FIRE Girls Pension Diary - Aim High & Dream Big

bluenose1

cloud_dog said:

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.

Thanks for the figures. I have been telling my son and DIL to put money in Works pension or even SIPPs rather than LISAs but reading the above realise there is more to LISAs than I thought.
I suppose if intending to to live on DC pot for several years then may be worth putting in pension if salary sacrifice, as if could pull it out tax free, therefore the £70 contribution would be £100 withdrawal as opposed to £87.50 with the LISA. This would obviously involve predicting a lot of things for future, as who knows in their 30s what they will be doing 20/30 years later.
Very interesting,  definitely more nuanced than I originally thought. 

cloud_dog

bluenose1 said:

cloud_dog said:

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.

Thanks for the figures. I have been telling my son and DIL to put money in Works pension or even SIPPs rather than LISAs but reading the above realise there is more to LISAs than I thought.
I suppose if intending to to live on DC pot for several years then may be worth putting in pension if salary sacrifice, as if could pull it out tax free, therefore the £70 contribution would be £100 withdrawal as opposed to £87.50 with the LISA. This would obviously involve predicting a lot of things for future, as who knows in their 30s what they will be doing 20/30 years later.
Very interesting,  definitely more nuanced than I originally thought. 

There are ancillary benefits that pensions offer over a LISA, for example IHT considerations, and also not being included where you may need to claim means tested benefits.  For example, if I were self employed (BRT payer) I would probably shy away from using a LISA (even though it is financially more efficient) and use a pension in order to safeguard my longer term retirement planning from any loss of work etc. 

A LISA is just one of the tools available that can help towards retirement planning.

Another option for a current BRT payer who might have reasonable earning power and might achieve an reasonable amount of earnings in the HRT band in a few years time might be to not invest in a LISA or pension, and to put it in to a ISA, and then when they have sufficient HRT bandwidth simply draw from the ISA to support larger pension contributions with 40% TR and or 2% NIC savings (under SS).

There are lots of tools (products) available for the individual to use, it just depends on what makes sense for the individual given their circumstances.

Firegirl

Discovered Pete Matthew’s from a work collegue and have watched a few videos. This one about cash flow ladder makes a lot of sense to me.

https://youtu.be/CSCtezePxK4?si=GgpPQhDKOntsV85k

Firegirl

@LL_USS there looks like there are changes on way that will be relevant for you.

LL_USS

@Firegirl it is indeed good news, thank you :-) x

Firegirl

I had some free time today so did a check on my balances.

Pension 1 £173000
Pension 2 £55000
Pension 3 £10180
ISA £91471

Total £329651

michaels

Firegirl said:

I had some free time today so did a check on my balances.

Pension 1 £173000
Pension 2 £55000
Pension 3 £10180
ISA £91471

Total £329651

You have probably said before, but how are you invested?  Those of us in equities have obviously had a bumper 6 months to the point where I am thinking of rebalancing as my equity percentage is looking a bit high

Firegirl

I know we know it can go up as well as down!!!! Let’s enjoy the good times.

1 pension is Royal London Governed Portfolio 7

My ISA is:

FEI Hybrid Risk Level 4 Long Term - 48%

Janus Henderson Global Responsible Managed I Acc - 13%

Royal London Sustainable Diversified Trust C Inc - 12%

Liontrust Sustainable Future Managed 2 Inc - 12%

FEI Responsible Risk Level 4 Long Term - 9%

FEI Responsible Risk Level 3 Long Term - 5%

DT2001

Just come across this thread and read over a few days (inc some of the links). Thanks for sharing your aims.

When I started in employment I had fixed targets as everything was in savings accounts. I have been primarily self employed/stay at home Dad for the last 25+ years and we (OH is also self employed) have invested in S&S ISAs, SIPPs, businesses and property leading to variable income and fluctuating paper highs and lows. It is good to have a rough idea (I started on a sheet of paper and still haven’t transferred to digital!) of your overall net worth over time - the dips, I think, are then less worrying as ‘we’ve seen it all before’. I have had ‘pot’ targets e.g. £250k in one pension but they have been rather arbitrary and been passed in both directions! During The 1st Lockdown I worked out a good idea of our numbers - not one but various ones (having quite variable household income meant flexible plans) so knew what was required under varying parameters. IMO flexibility is the key to not having to do OMY if you don’t want to. 

Lots on this forum tend to plan on worse case scenario - SWR U.K. 3% for example, as the historical data says you can’t use Bengen’s 4%. My take is that the figure can start at 4 - 4.5%+ as my portfolio (like most now) is global and I will flex my spend or create a known income stream with some of the money (be it, Gilt ladder, fixed term annuity, cash etc). If the worst happens we can downsize BUT it is unlikely to happen. So I commend your planning.

We have never had a joint bank account and our bills come out of 2 or 3 accounts (historically DDR set up to meet bank account criteria). All funded as needed.

I have a DB (£9k) in payment from 51 and a SIPP (80/90% funded from one contract done over 2 years) and OH has DB (to be paid at 60) of £4K and a SIPP  that has now exceeded mine and will probably end up twice as much. So potential retirement income will not be 50/50.

Cost of children - very difficult to plan (we have 4), 1st became an apprentice (decided at 17 to try it out), 2nd at Uni in France (very low tuition fees and mostly self funded maintenance costs), 3rd at U.K. Uni and 4th possibly doing a medical degree. MIL is funding BIL’s pension payments (he is 61) so ……..

Great thread with some interesting tangents explored

Firegirl

Thanks for dropping by @DT2001

So interesting to hear the different paths of your 4 children.  I have 2 kids and I think both will do trades. 1 wants to be an electrician (16) and the other wants to work in construction(14).

I work in finance industry so know that my targets don’t particularly make sense in terms of stocks and shares, due to market fluctuations, but I enjoy a target to aim for.  As I write this the news is on talking about price hikes from April…… so many unknowns.

I had a look into different ways to withdraw pensions when the time comes but I’m largely working on piling as much in as possible, while still doing what we want in life.  My husband and I have seen to many people retire and loosing health or not living long enough to enjoy their efforts.

I like the idea of working out net worth as our house has gone up in value and I made large overpayments on our mortgage since I started contracting.  Still finding it hard not to overpay my mortgage so might have to chip away at that in parallel for my own happiness 

Will be interesting to look back on the early days of this thread in the future to see where I end up