FIRE Girls Pension Diary - Aim High & Dream Big

LL_USS

Thank you @barnstar2077
Your video just makes me rethink about what is best for my situation. My current investment pot value with work pension is about 35k and defined benefit accrued to under 11k/year (small now but projection for retiring at 60 seems fine for my simple lifestyle). I have only started with ISAs (two years) plus few years LISAs but have stopped topping it up to free up money for other things. Before these most spare money was put in brick and mortar and paying off mortgage debts (and a bit in investment pot with work pension). 

Now, with saving I can:
- priotise ISAs, meaning paying more tax now but less tax later on pension or 

- priotise extra pension contributions, which means less tax now but pay more tax when drawing down. 

I note that though extra pension contribution is advantageous for high income earners, for me after standard pension contribution, the portion of my salary that falls into the next tax band is small. 

Meanwhile I do need readily accessible saving in the next few years buying a place for kids. 

All in all maybe I should priotise ISAs. So keep some ISAs ready to use in the next 5 years plus. Learn to do S&S ISAs for the rest, which is longer term. Retire at 60, take a lump sum to pay off any remaining debts or invest in something or doing up my retirement home. Drawing 16k from my defined benefit and top up with ISAs and LISAs till state pension age 68. I really need to put the numbers down in my spreadsheet but it seems okay on top of my head. 

I’ll be given away assets I don’t need to family in the next 10 years/ or sell to buy what suits them better, just keep a smaller place, enough ISA, LISA for myself, and use up my defined benefits with work each year not thinking of having to leave anything for anyone from that pot. And as i mentioned here in the forum before, if I want a bit more money I’ll ask the kids to pay me back a bit 😏

I have edited an earlier post as I may be wrong. I didn’t realise for DB you get 25% tax free first then the rest is taxable, and 12571 of which is 0% tax and the remaining is 20%. Still not sure if I understand right. 

ussdave

LL_USS said:

Thank you @barnstar2077
Your video just makes me think about what is best for my situation. My defined benefit right now is just under 11k/year, investment pot with work is about 35k (both small). I have only started with ISAs (two years) plus few years LISAs but have stopped topping it up. Before these I have been putting most in brick and mortar and paying off mortgage debts.  

I do need decent liquidity in the next few years in case I buy something for my kids. Plan to retire at 60 (only a little while ago i thought okay to work till pension age as my work is fine when I take it easy). At 60 perhaps my defined benefit is about 18k/year.  This plan means ready cash (fixed one year each time) in the next 5 years plus. Taking out work pension at 60 (this means lower income for life but perhaps okay for tax purpose, and I do spend quite modestly). Bridge with ISA and LISA till pension age of 68. 

This means I have to choose to put max in ISA not max in work pension, perhaps. It’s either
- ISA now less tax later or
- more pension contribution now, less tax (but not much less as my salary after compulsory pension contribution is not much in the next band), pay more tax than option 1 when drawing down. 

Maybe option 1 works better for me especially because i need readily accessible saving. So keep some ISAs ready to use. Learn to do S&S ISAs for the rest, which is longer term. 

Ahhh. I really need to put the numbers down in my spreadsheet. I’ll be given away most of assets I don’t need to my children in the next 10 years/ or sell to buy what suits them better, just keep a smaller place, enough ISA, LISA for myself, and use up my defined benefits with work each year not thinking of having to leave anything for anyone from that pot.

If you're planning to retire at 60 and draw your USS pension at the same time I'd honestly just chuck everything into extra USS IB payments, especially if salary sacrifice is an option.  

The benefit of an ISA is being able to draw it before pension age (sounds like you don't need this?).  ISAs are also tax efficient, but less so than a pension.

LISA (outside of a first time buyer) is essentially more tax efficient than an ISA but you're limited to drawing it at 60 or suffering a penalty.  It's still worse than most pension options for someone on a median salary though, and far worse than USS.

When I first started taking retirement planning seriously I also went the LISA and ISA route but after a while I decided it was far more tax efficient and simpler to just load up my USS pension (and a SIPP, but only because I jumped of a Fidelity SIPP to lock in access at 55 for flexibility).  Ultimately, if you're not retiring until after 60 then the benefits of hammering your USS pension significantly outweigh those of using ISAs and LISAs.  The only exception really being if you want to build a pot that is accessible for non-pension purposes, in which case an ISA is the one to go for.

Benefits of USS: salary sacrifice on the way in (for most people), no management charges, potential significant TFLS on the way out.  

Downsides are age of access, especially if you're thinking of bridging years.  However, if you're retiring and drawing your USS pension immediately, just max it out.

NoMore

@LL_USS do you not think you should start your own thread ? This is firegirls diary thread and you seem to be asking specific questions about your own particular circumstances. Some people don’t read the diary threads and you may be missing out on valuable insight from other members by containing your questions to this thread. 

LL_USS

@NoMore gosh you’re right. I have only joined the forum recently and am just excited reading around and sometimes taking the discussion away from the original purpose of a thread. Will note this!!!! Thanks. 

cloud_dog

ussdave said:

LL_USS said:

Thank you @barnstar2077
Your video just makes me think about what is best for my situation. My defined benefit right now is just under 11k/year, investment pot with work is about 35k (both small). I have only started with ISAs (two years) plus few years LISAs but have stopped topping it up. Before these I have been putting most in brick and mortar and paying off mortgage debts.  

I do need decent liquidity in the next few years in case I buy something for my kids. Plan to retire at 60 (only a little while ago i thought okay to work till pension age as my work is fine when I take it easy). At 60 perhaps my defined benefit is about 18k/year.  This plan means ready cash (fixed one year each time) in the next 5 years plus. Taking out work pension at 60 (this means lower income for life but perhaps okay for tax purpose, and I do spend quite modestly). Bridge with ISA and LISA till pension age of 68. 

This means I have to choose to put max in ISA not max in work pension, perhaps. It’s either
- ISA now less tax later or
- more pension contribution now, less tax (but not much less as my salary after compulsory pension contribution is not much in the next band), pay more tax than option 1 when drawing down. 

Maybe option 1 works better for me especially because i need readily accessible saving. So keep some ISAs ready to use. Learn to do S&S ISAs for the rest, which is longer term. 

Ahhh. I really need to put the numbers down in my spreadsheet. I’ll be given away most of assets I don’t need to my children in the next 10 years/ or sell to buy what suits them better, just keep a smaller place, enough ISA, LISA for myself, and use up my defined benefits with work each year not thinking of having to leave anything for anyone from that pot.

If you're planning to retire at 60 and draw your USS pension at the same time I'd honestly just chuck everything into extra USS IB payments, especially if salary sacrifice is an option.  

The benefit of an ISA is being able to draw it before pension age (sounds like you don't need this?).  ISAs are also tax efficient, but less so than a pension.

LISA (outside of a first time buyer) is essentially more tax efficient than an ISA but you're limited to drawing it at 60 or suffering a penalty.  It's still worse than most pension options for someone on a median salary though, and far worse than USS.

When I first started taking retirement planning seriously I also went the LISA and ISA route but after a while I decided it was far more tax efficient and simpler to just load up my USS pension (and a SIPP, but only because I jumped of a Fidelity SIPP to lock in access at 55 for flexibility).  Ultimately, if you're not retiring until after 60 then the benefits of hammering your USS pension significantly outweigh those of using ISAs and LISAs.  The only exception really being if you want to build a pot that is accessible for non-pension purposes, in which case an ISA is the one to go for.

Benefits of USS: salary sacrifice on the way in (for most people), no management charges, potential significant TFLS on the way out.  

Downsides are age of access, especially if you're thinking of bridging years.  However, if you're retiring and drawing your USS pension immediately, just max it out.

A LISA for a basic rate tax payer is now more efficient than a pension that benefits from Salary Sacrifice, since the reduction in NICs to 10% (below the HRT threshold).

ussdave

cloud_dog said:

ussdave said:

LL_USS said:

Thank you @barnstar2077
Your video just makes me think about what is best for my situation. My defined benefit right now is just under 11k/year, investment pot with work is about 35k (both small). I have only started with ISAs (two years) plus few years LISAs but have stopped topping it up. Before these I have been putting most in brick and mortar and paying off mortgage debts.  

I do need decent liquidity in the next few years in case I buy something for my kids. Plan to retire at 60 (only a little while ago i thought okay to work till pension age as my work is fine when I take it easy). At 60 perhaps my defined benefit is about 18k/year.  This plan means ready cash (fixed one year each time) in the next 5 years plus. Taking out work pension at 60 (this means lower income for life but perhaps okay for tax purpose, and I do spend quite modestly). Bridge with ISA and LISA till pension age of 68. 

This means I have to choose to put max in ISA not max in work pension, perhaps. It’s either
- ISA now less tax later or
- more pension contribution now, less tax (but not much less as my salary after compulsory pension contribution is not much in the next band), pay more tax than option 1 when drawing down. 

Maybe option 1 works better for me especially because i need readily accessible saving. So keep some ISAs ready to use. Learn to do S&S ISAs for the rest, which is longer term. 

Ahhh. I really need to put the numbers down in my spreadsheet. I’ll be given away most of assets I don’t need to my children in the next 10 years/ or sell to buy what suits them better, just keep a smaller place, enough ISA, LISA for myself, and use up my defined benefits with work each year not thinking of having to leave anything for anyone from that pot.

If you're planning to retire at 60 and draw your USS pension at the same time I'd honestly just chuck everything into extra USS IB payments, especially if salary sacrifice is an option.  

The benefit of an ISA is being able to draw it before pension age (sounds like you don't need this?).  ISAs are also tax efficient, but less so than a pension.

LISA (outside of a first time buyer) is essentially more tax efficient than an ISA but you're limited to drawing it at 60 or suffering a penalty.  It's still worse than most pension options for someone on a median salary though, and far worse than USS.

When I first started taking retirement planning seriously I also went the LISA and ISA route but after a while I decided it was far more tax efficient and simpler to just load up my USS pension (and a SIPP, but only because I jumped of a Fidelity SIPP to lock in access at 55 for flexibility).  Ultimately, if you're not retiring until after 60 then the benefits of hammering your USS pension significantly outweigh those of using ISAs and LISAs.  The only exception really being if you want to build a pot that is accessible for non-pension purposes, in which case an ISA is the one to go for.

Benefits of USS: salary sacrifice on the way in (for most people), no management charges, potential significant TFLS on the way out.  

Downsides are age of access, especially if you're thinking of bridging years.  However, if you're retiring and drawing your USS pension immediately, just max it out.

A LISA for a basic rate tax payer is now more efficient than a pension that benefits from Salary Sacrifice, since the reduction in NICs to 10% (below the HRT threshold).

Interesting.  I hadn't considered the impact of the NI change (which I really should've done).  

Doesn't really change anything for myself right now but it certainly will do for others.

cloud_dog

Just to put some numbers in to it....

Numbers game:

Pension (BRT payer / SS)
£100 in the pension.

Cost £70.

Withdrawal of £100 from the pension would yield £85 (£25 TFLS, taxable £75 tax of £15).

LISA
A allocated £100 from your gross salary (for the LISA) would yield you £70 (net take home pay) after tax and NIC.

£70 paid in to the LISA would receive a bonus of £17.50, making a total of £87.50.

The overall total in the LISA account is less than the pension, £87.50 compared to £100, but when you withdraw the money the pension (if full tax were to apply to it) would yield a net £85, whereas the LISA would yield £87.50 (2.94% more). 

This is a simple numbers game and there is no guarantee that all of the taxable component of a pension would be taxed at the point of drawdown.

Firegirl

So I blew a fortune this weekend in Liverpool going to a football match with my son.  We had THE best time!!!! Some things have to be done and memories will last a lifetime for both of us.  I always think when I’m a little old lady sitting in my chair reflecting on life, would I ever regret spending on a trip or a holiday.  The answers always no because life is about spending time with loved ones.  Whether it be a free trip to a beach or an eye wateringly expensive weekend in Liverpool.  I am still working to live within my new budget I’ve set myself

@barnstar2077 looking forward to watching your video when I can get a minute to myself, or find my earphones.  It’s generated lots of discussion.

@LL_USS I’m not precious about my diary thread so post away.  I actually love logging back on a few days later and seeing lots of chatter.  I think that’s how you learn new things. 

@NoMore might have a point though if you miss out on other people’s nuggets of info!

@clouddog great seeing the calcs!

@watty1 I’ve followed your MFW journey so I know with you zest and determination you’ll reach your goals. You can do it:)

IFA chat….so reason I got IFA originally was because I am taking care of my parents finances. Even though I’ve worked in finance for over 20 years I felt a big responsibility to get it right and with 3 other siblings I didn’t want to mess this up! I phoned round loads of advisors and found the right one for my parents. Patient and kind and has helped my 80 year old mum understand finances in the last 10 years when my dad used to do everything.  She makes all her own decisions with my help still and I think she’s done amazingly well. Some advice he has given us has been made me think he is worth his weight in gold. After an accident my dad was brain damaged and he received a substantial sum of money.  To much for me to deal with myself.  Long story but he consulted with a barrister and dad’s funds are under court of protection if anyone wants to access them. The IFA advised to put it in a life assured bond in the hope that if he went to a care home, then it wouldn’t be used to pay for his home.  My mum cared for him for 14 years……so fast forward 14 years and I’m filling in the forms for the care home…….bated breath waiting for the reply…..imagine the relief when they didn’t take into account the accident money……now I know my Mum and Dad have enough to do them the rest of their life. Mum wants to live at home as long as possible and Dad is happy in his care home.

My parents investments have done very well with this IFAs advise, aswell as given me the security that decision making isn’t resting on my shoulders alone. Started at 350k and is now 490k ( not sure the time scales but approx 12 Years maybe)

After a 10 year relationship I trust his knowledge and opinion 100% And from someone who works in finance and has dealt with many less trustworthy IFAs I do think a good IFA is worth every penny.  

I do see others point that you can just research and pic S&S but if you want comfort or you don’t have the confidence then a whole of market IFA is the way to go.  Do your research and get the right person for you that can meet your needs.

Oh that ended up a long story 

Enjoy the rest of your weekend!

Firegirl

barnstar2077 said:

@LL_USS - I would suggest you do your homework first, as most people would not require an IFA just to open a stocks and shares ISA and invest in a globally diverse index fund.  You would just be giving your money away, unless your financial situation is particularly complex.

Pensioncraft are a good place to start:

https://youtube.com/watch?v=KKdW5W14Czo

Lots of good videos, with very clear explanations, by a guy who literally wrote the book on finance.

I managed to wrestle headphones of a 14 year old on the train

This video is great.  I think now I actually have a number that I’m working towards I likely need to put a bit more thought into how I’ll withdraw on retirement. It’s the old chestnut of it still feeling quite far away though!

barnstar2077

Firegirl said:

barnstar2077 said:

@LL_USS - I would suggest you do your homework first, as most people would not require an IFA just to open a stocks and shares ISA and invest in a globally diverse index fund.  You would just be giving your money away, unless your financial situation is particularly complex.

Pensioncraft are a good place to start:

https://youtube.com/watch?v=KKdW5W14Czo

Lots of good videos, with very clear explanations, by a guy who literally wrote the book on finance.

I managed to wrestle headphones of a 14 year old on the train

This video is great.  I think now I actually have a number that I’m working towards I likely need to put a bit more thought into how I’ll withdraw on retirement. It’s the old chestnut of it still feeling quite far away though!

I'm glad you found his video useful.  He has a lot of videos on his Youtube channel that cover most financial topics, and he often makes videos discussing recent rate changes, or how global events might affect things etc, so I have found him to be worth a sub (He doesn't really advise people to do anything, just says what may or may not happen and what people might do if they held a certain belief etc.)  He doesn't tell people to invest in x, y and z based on the latest financial fashions, and tends to advocate investing in a few index funds for the long term instead, which is what he seems to be doing himself.  I find his humour and the way he can explain even the most complicated issues clearly to be of a great value.

I am in no way affiliated with his channel, just a fan.