Improving pension position and savings

CrunchyNutCornflakes

Hi everyone

I've recently turned 40, and am due to inherit some money, so taking the time to consider my financial matters... Especially pensions, where I know I'm lagging behind a little. I'd appreciate any advice on what to change and where to invest.

Job:

£46,000 annual salary

Pension:

Current workplace pension is worth around £10,000. 8% contributions split between me and my employer. It's not straightforward to change the contributions and my employer wouldn't match any additional contributions anyway.

The pension from my previous job is currently worth about £44,000, in the Nest Sharia fund. It was started when I was 32, and my earnings were much lower then (about half). I'm continuing to fund this pension with monthly contributions, which I recently increased to 6% of my current salary (from 3-4%) including the tax relief.

Property:

Home owner with about £200,000 equity and £100,000 outstanding mortgage. The mortgage is a five year fix at 4.14%, which was renewed in January this year on 20 year term. The monthly payment is £600, but I'm overpaying by another £100 a month, effectively reducing the term to 16 years.

I have no plans to move house in the near future, but it's not out of the question either.

Savings:

£6,000 contingency in an instant access savings account with 5% interest.

£4,000 in a 12 month fixed rate cash ISA at 5.05% (funded this year).

£2,000 in a stocks and shares ISA (funded last year).

Plan for inheritance:

£16,000 - Top up ISAs with this year's allowance.

£14,000 - Add to instant access savings (hopefully staying just under the £1,000 interest threshold).

£40,000 - premium bonds

£5,000 - add to pension pot

And also to increase Nest contributions to from 6% to 10% of salary.

Does this sound like sufficient pension planning, and should I consider something other than continuing to fund the Nest pension?

Cheers
CNC

kimwp

The first question you need to ask yourself is how much do you want to spend each year of retirement and when do you want to retire.

Without this (and a few other nuggets such your state pension prediction), it's not possible to even guess whether your pension provisions will be sufficient.

CrunchyNutCornflakes

kimwp said:

The first question you need to ask yourself is how much do you want to spend each year of retirement and when do you want to retire.

Without this (and a few other nuggets such your state pension prediction), it's not possible to even guess whether your pension provisions will be sufficient.

Based on my current lifestyle, but without having mortgage and pension contributions etc. then I would take £25,000 as a benchmark, though £30,000 would be preferable for a more holidays.

I've got 21 qualifying years up to now so anticipate receiving full state pension.

Ideally I'd reduce my working hours by the time I'm 60, to 2-3 days a week, and retire by 65

tacpot12

Preimum Bonds aren't very reliable at paying out. Although I have about £2,000 in Premium Bonds, as part of a diversification strategy for my instant access cash.

Having £20K in an instant access account is a lot. I think I would aim to have about 10K, and put an extra £10K into your pension as a 15+ year investment, so it has plenty of time to grow. The alternative is to leave it in the Instant Access account for a year, and then move £10K to your Stocks & Shares ISA. The Stocks & Shares ISa gives you the flexibility to use the money either for a house more or your pensions, but crucially, not both! One of the best features about a pension is that you cannot get your hands on money that is earmarked for your retirement!

You have a solid base of savings for your age. I don't think you are too far behind. You, your employer and the government are currently contributing about 14% of your salary into your pension, You are overpaying your mortgage too, so you should be mortgage free by the time you are 56. That's good, and is setting you up to retire before you are sixty. At the rate you are savings, and assuming modest growth, you should have about £500,000 in pensions/savings by the time you are 56, and this should be enough to retire on unless you have expensive tastes.

I would recommend NOT moving house unless you absolutely have to. Unless you downsize, it will cost you, and your retirement might have to be put back quite a few years.   

Mark_d

I think you have a good amount of savings in cash (£10k).  Personally I wouldn't overpay on a mortgage (unless it's the last option.  The choice would be out of investing in S&S ISA and investing in pension.

If I were you I would (1) stop the mortgage overpayments (2) put the max in to S&S ISA (3) increase personal contributions to pension to at least 20% (4) keep the remainder of the inheritance in easy access cash savings and review at the start of next tax year.

happymum37

In very very new to this game. If I were you I would increase my pension contribution by 2% or 3% and see if you can manage. If you can't decrease that off your mortgage over payment. 

We have steadily increased my hubby's pension but 1% increments each time and have not really felt the hit. It doesn't matter that his company doesn't match, it's still got a tax protection on it and I can't sneak it out to spend on the house. 

I paid off my mortgage in full by the age I'of 40.5 against everyones advice . But it was a huge dream of mine to do so, and knowing I will never ever lose my home is worth it . For that 16 years you have paid off early you have 16 years to save and utilise the spare mortgage money elsewhere. 
X

kimwp

I think if I were you, I would weigh up the pros and cons off adding a larger amount of your inheritance to your pension (to the max tax relief amount). Main con is it being locked away. Pro is the tax relief you would receive. 

Linton

Do you have a spouse?

Does your required £20k/£30k income in retirement in addition to State Pension or does it include S P?

CrunchyNutCornflakes

Thank you for all your thoughts. I'm now considering topping up my pension a little more but I don't necessarily want to lock everything away just yet.

Updated plan
- £12,000 to pension pot, and increase total monthly contributions to 18%
- £16,000 to ISA
- £12,000 to instant access @ 5%
- £35,000 to premium bonds, and consider moving £20k to ISAs in 2025

Any thoughts on continuing funding the Nest ISA? It's performed very well over the last few years but I'm aware it's very weighted towards US tech. Also while the annual management charge is good (0.3%) the contribution charge of 1.8% seems on the high side.

tacpot12 said:

Preimum Bonds aren't very reliable at paying out. Although I have about £2,000 in Premium Bonds, as part of a diversification strategy for my instant access cash.

My thinking was purely about avoid paying tax on interest, with the flexibility to review next year. I've also never had premium bonds before so could be interesting.

I would recommend NOT moving house unless you absolutely have to. Unless you downsize, it will cost you, and your retirement might have to be put back quite a few years.   

I have no plans to move to a bigger house as such, it's more if I move closer to family, to a more expensive region. Tbh that would eat the inheritance...

Mark_d said:

I think you have a good amount of savings in cash (£10k).  Personally I wouldn't overpay on a mortgage (unless it's the last option.  The choice would be out of investing in S&S ISA and investing in pension.

If I were you I would (1) stop the mortgage overpayments (2) put the max in to S&S ISA (3) increase personal contributions to pension to at least 20% (4) keep the remainder of the inheritance in easy access cash savings and review at the start of next tax year.

Interesting, I hadn't considered overpaying the mortgage might not be the best strategy long term. I'll consider moving that money to other investments.

happymum37 said:

In very very new to this game. If I were you I would increase my pension contribution by 2% or 3% and see if you can manage. If you can't decrease that off your mortgage over payment. 

With the above plan I'll be increasing the pension contribution by 4%, having already recently increased by another 2%. I'll see how affordable this is with the mortgage overpayment.

Linton said:

Do you have a spouse?

Does your required £20k/£30k income in retirement in addition to State Pension or does it include S P?

My partner and I aren't married and we keep finances separate.

I'm including the state pension in the £30k. I've been thinking about this since yesterday and I'd like to consider £30k as the minimum target, as my £25k didn't include holidays beyond Europe.

kimwp

CrunchyNutCornflakes said:

Thank you for all your thoughts. I'm now considering topping up my pension a little more but I don't necessarily want to lock everything away just yet.

Updated plan
- £12,000 to pension pot, and increase total monthly contributions to 18%
- £16,000 to ISA
- £12,000 to instant access @ 5%
- £35,000 to premium bonds, and consider moving £20k to ISAs in 2025

Any thoughts on continuing funding the Nest ISA? It's performed very well over the last few years but I'm aware it's very weighted towards US tech. Also while the annual management charge is good (0.3%) the contribution charge of 1.8% seems on the high side.

tacpot12 said:

Preimum Bonds aren't very reliable at paying out. Although I have about £2,000 in Premium Bonds, as part of a diversification strategy for my instant access cash.

My thinking was purely about avoid paying tax on interest, with the flexibility to review next year. I've also never had premium bonds before so could be interesting.

I would recommend NOT moving house unless you absolutely have to. Unless you downsize, it will cost you, and your retirement might have to be put back quite a few years.   

I have no plans to move to a bigger house as such, it's more if I move closer to family, to a more expensive region. Tbh that would eat the inheritance...

Mark_d said:

I think you have a good amount of savings in cash (£10k).  Personally I wouldn't overpay on a mortgage (unless it's the last option.  The choice would be out of investing in S&S ISA and investing in pension.

If I were you I would (1) stop the mortgage overpayments (2) put the max in to S&S ISA (3) increase personal contributions to pension to at least 20% (4) keep the remainder of the inheritance in easy access cash savings and review at the start of next tax year.

Interesting, I hadn't considered overpaying the mortgage might not be the best strategy long term. I'll consider moving that money to other investments.

happymum37 said:

In very very new to this game. If I were you I would increase my pension contribution by 2% or 3% and see if you can manage. If you can't decrease that off your mortgage over payment. 

With the above plan I'll be increasing the pension contribution by 4%, having already recently increased by another 2%. I'll see how affordable this is with the mortgage overpayment.

Linton said:

Do you have a spouse?

Does your required £20k/£30k income in retirement in addition to State Pension or does it include S P?

My partner and I aren't married and we keep finances separate.

I'm including the state pension in the £30k. I've been thinking about this since yesterday and I'd like to consider £30k as the minimum target, as my £25k didn't include holidays beyond Europe.

Sounds good. Now you have a target, you need to put your figures in a pension prediction calculator and play with the numbers of different performances of your pension fund, impacts of different interest rates and different life scenarios that might occur. 

I personally like the bank rate "best retirement calculator" because it lets you fiddle with the different factors. 

Then worth double checking your conclusions here.

MallyGirl

CrunchyNutCornflakes said:

Thank you for all your thoughts. I'm now considering topping up my pension a little more but I don't necessarily want to lock everything away just yet.

Updated plan
- £12,000 to pension pot, and increase total monthly contributions to 18%
- £16,000 to ISA
- £12,000 to instant access @ 5%
- £35,000 to premium bonds, and consider moving £20k to ISAs in 2025

Any thoughts on continuing funding the Nest ISA I presume you mean Pension? It's performed very well over the last few years but I'm aware it's very weighted towards US tech. Also while the annual management charge is good (0.3%) the contribution charge of 1.8% seems on the high side.

tacpot12 said:

Preimum Bonds aren't very reliable at paying out. Although I have about £2,000 in Premium Bonds, as part of a diversification strategy for my instant access cash.

My thinking was purely about avoid paying tax on interest, with the flexibility to review next year. I've also never had premium bonds before so could be interesting.

I would personally think about somewhere other than Nest - 1.8% is a big hit on every contribution. Just because your employer won't increase their payments if you increase yours then that is not necessarily a reason not to boost your current workplace pension. Who is it with and what are the fees?

I have been lucky with premium bonds (around 8% winnings so far) and they are useful when you become a higher rate tax payer which limits your interest exempt to £500. Interest rates can be found elsewhere that are more reliable but someone has to win big and it could be you.