Where to put my money?

Brricktop69

I am 54 years old and am in a good position of about to become debt free, I have a DC pot worth £230k and I am currently putting in £1500 each month including my employers contributions. I also have savings of £25k so have good emergency fund. I have around £1500 a month surplus and dont want to just keep topping up a savings account, i dont know if I would be better putting it into an ISA or my pension. I have been leaning towards splitting it 3 ways between an ISA, Pension and my current account. While I have no plans to access my pension next year the fact that i can as well as the salary sacrifice offered at work makes me think I may be missing out by not putting more into the pension.

For what it's worth I am looking to semi retire at 62, and believe I will need about £20k in addition to my wifes pension

Any thoughts?

justme111

does not matter so much whether you put it in ISA or pension.
why would you have wanted to put it in bank account as opposed to the former 2 options?
read a bit on plusses and minuses of ISA and pension and then decide.

Marcon

Brricktop69 said:

I am 54 years old and am in a good position of about to become debt free, I have a DC pot worth £230k and I am currently putting in £1500 each month including my employers contributions. I also have savings of £25k so have good emergency fund. I have around £1500 a month surplus and dont want to just keep topping up a savings account, i dont know if I would be better putting it into an ISA or my pension. I have been leaning towards splitting it 3 ways between an ISA, Pension and my current account. While I have no plans to access my pension next year the fact that i can as well as the salary sacrifice offered at work makes me think I may be missing out by not putting more into the pension.

For what it's worth I am looking to semi retire at 62, and believe I will need about £20k in addition to my wifes pension

Any thoughts?

Why would you put this 'surplus' cash anywhere but into a pension if you're going to need £20K and your current pot is 'only' worth £230K? You are within a year of being able to access the pension if you need to, so unclear why an ISA/your current account would be sensible alternatives.

Pat38493

Well it kind of does matter especially if you are a higher rate taxpayer now, but expecting to be a basic rate taxpayer in retirement.  You will get tax relief on the way in to the pension so you will make  significant one time gains on the money that you wont get by putting it into an ISA.   Even if you are a basic rate taxpayer now, it’s arguably better to put money in the pension than ISAs because part of it will be tax free on the way out so you will still end up better off. 

Even better if you can contribute it by salary sacrifice as you will pay less NI as well.  

The only counter argument is that having ISAs in place gives you more flexibility to optimise your tax situation in retirement, but fundamentally that’s not going to outweigh the benefits mentioned above.  

Brricktop69

Thanks, basic rate tax payer.

WYSPECIAL

How much will you need per year once state pension kicks in?

Pat38493

Brricktop69 said:

Thanks, basic rate tax payer.

Are you a basic rate taxpayer today even if you did not put any money into the pension?  I am just wondering because you are saying you are putting 1500 per month into the pension (not clear how much of that is the employer ) plus you have £1500 spare so you have equivalent of nearly a 30K gross salary as "savings money".  In other words is your gross income greater than about 50K?

In any case, even as a basic rate taxpayer, if you are already almost at the point you can access pensions flexibly, it's better to pay into the pension than an ISA - the advantages are less but it still should work out better in the long run.

Have you checked your state pension forecast as well?  As a very rough rule of thumb you would need savings of 500K-600K in order to support an income of £20K per year for 30 years, but if you have a full state pension this would reduce the amount that you need saved up.  

Lastly and maybe controversially to some, once you reach 55, and especially as you get close to retiring, you may want to ask yourself the question - do I need an emergency fund outside the pension wrapper?  I am in a similar situation to you and I will be putting every spare £ of cash that I have into my pension in the last year or two before I draw on the funds - ideally I won't have a penny to my name outside of pensions on the day I expect to receive my first pension income.  With some of the pension in a modern DIY provider you can get money out in about 2 weeks or less, and any emergency expenditure that really requires spending in less than 2 weeks can be funded by credit cards for a month without any interest being due.

Albermarle

OP - Pension looks to be the best bet due to the tax relief uplift. Are you happy with the way your money is invested within the pension, as that is an area often neglected.

Brricktop69

Pat38493 said:

Brricktop69 said:

Thanks, basic rate tax payer.

Are you a basic rate taxpayer today even if you did not put any money into the pension?  I am just wondering because you are saying you are putting 1500 per month into the pension (not clear how much of that is the employer ) plus you have £1500 spare so you have equivalent of nearly a 30K gross salary as "savings money".  In other words is your gross income greater than about 50K?

In any case, even as a basic rate taxpayer, if you are already almost at the point you can access pensions flexibly, it's better to pay into the pension than an ISA - the advantages are less but it still should work out better in the long run.

Have you checked your state pension forecast as well?  As a very rough rule of thumb you would need savings of 500K-600K in order to support an income of £20K per year for 30 years, but if you have a full state pension this would reduce the amount that you need saved up.  

Lastly and maybe controversially to some, once you reach 55, and especially as you get close to retiring, you may want to ask yourself the question - do I need an emergency fund outside the pension wrapper?  I am in a similar situation to you and I will be putting every spare £ of cash that I have into my pension in the last year or two before I draw on the funds - ideally I won't have a penny to my name outside of pensions on the day I expect to receive my first pension income.  With some of the pension in a modern DIY provider you can get money out in about 2 weeks or less, and any emergency expenditure that really requires spending in less than 2 weeks can be funded by credit cards for a month without any interest being due.

To be fair when I am talking about £1500 surplus each month this includes my wifes income, I actually earn £50k a year, the company is paying around £350 a month into my pension and I am funding the other £1150.
We are both 54 years old, so if we retire as planned in around 7 years time we should have a good pot to fall back on.

I do already have the full state pension contribution years in as does my wife, in today's money i believe we would be more than comfortable with an annual income between £27k - £30k after tax, my wife is a teaching assistant and has a forecast of £9k per year at 67. Given that i am going to continue my contributions and add more from the surplus I believe we will be safe to semi / retire at 62.

dunstonh

 i dont know if I would be better putting it into an ISA or my pension. 

In the majority of scenarios where the money is needed post retirement, pension beats ISA.