Financial Planning

Intel1982

Hi, I'm looking for some advice on how to plan our finances for the future.

We are a family of four - me (36) a stay at home mum/carer for disabled sons; husband (43) employed full time and our two sons age 7&9.

Our income consists of my husband's employed wage, DLA for my children, carers allowance and child benefit. My husband also gets a yearly bonus. 

My husband didn't start contributing to his pension until he was 40, he puts in 5% and his company puts in 3% so it's not going to be enough. 

At present we have been paying some AVC to his pension, and the rest of our spare money has gone towards overpaying our mortgage. 

My husband has a LISA that he opened when he was 39, should we be contributing into this? Should I be opening a LISA and/or SIPP for myself? I have no pension at all. 

We have always been focussed on overpaying mortgage but I'm thinking we should be looking at other avenues as well. I can provide real life figures if that would be helpful? Starting to panic a bit as we seem to have left everything so late compared to other people.

Thanks in advance! 

Dazed_and_C0nfused

Agree it's not currently looking enough but don't  forget if you both accrue the new State Pension in full you will have £21.2k as a starting point.

And you can get a free £720 each year from HMRC if you are able to contribute £2,880 into a personal pension or SIPP.

Pensions may well be more tax efficient than the LISA for your husband but how much he earns will be a factor.

Simon11

Great that you have had your lightbulb moment on pensions!

Definetly shared your finances so we can support more!

A few comments:
*What does your and your partner state pension look like. Have you been claiming your SP while child caring?
* Double check you dont have any old pensions lying around. If your husband has been working for 20 years, I am suprised he didnt have any.
* Reconsider your priorities on paying off the mortgage. It is better for your personal well being however financially you are likely to be better off in the long run putting that money into a pension (salary sacrifice)
* Finally time for a spreadsheet and evening discussion over a glass of wine with your partner to discuss your retirement plans and financial needs, then work out how much you need to put away. As a simple starter, if your husband started paying into a pension at 40, he should be putting in a total of 20% of his salary into it (including employer payment too!)

MallyGirl

I would definitely recommend you starting your own pension and contributing £2,880 to get the £720 free money from HMRC. In retirement the ideal solution is a more even distribution of pension between you so that you can limit the tax you pay - 2 withdrawing at 20% is better than one paying 40% on some of it.
If his company offers salary sacrifice for pensions then that beats the LISA as he saves on NI as well as tax.
I would prioritise boosting the pension over over-paying the mortgage right now. You want to get some funds in pensions so that long term growth can compound. I focused on mortgage pay off for a long time before I had my pension lightbulb moment - but for good reason as I remember my first mortgage rate being 14%! I am playing catch-up now but a longer, smoother contribution would have been better.
You know that his 8% is not enough so you will need to look hard at how that can be increased.

Intel1982

Hi:

Incoming:
Husband's salary - £3107 a month (£52k a year gross)
Carers allowance - £330/month
Child benefit - £169/month
DLA - £967/month
Annual bonus - £7,500 a year

We pay back some or the child benefit every year as my husband gets over £50k. We have no loans/credit cards. My husband has access to a work vehicle and fuel card so no large outgoings for vehicles or travel, I have a small car which I own outright but it costs me very little to run as it's only for local use. 

Our main expense is groceries and food, my children are home educated and are constantly ravenous so they eat a lot and it costs money to take them out and about as well. Our mortgage payment is currently £526 a month but we would like to get a bigger house, with the max mortgage payment being around £1000 a month as it is becoming a bit of a squeeze where we live. 

Thanks again!

Intel1982

I have checked before regarding my husband's pension and sadly there is none, he worked in a lot of minimum wage jobs before we got married and had children, factory work, labouring etc and I don't think he opted into any sadly. He just lived week by week. The child benefit is in my name so I should be receiving the credits for the state pension, I have 10 years worth of credits for when I worked as well. 

Moonwolf

Can your husband pay more into his pension and/or sacrifice some of his bonus into pension?  With the loss of child benefit, loss of interest allowance and the inability to grant some of your tax allowance to him as those are all based on earning over £50K or over the higher rate tax threshold, his effective marginal tax rate is probably 60% or higher.  

If you need the money for day to day spending don't do it but if you are just overpaying on the mortgage, it is worth looking at the real value to you both if you can keep his taxable pay below £50k per year?

(edited to add the word marginal to effective tax rate)

Intel1982

At the minute, my husband pays £183.39/month from gross wage, employer pays £110.11 and then we pay £375 a month additional voluntarily contribution from his net wage. Total of £668.50 a month.

I get a bit confused as to how we keep his taxable income below £50k and what is included in this? Would this mean we could keep the full child benefit amount?

Thanks. 

MallyGirl

increased pension contributions can help to bring down the income below the £50k which would mean you keep all the child benefit. It is easy if the contribution to pension is via salary sacrifice but I am sure someone will come along to explain how it would be achieved for the other types of pension contribution. You could also transfer some of your tax allowance to him at that point (under £50k) to save a bit more. 

Intel1982

Thank you - does anyone know what is included in the adjusted income, is it the contributions we personally make (both gross and net) and it does not include employer pension contributions? 

Do we just continue to file a tax return every year to claim the tax relief and bring the taxable income down?

Thanks. 

QrizB

Intel1982 said:

Thank you - does anyone know what is included in the adjusted income, is it the contributions we personally make (both gross and net) and it does not include employer pension contributions?

Employer contributions don't count, personal ones do.

From what you've said, your husband's already paying more than £500 a month / £6k a year into your his pension, so his adjusted income would be well below £50k if it wasn't for the bonus.

How reliable is the bonus? Can you plan on it being paid, or do you only know what you're getting (if anything) a few weeks beforehand?