Should I increase my pension contributions?

Guard27

Hi,
I posted a while ago when I was in quite a rut financially and I was asking advice to locate my pensions. I have followed all the steps and now is a much better position than a few years ago. I have managed to track down 2 of my pensions them. One is still elusive.

I am currently 42 (nearly 43).

I am on track for a full state pension.

I have a current pension of £67k from previous employment and a smaller pot of about £8k.

I have returned to work am currently in a work pension whereby they pay 10% of my salary. I am working to your age divided by 2 and so salary sacrifice 11%. I earn 65k a year and last year got a 12.5k bonus (max I can get is £16.24k). So currently paying in £1375 ish a month. Mid rate projections are an annuity of 27,500 a year. I have only had this pension as little over a year. I plan to work until retirement age. Thankfully I love my job.

I am just looking to fix my mortgage for 10 years by which time it will be paid off. The rate jump is huge, but I have sold an investment property to reduce the outstanding balance. I have been overpaying but I think it would be better to just let the mortgage be paid off by the time I’m 53 and leave it as it is. My job is very safe and I have no plans to move house. Currently my house is worth about 1.2million. Have no issue with downsizing when the time comes. We have 20k in savings as an emergency funds and no other debts.

I am married and my husbands job (company) is clinging on with its fingernails. He has just a standard nest pension worth next to nothing and an investment property (worth about 200k) that pays £750 a month in rent (this will be his main retirement income). He will have full state pension.

I am working out my budget but just can’t get my head around the best plan for my pension. I think ideally I want to get myself under the 40% tax bracket and put more into my pension to make the most of  the 20+ years I have to grow it.

Can anyone help me with the maths? How much % will I need to pay in to my work pension to get under the tax bracket? What will my contribution as a comparable to what I will take home. How would my bonus impact it? I can sacrifice my bonus but use that to pay for my family holiday.  Would this mean I might end up paying 40% as a retiree? If that is the case, can I offset that in some way to my husband a he won’t have much of a private pension?

I want to have control over my future after quite a few years of being cash rich and living for the now. 

Any advice would be greatly appreciated 

cloud_dog

Guard27 said:

Hi,
I posted a while ago when I was in quite a rut financially and I was asking advice to locate my pensions. I have followed all the steps and now is a much better position than a few years ago. I have managed to track down 2 of my pensions them. One is still elusive.

I am currently 42 (nearly 43).

I am on track for a full state pension.

I have a current pension of £67k from previous employment and a smaller pot of about £8k.

I have returned to work am currently in a work pension whereby they pay 10% of my salary. I am working to your age divided by 2 and so salary sacrifice 11%. I earn 65k a year and last year got a 12.5k bonus (max I can get is £16.24k). So currently paying in £1375 ish a month. Mid rate projections are an annuity of 27,500 a year. I have only had this pension as little over a year. I plan to work until retirement age. Thankfully I love my job.

I am just looking to fix my mortgage for 10 years by which time it will be paid off. The rate jump is huge, but I have sold an investment property to reduce the outstanding balance. I have been overpaying but I think it would be better to just let the mortgage be paid off by the time I’m 53 and leave it as it is. My job is very safe and I have no plans to move house. Currently my house is worth about 1.2million. Have no issue with downsizing when the time comes. We have 20k in savings as an emergency funds and no other debts.

I am married and my husbands job (company) is clinging on with its fingernails. He has just a standard nest pension worth next to nothing and an investment property (worth about 200k) that pays £750 a month in rent (this will be his main retirement income). He will have full state pension.

I am working out my budget but just can’t get my head around the best plan for my pension. I think ideally I want to get myself under the 40% tax bracket and put more into my pension to make the most of  the 20+ years I have to grow it.

Can anyone help me with the maths? How much % will I need to pay in to my work pension to get under the tax bracket? What will my contribution as a comparable to what I will take home. How would my bonus impact it? I can sacrifice my bonus but use that to pay for my family holiday.  Would this mean I might end up paying 40% as a retiree? If that is the case, can I offset that in some way to my husband a he won’t have much of a private pension?

I want to have control over my future after quite a few years of being cash rich and living for the now. 

Any advice would be greatly appreciated 

Ok, I'll have a starter for 10...

I think your pension position looks a little on the weak side.  I appreciate you have said that you could downsize your home to free up some capital in the future, but these routes often times do not realise as much spare capital as we had hoped.  The important thing is that you prioritise your pension and that you have a fair number of years to remedy the situation.

Fidelity offer some useful guides that help you put your position in to a little more context, especially the 'Power of 7' (another rough rule of thumb):

https://retirement.fidelity.co.uk/retirement-savings-guidelines/#/

eastcorkram

cloud_dog said:

Guard27 said:

Hi,
I posted a while ago when I was in quite a rut financially and I was asking advice to locate my pensions. I have followed all the steps and now is a much better position than a few years ago. I have managed to track down 2 of my pensions them. One is still elusive.

I am currently 42 (nearly 43).

I am on track for a full state pension.

I have a current pension of £67k from previous employment and a smaller pot of about £8k.

I have returned to work am currently in a work pension whereby they pay 10% of my salary. I am working to your age divided by 2 and so salary sacrifice 11%. I earn 65k a year and last year got a 12.5k bonus (max I can get is £16.24k). So currently paying in £1375 ish a month. Mid rate projections are an annuity of 27,500 a year. I have only had this pension as little over a year. I plan to work until retirement age. Thankfully I love my job.

I am just looking to fix my mortgage for 10 years by which time it will be paid off. The rate jump is huge, but I have sold an investment property to reduce the outstanding balance. I have been overpaying but I think it would be better to just let the mortgage be paid off by the time I’m 53 and leave it as it is. My job is very safe and I have no plans to move house. Currently my house is worth about 1.2million. Have no issue with downsizing when the time comes. We have 20k in savings as an emergency funds and no other debts.

I am married and my husbands job (company) is clinging on with its fingernails. He has just a standard nest pension worth next to nothing and an investment property (worth about 200k) that pays £750 a month in rent (this will be his main retirement income). He will have full state pension.

I am working out my budget but just can’t get my head around the best plan for my pension. I think ideally I want to get myself under the 40% tax bracket and put more into my pension to make the most of  the 20+ years I have to grow it.

Can anyone help me with the maths? How much % will I need to pay in to my work pension to get under the tax bracket? What will my contribution as a comparable to what I will take home. How would my bonus impact it? I can sacrifice my bonus but use that to pay for my family holiday.  Would this mean I might end up paying 40% as a retiree? If that is the case, can I offset that in some way to my husband a he won’t have much of a private pension?

I want to have control over my future after quite a few years of being cash rich and living for the now. 

Any advice would be greatly appreciated 

Ok, I'll have a starter for 10...

I think your pension position looks a little on the weak side.  I appreciate you have said that you could downsize your home to free up some capital in the future, but these routes often times do not realise as much spare capital as we had hoped.  The important thing is that you prioritise your pension and that you have a fair number of years to remedy the situation.

Fidelity offer some useful guides that help you put your position in to a little more context, especially the 'Power of 7' (another rough rule of thumb):

https://retirement.fidelity.co.uk/retirement-savings-guidelines/#/

OP is thinking about being a 40% tax payer in retirement, and you think their position is weak. I'm not sure  which is right!

Albermarle

OP- IF you approx double your current salary sacrifice % this will mean you will pay no/very little 40% tax on your basic salary. However you would still pay it on your bonus.

You need a pretty big pension pot to end up paying 40% tax in retirement. Normally ( but not exclusively) that tends to be people with large DB ( final salary ) pension like consultants, senior civil servants etc .

It makes sense to balance pensions better between spouses. The main advantage is that you can both take full advantage of the Personal allowance when retired. If he has a small pension and before he gets the state pension, he will 'waste' some of his personal allowance.
On the other hand you get 40% tax relief, so its a balance.

cloud_dog

eastcorkram said:

cloud_dog said:

Guard27 said:

Hi,
I posted a while ago when I was in quite a rut financially and I was asking advice to locate my pensions. I have followed all the steps and now is a much better position than a few years ago. I have managed to track down 2 of my pensions them. One is still elusive.

I am currently 42 (nearly 43).

I am on track for a full state pension.

I have a current pension of £67k from previous employment and a smaller pot of about £8k.

I have returned to work am currently in a work pension whereby they pay 10% of my salary. I am working to your age divided by 2 and so salary sacrifice 11%. I earn 65k a year and last year got a 12.5k bonus (max I can get is £16.24k). So currently paying in £1375 ish a month. Mid rate projections are an annuity of 27,500 a year. I have only had this pension as little over a year. I plan to work until retirement age. Thankfully I love my job.

I am just looking to fix my mortgage for 10 years by which time it will be paid off. The rate jump is huge, but I have sold an investment property to reduce the outstanding balance. I have been overpaying but I think it would be better to just let the mortgage be paid off by the time I’m 53 and leave it as it is. My job is very safe and I have no plans to move house. Currently my house is worth about 1.2million. Have no issue with downsizing when the time comes. We have 20k in savings as an emergency funds and no other debts.

I am married and my husbands job (company) is clinging on with its fingernails. He has just a standard nest pension worth next to nothing and an investment property (worth about 200k) that pays £750 a month in rent (this will be his main retirement income). He will have full state pension.

I am working out my budget but just can’t get my head around the best plan for my pension. I think ideally I want to get myself under the 40% tax bracket and put more into my pension to make the most of  the 20+ years I have to grow it.

Can anyone help me with the maths? How much % will I need to pay in to my work pension to get under the tax bracket? What will my contribution as a comparable to what I will take home. How would my bonus impact it? I can sacrifice my bonus but use that to pay for my family holiday.  Would this mean I might end up paying 40% as a retiree? If that is the case, can I offset that in some way to my husband a he won’t have much of a private pension?

I want to have control over my future after quite a few years of being cash rich and living for the now. 

Any advice would be greatly appreciated 

Ok, I'll have a starter for 10...

I think your pension position looks a little on the weak side.  I appreciate you have said that you could downsize your home to free up some capital in the future, but these routes often times do not realise as much spare capital as we had hoped.  The important thing is that you prioritise your pension and that you have a fair number of years to remedy the situation.

Fidelity offer some useful guides that help you put your position in to a little more context, especially the 'Power of 7' (another rough rule of thumb):

https://retirement.fidelity.co.uk/retirement-savings-guidelines/#/

OP is thinking about being a 40% tax payer in retirement, and you think their position is weak. I'm not sure  which is right!

They appear asset wealthy (lets put it that way), but from the information provided (early 40s, OP £67k, £8k, contributing £1375pm; partner £200k property / £750pm income, but little to no pension; the OPs own mid rate projection of £27500 pension pa).  Acknowledged the fact that they could downsize their £1.2m property, but sometimes this doesn't realise as much capital as people believe.  Additionally, as commented, they have time to mitigate their position.

I would be a little wary if the bulk of their retirement planning was simply based on the property idea.

retiringtoosoon

If it were me I’d be sticking in £30k into the pension each year leaving you a taxable income of just under £50k as a starting point. You can then look at your partners position and start to increase his pension provison

barnstar2077

Guard27 said:

Hi,
I posted a while ago when I was in quite a rut financially and I was asking advice to locate my pensions. I have followed all the steps and now is a much better position than a few years ago. I have managed to track down 2 of my pensions them. One is still elusive.

I am currently 42 (nearly 43).

I am on track for a full state pension.

I have a current pension of £67k from previous employment and a smaller pot of about £8k.

I have returned to work am currently in a work pension whereby they pay 10% of my salary. I am working to your age divided by 2 and so salary sacrifice 11%. I earn 65k a year and last year got a 12.5k bonus (max I can get is £16.24k). So currently paying in £1375 ish a month. Mid rate projections are an annuity of 27,500 a year. I have only had this pension as little over a year. I plan to work until retirement age. Thankfully I love my job.

I am just looking to fix my mortgage for 10 years by which time it will be paid off. The rate jump is huge, but I have sold an investment property to reduce the outstanding balance. I have been overpaying but I think it would be better to just let the mortgage be paid off by the time I’m 53 and leave it as it is. My job is very safe and I have no plans to move house. Currently my house is worth about 1.2million. Have no issue with downsizing when the time comes. We have 20k in savings as an emergency funds and no other debts.

I am married and my husbands job (company) is clinging on with its fingernails. He has just a standard nest pension worth next to nothing and an investment property (worth about 200k) that pays £750 a month in rent (this will be his main retirement income). He will have full state pension.

I am working out my budget but just can’t get my head around the best plan for my pension. I think ideally I want to get myself under the 40% tax bracket and put more into my pension to make the most of  the 20+ years I have to grow it.

Can anyone help me with the maths? How much % will I need to pay in to my work pension to get under the tax bracket? What will my contribution as a comparable to what I will take home. How would my bonus impact it? I can sacrifice my bonus but use that to pay for my family holiday.  Would this mean I might end up paying 40% as a retiree? If that is the case, can I offset that in some way to my husband a he won’t have much of a private pension?

I want to have control over my future after quite a few years of being cash rich and living for the now. 

Any advice would be greatly appreciated 

I would urge you to invest some money in a globally diversified fund within a stocks and shares ISA to give you a bit more flexibility about when you retire.  You love the job today, but you don't know what it will be like ten or twenty years from now, or if you or your partner will still be fit and healthy.  It is good to have options!

WYSPECIAL

You may love your job now but will you still love it, or whatever it has evolved into, in 25 years time?
Having plans in place to be able to choose to leave before retirement age would give you more options.

Guard27

Yes you are right- things can change but I have in my mind I will need to work - I had 12 years off in my 30’s so that’s a whole lot of wealth I’ve missed out on. I could look to go PT in the distance future (for instance if I become a grandmother) but I’m quite sure I won’t leave employment now until I’m made to. I have all relevant insurances in the event illness comes knocking.

I do have a stocks and shares ISA with about £1k in it. I only put £50 in a month. Would that be better then? The reason I’m thinking pension is because the 40% I pay on the 15k I get over 50k would be like free money for my pension wouldn’t it? 

I was thinking I would start properly saving via ISA once my mortgage is paid off and use that money? But mainly just because I’d like the 40% that goes to tax to go to my pension as I get more bang for my buck? 

Albermarle

Guard27 said:

Yes you are right- things can change but I have in my mind I will need to work - I had 12 years off in my 30’s so that’s a whole lot of wealth I’ve missed out on. I could look to go PT in the distance future (for instance if I become a grandmother) but I’m quite sure I won’t leave employment now until I’m made to. I have all relevant insurances in the event illness comes knocking.

I do have a stocks and shares ISA with about £1k in it. I only put £50 in a month. Would that be better then? The reason I’m thinking pension is because the 40% I pay on the 15k I get over 50k would be like free money for my pension wouldn’t it? 

I was thinking I would start properly saving via ISA once my mortgage is paid off and use that money? But mainly just because I’d like the 40% that goes to tax to go to my pension as I get more bang for my buck? 

For a higher rate taxpayer, pension is nearly always the best option due to the tax relief. The only real drawback is that it is not accessible until age 57( maybe 58 by the time you get there.) However for you this does not sound to be a big problem.
At some point pay some attention to how your pension is invested.