Pension and Retirement planning

Alex.T

Hi all.

I’m 37 years old and I’m thinking I need to get more of a handle of my pension and retirement planning. 

I’m currently employed (earning £35k pre tax) and am enrolled in a DC pension for the last five years. A combined 9% of my salary is currently paid into this per month. This will increase next Apr to around 15%. Currently being invested in the default plan my work setup, which is L&G PMC Multi Asset 3. Retirement age is set to 65. 

Mortgage is circa £150k left, to be paid off by age 65. Its current rate is 3.39% with just over 4 years of that rate left. Hoping the mortgage market improves in this time! 

We have £20k in easy access cash savings - (£16k in 7%, and £4k in 5%)

Also have a nominal £1000 in Crypto which is doing shockingly at the moment, so pretty much written off! 

We have three dependants under 16, and although the easy access savings is currently for use of emergency access funds (such as the boiler we’ve just forked out for!) - The main plan for this money is so as to be able to help out with setting them up for their future, education, car etc. 

My wife is a carer for our disabled son, and claims carers allowance for this reason and is unemployed due to the amount of care he needs. 

We hardly manage to save anything per month currently, seeing as everything has gone up so much! Car insurance has increased over 50% this year! 

My main concerns currently are:

1) Lack of understanding of my current pension. The fund seems to be performing ‘ok’ given the current state of affairs in the world! But should I be paying more in if affordable?

2) Should I be aiming to pay off mortgage sooner, or reducing retirement age somehow?

3) A pension LISA before age 39 to take advantage of government contribution etc?

4) My wife currently has no pension plan as she has been self employed up until our son was born, and lived off of what was earned at the time. My future plans will always include her and the children, but is there anything that she could be doing in the meantime? 

I appreciate any input given. 

Many thanks. 

dunstonh

1) Lack of understanding of my current pension. The fund seems to be performing ‘ok’ given the current state of affairs in the world! But should I be paying more in if affordable?

You haven't mentioned your current values or what your target income is.  You appear to be targeting earlier than state pension age (68 for you).  So, that means funding the gap but no indication that you are actively attempting to fund that gap.

2) Should I be aiming to pay off mortgage sooner, or reducing retirement age somehow?

You have multiple objectives in life.   Its a case of checking you are on track for each of them before you decide to focus extra funds to one of them.

3) A pension LISA before age 39 to take advantage of government contribution etc?

For later retirement this will likely be better than pension whilst you are a basic rate taxpayer.  Its not optimal for earlier retirement.    So, you should utilise LISA.

4) My wife currently has no pension plan as she has been self employed up until our son was born, and lived off of what was earned at the time. My future plans will always include her and the children, but is there anything that she could be doing in the meantime? 

pension and LISA are both available.

Linton

1) Your current pension seems to be rather cautiously invested at only 40% equities.  Since you are probably 20+ years from retirement you could reasonably consider a higher risk/return option if there is one available.  A total contribution of 15% of salary is pretty good.  More could give you a better chance of retiring early but there may be a better use of any spare money you have.

2) Paying off a mortgage sooner is a difficult balance now that rates have risen.  Some people feel happier if they do, others may prefer to see the cost decreasing in real terms thanks to inflation whilst having more available in the short term.

3) One of the problems of a Pension and a LISA is that they are not accessible until much later in life.  It may be worth looking at contributing to an S&S ISA.  No tax benefit now, but no tax when you take the money which you can do at any time.

4) Your wife, having no earned income, can contribute a maximum  £3600 year gross (£2880 net) to a pension, using your money if necessary.  You would not get a reduction in tax but your wifes pension would get the equivalent uplift even though she does not pay any tax herself. She could then withdraw the money tax free in later life if she has the spare tax allowance at the time.  Perhaps she may be happier having a pension in her own name.

Perhaps a LISA for your wife may do the same or better job - I dont know much about them.

Given you son's condition I assume you both have ample life insurance,.

Alex.T

Thanks for the replies. 

In regards to the value and target income for the pension, I really don’t have much idea, other than it is currently sitting at around £10k. I’ve been really bad in taking an interest other than seeing it go out of my payslip each month. 

The mortgage rate finishing at age 60 is something I want to keep or decrease (not extend), so any potential value of the house could be considered if sold (to downsize) and then use some funds to live off until pensions start paying out. 

Unfortunately with the current situation of all income going on living, maybe a separate pension is out of the question. So moving the current one to something more beneficial would be better. 

Thank you for the pointers regarding my wife’s pension. I think this is definitely something that needs addressing.

in regards to life insurance, yes we both have life insurance and decreasing life insurance with critical care cover, linked to our mortgage. 

Albermarle

Currently being invested in the default plan my work setup, which is L&G PMC Multi Asset 3

To expand on the comments already made. As a rule of thumb, the higher the % of equities the higher the growth long term. However in the short and medium term the fund will be more volatile.
So 100% equities is normally the best bet for a younger person in a pension fund, but can be a bit too hairy for some. That is why default funds are never 100% equity as some people would be complaining a lot if it went down quickly.
However 40% equities seems rather low even for a default fund, which typically would be 55% to 70% equities.
I would have a look at the website and see what other funds are available, with a higher equity % and a similar low charge.
If you are not sure feel free to ask more questions.

r6mile

You may want to see what other investment options you have within your L&G pension. For my L&G pension, I decided to picked a small number of equity funds.

Your fund selection may differ from mine, but if it's similar this fund might fit the bill if you are looking for a multi-asset fund with a higher equity (around 80-85%) content, which might be appropriate given your age.

https://fundcentres.lgim.com/en/uk/workplace-employee/fund-centre/Threadneedle-Managed-Equity-Fund/?isin_code=GB00BD1JSK21

Otherwise you can obviously create your own fund mix but that depends on your knowledge level.