Retirement planning at aged 39

DietIrnBru

I've recently become an avid fan of James Shack - Personal Finance youtuber - and his vid looking at investment strategy and pension planning. It has had the sobering effect of making me face my own mortality and the realisation I need to start seriously planning for this lest I be swept along and find poverty at retirement.

My personal preference is to use a mix of saving vehicles - I'm at present enrolled in the NHS pension which I've been a member of since 2015 (I had not paid into a pension prior) - I was on a full time wage until January when I dropped to 22.5 hours a week albeit I do regular bank shifts (I value the flexibility for my own mental health given the relentless pace of nursing). I also pay into a personal pension via my nursing agency employer whom I do ad hoc shifts with - my own personal contribution pre tax is 9% and the employer contributes 5%. NHS contribution is a set 9%.

I've a preference for a mixed approach - I like the flexibility of a S&S ISA, my Lifetime ISA (leftover from the house purchase) and savings. I pay £25 pcm into my Lifetime ISA held in Dodl and is invested in a Vanguard Lifestrategy 80:20 fund - the hope ot have a lump sum investment come 60.

I am predominantly a basic rate tax payer - but due to overtime during covid and last year - I've tipped into a higher tax band - just. This may not last as there is less overtime available. But I'm aware that the pension would beat the Lifetime ISA due to tax relief if this 40% tax bracket continued.

My employers are as follows:

NHS - tax code - S1074L - adjusted for previous tax year underpayments

NHS Bank - SD1 - adjusted for previous tax year underpayments

Agency 1 - SD0 - uses the Peoples Pension

Agency 2 - SD0 - uses Now Pensions

No one job exceeeded the higher tax band - its only when I received my end of tax year notification from HMRC that the underpayment was identified and changes made to tax code.

I would probably like to make additional contributions via BACS to the Peoples Pension (increased my contributions via my salary wouldnt be regular as the shifts are not regular) or buying additional pension witth the NHS scheme - probably more rewarding but a more rigid payment plan. Only other option is to contribute to the LISA. Any thoughts?

In an ideal world I'd like to be part time by 50 and retire at 55 - but that wont just happen due to happy tnoughts - hence the reach out for the experiences and insights of others in their plan for retirement.

Dazed_and_C0nfused

The tax underpayment doesn't have any impact on your tax rates and tax code SD1 simply means that Scottish higher rate tax will be deducted, it's not an adjustment for tax owed from a previous tax year(s).

Higher rate tax relief on pension contributions is hard to beat so keeping track of exactly how close you are to the higher rate band and if you are in danger of becoming a higher rate payer is key so you can make sure you contribute to a pension ahead of the other options, at least until you have extinguished any higher rate liability.

This can have the added benefit of making you eligible for Marriage Allowance or an increased savings nil rate band (£1,000 instead of £500).

El_Torro

You say you want to retire at 55. You will only be able to access your pension at 57 (perhaps 58) and it’s a good idea to not access your LISA until you’re 60 (you can access it earlier but with a penalty). Waiting 2 or 3 years to get your pension after you retire is not the end of the world, though you might want to look at investing something into an ISA to allow for a pretty early retirement. 

Doctor_Who

Dazed_and_C0nfused said:

The tax underpayment doesn't have any impact on your tax rates and tax code SD1 simply means that Scottish higher rate tax will be deducted, it's not an adjustment for tax owed from a previous tax year(s).

Higher rate tax relief on pension contributions is hard to beat so keeping track of exactly how close you are to the higher rate band and if you are in danger of becoming a higher rate payer is key so you can make sure you contribute to a pension ahead of the other options, at least until you have extinguished any higher rate liability.

This can have the added benefit of making you eligible for Marriage Allowance or an increased savings nil rate band (£1,000 instead of £500).

I agree that HR tax relief on pension contributions is hard to beat, especially @ 42%! Also, we have the odd situation in Scotland where you can be a HR tax payer (income above £43,663) and have a £1000 PSA (the PSA is calculated using the UK HR tax band of £50,270). Tax is more taxing up here!

Bostonerimus1

Don't restrict yourself to a single guru. Do your own research and reading. Head over to

https://www.bogleheads.org/wiki/Investing_from_the_UK

and have a read there as another source, but don't stop there. If you are going to retire early you need to save and invest as much as you possibly can so you must also understand and control your spending via a budget. You might want to head check out

https://www.mrmoneymustache.com/

To retire early you need some way to bridge the gap between retirement and pensions starting so ISAs, cash savings, general investment accounts and income generators like rental property might be useful.

r6mile

If you are a HR taxpayer, then I would suggest no longer paying into the LISA, and perhaps putting that into a pension instead as the 42% tax relief is greater than the government bonus. And it will be accessible at 57/58 rather than 60.

Can you make lump sums into any of your workplace pensions? If not then opening a SIPP would work.

Albermarle

I would probably like to make additional contributions via BACS to the Peoples Pension (increased my contributions via my salary wouldnt be regular as the shifts are not regular) or buying additional pension witth the NHS scheme - probably more rewarding but a more rigid payment plan. Only other option is to contribute to the LISA. Any thoughts?

Firstly I hope the LISA is a Stocks and Shares one rather than a cash one, due to the long time scale involved?

Also have you looked into how your Peoples Pension is invested.? I think they have a choice of about 10? funds. If you have not chosen one, then you will be in the default fund, which may or may not be the best.

DietIrnBru

Many thanks for the responses.

My NHS pension does allow additional pension to be bought as a lump sum or monthly payments. The lump sum is out as I don't have the cash available. The monthly payment plan is very rigid and dependent on not being off ill - thats a big ask given the toll the job takes - I'm lucky to not have been incapacitated back wise or general ill health. It also requires the regular payments to be made over years - no idea if I would be with the employer that long.

My Peoples Pension with Ageny 1 does allow for me to increase my personal contribution % which i did, it now stands at 9%, same as the NHS rate. The irregular nature of the agency work means that this is not a regular contribution. I have considered regular additional contributions via BACS standing order - but having looked at the fees charged by Peoples Pension versus a SIPPs in providers such as Vanguard and Fidelity, it appears cheaper to pay into the SIPPS and select a buy and forget product like Lifestrategy or a Global Index tracker.

My Lifetime iSA is a S&S - it was with Moneybox but I am in the process of moving it to Dodl for the cheaper fee structures - it will end up in a HSBC global tracker index fund.

My Peoples Pension was switched to 100% shares - it was previoulsy default balanced - but I made the switch over a year ago.

I've currently got a S&S ISA with Fidelity and contribute around £100 with a view to medium term savings. In addition to lump sums, I also make use of regular saver accounts. I plan to use some of the lump sums saved up to pay down the mortgage prior to renewal in 2025 to keep my monthly repayments down (current mortgage rate is 2,14 so my cash is in savings till then).

Albermarle

 I have considered regular additional contributions via BACS standing order - but having looked at the fees charged by Peoples Pension versus a SIPPs in providers such as Vanguard and Fidelity, it appears cheaper to pay into the SIPPS and select a buy and forget product like Lifestrategy or a Global Index tracker.

Peoples pension charges 0.5% all in, with discounts from zero to 0.3% if you have £50K with them, with varying levels of discount between £3K and £50K.
Fidelity platform charge is 0.35% + the investment cost
Vanguard platform charge is 0.15% + the investment cost ( 0.22% for a Lifestrategy fund)

DietIrnBru

Albermarle said:

 I have considered regular additional contributions via BACS standing order - but having looked at the fees charged by Peoples Pension versus a SIPPs in providers such as Vanguard and Fidelity, it appears cheaper to pay into the SIPPS and select a buy and forget product like Lifestrategy or a Global Index tracker.

Peoples pension charges 0.5% all in, with discounts from zero to 0.3% if you have £50K with them, with varying levels of discount between £3K and £50K.
Fidelity platform charge is 0.35% + the investment cost
Vanguard platform charge is 0.15% + the investment cost ( 0.22% for a Lifestrategy fund)

The Peoples Pension charges 0.5% management charge by default - albeit its 0.4% for my pension is over £3000 - also throw in an annual £2.50 charge. So my reading is that the People’s Pension win with a cheaper annual charge but more expensive management charge - until higher sums are in the pension (a long way off).

Albermarle

DietIrnBru said:

Albermarle said:

 I have considered regular additional contributions via BACS standing order - but having looked at the fees charged by Peoples Pension versus a SIPPs in providers such as Vanguard and Fidelity, it appears cheaper to pay into the SIPPS and select a buy and forget product like Lifestrategy or a Global Index tracker.

Peoples pension charges 0.5% all in, with discounts from zero to 0.3% if you have £50K with them, with varying levels of discount between £3K and £50K.
Fidelity platform charge is 0.35% + the investment cost
Vanguard platform charge is 0.15% + the investment cost ( 0.22% for a Lifestrategy fund)

The Peoples Pension charges 0.5% management charge by default - albeit its 0.4% for my pension is over £3000 - also throw in an annual £2.50 charge. So my reading is that the People’s Pension win with a cheaper annual charge but more expensive management charge - until higher sums are in the pension (a long way off).

If you had a VLS fund on The Vanguard platform is would cost 0.37% in total
With Fidelity 0.57% 
PP is 0.4% + £2.50 ( = around 0.05%)

In reality these are minor differences, and how the investment funds you pick in any of them perform is much more important.
For example if you had £5000, the difference in cost between Vanguard and PP , is £4 per year. 
The investment could easily move £250 in a day ( up or down)