISA or similar.

With regard to risk, I believe previous poster was referring to the investments within the pension.

Certainly nothing wrong with investing in an ISA, but tax relief on pension contributions makes pension so much more attractive. As you are saving for retirement - and are a 40% taxpayer - pension trumps ISA.

twopointfour1980

Bimbly said:

twopointfour1980 said:
If I was to take a more risky approach, would investing maximum is stocks and shares ISA be representative of that? I accept the difference in risk and understand the factors. 

I would be willing to split my investment to say split between pension payments and investing in ISA or similar.

With regard to risk, I believe previous poster was referring to the investments within the pension.

Certainly nothing wrong with investing in an ISA, but tax relief on pension contributions makes pension so much more attractive. As you are saving for retirement - and are a 40% taxpayer - pension trumps ISA.

Thank you

twopointfour1980

Am I thinking this through right?

If I contribute 15% through employer pension this would leave me with take home of 4,224 per month

To get back to 50k for child benefit I would need to contribute 28k per year to my employer pension which would then be grossed up by 20% to 35k.

This would mean I have 3,462 take home salary.

This is a difference of 763 pounds.

Child 1 benefit Equals 1248 per year
Child 2 benefit Equals 826.80

Total child benefit equals 2074.80 which is 173 per month.

Plus on a self assessment I could then claim an additional 20% tax relief of 7000 on tax return. Not sure if this would be paid out or adjusted on my tax code? - I think you can elect if I remember rightly?
The 7k is 584 per month

584 plus the 173 comes back very close to the 763 less on higher contributions.

This means overall that I'm actually no worse off despite putting in 33% to my pension?!  Just the timing of the 7k to factor in as I guess that would be January 2025 assuming that I start in the next month or two.

Haven't got as far as pension comparison yet on the %'s but wanted to see if my logic made sense?