Making a start on a retirement plan. DB/SIPP/ISA

Chocolatefund

Hello money saving experts.

I’m 37. Single, no kids. I’ve just hit that light bulb moment of realising that I don’t want to work till 68. I have aspirations of owning a holiday home overseas and travelling lots in retirement.

So I’ve been researching a fair bit into pensions to achieve that dream and the best/most efficient way to get there.

The general consensus seems to be to max out the workplace pension. Especially since I’ll be itching past the 50k salary mark next year. So here’s my thinking so far...

I’m currently 11 years in the Armed Forces on the AFPS 15 scheme. I can purchase Added Pension to boost the annual pension by a max of £6500 pa. I have a pension nerd friend at work who has the actuary spreadsheets and I’ve worked out that if I stay in the forces till age 60 it would cost me £410 per month from my salary pre tax. (£112,000 /23 years) The pension calculators are showing with the max added pension, a projected £42k per annum from the age 60 immediate pension.

Now, I know there is no guarantee that I will stay in the forces this long. If I leave before 60, it’s a mini pension (EDP) of about 13-17k and a lump sum of 50-80k, (depending how many years I’ve done and how much added pension I’ve accumulated thus far) and the actual pension is deferred till 68. My thinking is to open a SIPP to bridge that gap. A stocks and shares ISA would allow me to use a lump sum to purchase any remaining added pension, maybe pay off mortgage and put towards a retirement holiday home.

A couple more factors that are affecting my decision making are the fact that I risk being in 40% tax payer territory when I retire. Though I could claim the pension earlier with reduction, and I could max commute my pension into a whopping lump sum of 170k (assuming the calculator is right!) but that’s a reduction to 25k pension with a poor commutation factor apparently.

So my question is, with my DB pension potentially being strong, is it worth me contributing some more into a SIPP? Am I better off putting all by spare income into a S&S ISA? Or a bit of both? I’ve read up on the pros and cons of both and I’m still undecided.

I don’t know how much for certain I would like to retire on, nor how much a holiday home will cost me in 20+ years time. But if I can have a savings plan in place I can at least make a start.

Would love to hear others opinions and experience. Is there anything I’ve not thought of? What would you do and how would you make the best of this?

Many thanks if you took the time to read this wall of text!

eastcorkram

I thought everyone had to finish at 55? Has that been moved to 60?

Marcon

Chocolatefund said:

So my question is, with my DB pension potentially being strong, is it worth me contributing some more into a SIPP? Am I better off putting all by spare income into a S&S ISA? Or a bit of both? I’ve read up on the pros and cons of both and I’m still undecided.

Think more closely about your own attitude to risk, and understand how that ties in with the guaranteed income from a DB scheme v the unpredictable (but more flexible if that matters to you) benefits you'd build up in a SIPP.

A LISA (https://www.moneysavingexpert.com/savings/lifetime-isas/) would give you flexibility in terms of when you could access your cash. If you're thinking of buying a home, it has to be worth considering.

Linton

If you are a basic rate tax payer now but SIPP withdrawals would be taxed at 40% then an S&S ISA would be more tax efficient.  Aso you wont be able to access your SIPP until you are 57 or possibly 58.  This could constrain your retirement plans.

DietIrnBru

I’m in the NHS pension which also offer the opportunity purchase additional pension through a lump sum or payment plan over a number of years. All well and good if you are committed to working for that one employer for the term and you can afford the payment plan - and it tends to be the payment plan is pretty rigid in terms of you need to stay with the employer, sickness impact etc. 

My workplace contributions are standard for my banding. I do have a SIPP and Investment ISA into which I deposit pcm - in this I like the flexibility albeit I concede the payback may not be as good as the nhs scheme. But I can alter payments if my circumstances change. 

I admire you for staying with the army till 60, I’d be a broken person if I stayed in a hospital setting until 60. 

Albermarle

I am sure I have read in other threads that Army pensions can be paid from 50 ?
@Silvertabby ?

xylophone

 itching past the 50k salary mark

Planning a visit to Paris?

Maybe part AP/part ISA?

https://forcespensionsociety.org/2021/11/question-of-the-week-3/

Silvertabby

Albermarle said:

I am sure I have read in other threads that Army pensions can be paid from 50 ?
@Silvertabby ?

The different variations of the Armed Forces pensions (AFPS75, AFPS05 and AFPS15) have slightly different rules.  I left with 22 years service under AFPS75, and so received my immediate pension from age 42 (would have been age 40 if I'd joined at age 18 instead of 20). 

Those who leave before accruing enough pensionable service for immediate pensions have deferred pensions.  These are payable from age 60 (AFPS75) 65 (AFPS05) or SPA (AFPS15).

badmemory

Are you sure you want to have the care/upkeep (I am not just talking financially here) of 2 properties well into retirement.

Chocolatefund

Many thanks all. 

I'm definitely going the Added Pension route.  It also runs on a one year contract basis, so I can adjust the amounts should life throw something at me.  I'll put that in place for next April in monthly instalments.

I've decided on an ISA alongside as well.  I think I'll prefer the tax free freedom that will give me in the future.  

As much as I would also like to contribute to a SIPP as well, I think it will leave me a bit short.  My efforts are probably better concentrated on two of the three options, at least for now.

The navy hasn't broken me yet! 

xylophone

I’m 37. Single, no kids.

The navy 

Don't all the nice girls love a sailor?