Where to prioritise?

SpeedSouth

Hi All,

So I've put posts here before about plans and such.  Our tax credits have been turned off now, so we don't have to put everything in the pensions going forward.

Me & Missus so it's a plan for both of us.

Me: 42
Salary: 70K (Whether the hay will shine forever I don't know, but at present I'd say I'm secure enough)
Pensions (SIPP & Work): £475k
ISA: £40K
LISA: £0K

Missus: 39
Salary: 20K
Pension (SIPP): 110K
Pension (DB): small NHS 2015 CARE
ISA: 17K
LISA: Will open before 40

What is the best course/most efficient tax wise to proceed.

The plan when I started looking at Pensions 8 years ago was, to have a pot of £825K that would give us £25K per year at 3% drawdown.  Based on better book keeping it seems that was below our annual spend.  However at 42, with 3 kids it's far to early to realistically say what we will need/want to spend in retirement.  

So at this point, the plan/dream is to retire at 55 (or earlier, if budgets stack up), so I need to bridge the gap to 57/58 when I can draw pensions.  The earlier I go the more the ISA need to provide of course.

At present my company offers Sal Sac, and give me half the NI savings back as well.
I will certainly drop enough of mine in to get the 40% relief, but should we do more than that or push it to Missus SIPP/ISAs?

Given anything below £50K would essentially get me 35% with NI relief, is it still better to target that, or would others try to bring some parity to my Missus SIPP. We could almost put in the full 20K of her earnings into her SIPP if we pushed that one, and given she only pays tax on the £8k plus some rental income, I think she would be up on the relief game there.

Of course to bridge the gap the ISA need focus as well, so the plan is to be dropping £10K into those for the foreseeable to begin to provide the bridge to 57/58.

At present our annual spend is closer to £40K (not incl any pension/ISA deposits, but does include mortgage) so on the 3% rule means we need £1.2m, not factoring any state.

Any thoughts welcome.
Thanks

El_Torro

My first thought is that your pension is huge, your other investments not so much. If you plan to continue paying enough to get 42% or more tax relief (not a bad idea at all) then I would suggest that your pension is fine, you don't need to contribute any more. 

I would focus on ISAs for now, either yours or your wife's, or both. Not as tax efficient of course but you are at least 15 years away from accessing your pensions, ISAs at least give you the flexibility to cash in your investments when you want to. 

You don't mention any cash holdings. An emergency fund is important, especially with 3 kids to look after. If you haven't got one I would prioritise this above increasing your S&S ISAs for now. 

Do you have a mortgage? I am not a big fan of paying off mortgages as soon as possible, though it's probably a good idea to get it paid off before you retire.

SpeedSouth

Thanks, Whilst I my pension has increased a lot in the last 5-6 years it really is only as it went past £400K that I started to think it was enough.  A big part of that was due to 50-60% contributions.

Certainly will get the 42% at least on mine. It's a galling amount of tax paid compared to what I have been paying, but of course that is just tax deferment.

Would you say the missus SIPP needs any more dropping in it, or you you'd put all previous money going to pensions into ISAs from this point?

Cash holdings - Yeah hold between £12k and £25K, at any time for that reason, but not counting towards to any of this.
Mortgage - £44K on the home  - Will be paid off before I'm 50 I think at current term.
BTL - £118K - Interest only, undecided on this at present, it might be some of the TFLS pays this off, if we still have it.

El_Torro

SpeedSouth said:

Certainly will get the 42% at least on mine. 
Would you say the missus SIPP needs any more dropping in it, or you you'd put all previous money going to pensions into ISAs from this point?

Opinions will vary on what to do with your partner's income, though my personal view is not to bother putting any more into the SIPP, at least for now. Keep paying into the NHS pension of course, though I would put the rest into S&S ISAs, at least until your ISA holdings are significant enough to retire early. Also to have the money available to help the kids out in future, pay off the BTL mortgage, or whatever else you may want to do with the money.

Do your kids have JISAs? Do you want them to? Some people like to invest for their kids while they're young, the downside being that when the kids turn 18 the money is theirs and they can blow it all irresponsibly if they want to.

SpeedSouth

Thanks again.

The kids do have JISAs, only £5K ish each.  Mostly made up of small inheritance amounts, and extra birthday monies.  Our opinion until this point is we will invest for them in our plan, so they couldn't blow it at 18 if they so chose.

Admittedly we have been talking about this again, as putting £100 p/m month in now is much more palatable than giving them £10K when they are 18 for example.

If it is ISAs going forward, will need to look at investments.  At present pensions are all 100% equities, with 60% in ISAs, but I think I'd up that for a while with a 10 year time line.

ader42

I’d initially focus on putting as much as possible into your wifes SIPP first. 
When the LTA comes back you will want your SIPPS to be more balanced so you get two stabs at the LTA.

Albermarle

ader42 said:

I’d initially focus on putting as much as possible into your wifes SIPP first. 
When the LTA comes back you will want your SIPPS to be more balanced so you get two stabs at the LTA.

The normal advice is not to make financial decisions based on speculation about future changes in legislation.
We will know soon enough one way or another.

ader42

Albermarle said:

ader42 said:

I’d initially focus on putting as much as possible into your wifes SIPP first. 
When the LTA comes back you will want your SIPPS to be more balanced so you get two stabs at the LTA.

The normal advice is not to make financial decisions based on speculation about future changes in legislation.
We will know soon enough one way or another.

Fair play, I would also say that it might be diplomatically beneficial also to have spouses SIPPs more balanced  
It’s what I’m doing, happy wife happy life and all that. 

Purplelady65

Just something to think about with balancing as the investments in your name are much greater than those in your wife’s name. If in the future you required care and had to go into a care or nursing home everything in your name would be taken to fund it (bar the £23k and tapering you’re allowed to keep) which could leave your wife short of money to live on if she was still living in the family home and you required care for a significant period of time so that your investments were significantly depleted. 

This happened to my parents as my dad had a good DB pension plus the extra state pension and my mum did not have either and he also had investments which were all in his name. I am making sure that mine and my husband’s investments are fairly balanced precisely for this reason. I know some people quote the average stay in a care home as quite short but my dad was there for nearly 4 years which cost over £200k all of which was self funded and there were many residents who were there before him and still there after. I think the average cost is roughly around £1200 per week now although varies in type of care e.t.c. 

SpeedSouth

The imbalance is obvious, but it's only the last few of years the missus has gone back to work.  I'd be loathe to pass up on 42% to get some balance back.  I guess with the disparity in earning its a common thing among couples?

The BTL is fully in her name with around £100k equity which brings her a bit closer.

The ISA comment I do think holds value as I don't want to have to keep working only to get a pension pot that is larger than it needs to be, as the ISAs were not enough to bridge us.

As far as care goes, when I get the chance to take my 25% I can begin putting that into her name, but she is unlikely (hopefully) to be working at that point.

SpeedSouth

Not sure I'll get to LTA figures by 55 if I start tapering back my contributions to the min to get my 42% relief but, that rule could change another 3 times before i get there so we'll see what happens when I get there I'd guess.