Mid-life musings

MeteredOut

michaels said:

MeteredOut said:

BlackKnightMonty said:

Bumblingbee said:

I think it's unlikely that the state pension would be abolished, but I guess who knows what will happen! I certainly couldn't have foreseen a lot of the last 5-10 years 🤣

With regards to paying off our mortgage, there perhaps is more to be gained via investments but it doesn't interest me. Certainty and security is something I value, there is plenty of time after that to try and make gains if we wish and it will give us financial freedom. 

Likewise when we hit the pension number I'd expect us still to be working and contributing at least whatever is required for our employers contributions, so I'd expect this to bridge the gap between the value today vs the value in the future - but I can worry about that when we hit the number 

Very unlikely they will get rid of the state pension.

It is likely that the age you receive it will increase. For me it is currently 68; but by 2044 I could see that increased to +70.

it is likely it will be means tested in future; the irony there being only those who haven’t contributed towards it would receive it.

This all sucks, I know, but the UK is actually quite poor and has been living beyond it’s means for far too long.

I agree the state pension age is likely to increase. 

I strongly disagree it is likely to be means tested for anyone currently of working age and making NI contributions.

It is already means tested, if you have other earnings of more than 12.5k then 20% is deducted and if you have other earnings of more than 50k then 40% is deducted.

That's no more means testing that paying tax on employment income is means testing, or tax on savings above the 0% thresholds is means testing. 

And its clear what BKM actually meant when they said "in future" - entitlement to, not taxation of.

Cobbler_tone

michaels said:

MeteredOut said:

BlackKnightMonty said:

Bumblingbee said:

I think it's unlikely that the state pension would be abolished, but I guess who knows what will happen! I certainly couldn't have foreseen a lot of the last 5-10 years 🤣

With regards to paying off our mortgage, there perhaps is more to be gained via investments but it doesn't interest me. Certainty and security is something I value, there is plenty of time after that to try and make gains if we wish and it will give us financial freedom. 

Likewise when we hit the pension number I'd expect us still to be working and contributing at least whatever is required for our employers contributions, so I'd expect this to bridge the gap between the value today vs the value in the future - but I can worry about that when we hit the number 

Very unlikely they will get rid of the state pension.

It is likely that the age you receive it will increase. For me it is currently 68; but by 2044 I could see that increased to +70.

it is likely it will be means tested in future; the irony there being only those who haven’t contributed towards it would receive it.

This all sucks, I know, but the UK is actually quite poor and has been living beyond it’s means for far too long.

I agree the state pension age is likely to increase. 

I strongly disagree it is likely to be means tested for anyone currently of working age and making NI contributions.

It is already means tested, if you have other earnings of more than 12.5k then 20% is deducted and if you have other earnings of more than 50k then 40% is deducted.

Using that logic everyone will soon be 'means tested' on the state pension. 

Bumblingbee

Updating current progress
My pension #1 £366,186
My pension #2 £8,786
Hubs pension £193,790

Total £568,762. Quite pleased with that!

Bumblingbee

Back to provide an update of where we are. During the year my husband changed jobs so there's now a NEST pension in the mix. We've had some ongoing confusion about contributions with it but thanks to this forum we're now clear on that, so we have a couple of 2026 actions: 1) try again to resolve NEST contributions, and 2) set up a SIPP for my husband and increase contributions.

In the last year we've also nearly cleared the mortgage so have just under £7.5k on it.

Pension balances are now as follows:

Husband L&G pension £219,772.06
Husband NEST £3,064.11
My L&G pension £403,362.00
My Aegon pension £48,925.00
Cash in bank ready to be paid into pension £16,000 which will become £20,000

I make that a total combined of £675,123.12 which will increase to £695,123.12 once the cash is paid in.

Bumblingbee

Updating current figures (rounded for ease)

My L&G pension £536,000

My Aegon pension £20,000

Husband L&G pension £244,000

Husband NEST pension £6,000

Total £806,000

Pleased to have hit the £800k mark which I think feels sufficient for now, both aged ~40, and I think we need to turn our attention to building more cash / mid term savings. I will have to continue to heavily pay into my pension this year (likely £50/£60k) but from next year it seems like it will be worth the tax hit?(£100k+ earner) as with compound growth I assume I'll get to the tax free cash limit

Simon11

I'm in a similar boat (slightly younger), where I have thrown everything to get under £60k tax threshold for 7 years but what I have discovered when running models and using just some low growth figures for 20 years to go, is that I should 'hopefully' have far too much when I hit pension age and will be unlikely to ever spend it unless I go mad or end up in a care home. And that is after taking 25% tax free for the mortgage.

Thus I have switched my plan to pay in the bare minimum into my pension, take the tax hit now up to £100k which either allows us to spend more money to enjoy ourselves for now and/or build up the cash ISA pot.

What is now limiting me now from retiring earlier is not putting more money into the pension, but having enough savings and resources to cover the period before you have access to pensions.

Lovely place to be, but one I had not properly realised a few years back and wished I had slightly adjusted my plan! Although in hindsight, the recent strong growth in investments over the last 1-2 years has made a huge impact!

hugheskevi

This is where the frozen Lump Sum Allowance complicates optimisation.

If you were sure that there would be 25% tax free available when withdrawing, pension contributions made from higher rate income benefit from an uplift of at least 16.67% uplift (40% income tax if taken now, but if taken in a pension then 25% tax free and the rest at 40%, so 30% effective tax).

But if the Lump Sum Allowance remains frozen in cash terms for the next 20 years, or is reduced, then it is quite likely that many will exced the Lump Sum Allowance, so it will be 40% relief on the way in, 40% tax on the way out at the margin - and worse if tax rates increase.

If there was confidence in Lump Sum Allowance availability, then the 16.7% pension uplift gives a decent incentive to prioritise pension over mortgage, and either take-out / increase mortgage, or reduce mortgage repayments, That moves a liability from now to the future, when it can be repaid with tax advantaged pension.

Funding the period before age 57 is by far the most difficult due to the minimum pension age, and even LISA bonuses are only available at 60. So you probably end up having to accept heavy taxation and save the residual in ISAs for the pre-57 period. Risk management also comes into play, as without access to pension there may be limited options to fall back on in the event of unforeseen post-retirement funding pressures prior to age 57. That in itself may increase the amount of contingency capital you wish to hold, which again increases pressure on building up the amount desired for the pre-57 period.

Bumblingbee

@Simon11, yes it's tricky isn't it because you don't know what that growth looks like, and if planning to retire early then that horizon changes. Are you happy to share your figures? How much do you have invested at the moment and where do you think you will end up? Do you have a goal retirement age in mind? I'm happy with my choices to date as I wanted to feel I have adequate provision while I'm earning well, and I think we have [hopefully] achieved that, and as you say it has been a good couple of years in the markets!

@hugheskevi yes, this is the other unknown, although I perhaps naively assume if they removed the tax free allowance there would be some transitional protection, though if that happened lets say next year I wouldn't qualify as haven't had the growth yet. But we can only work to what we know today. I haven't ever really considered officially retiring pre 57 as it feels unachievable, but if I do switch to trying to build out those mid term reserves, perhaps it will be possible. I will need to change my mindset as the tax figures are going to hurt

hugheskevi

@hugheskevi yes, this is the other unknown, although I perhaps naively assume if they removed the tax free allowance there would be some transitional protection, though if that happened lets say next year I wouldn't qualify as haven't had the growth yet. But we can only work to what we know today. I haven't ever really considered officially retiring pre 57 as it feels unachievable, but if I do switch to trying to build out those mid term reserves, perhaps it will be possible. I will need to change my mindset as the tax figures are going to hurt

I don't mean the abolition of Pension Commencement Lump Sums (which seems unlikely, certainly without any protection), but just no future uprating - which seems highly likely.

The current Lump Sum Allowance of £268,275 is reached with a pension pot of £1,073,100. If the limit stays frozen in cash terms, and nominal returns after fees are 7% p/a then a 42 year old with a Minimum Pension Age of 57 and a pension pot of £390,000 today would exceed the Lump Sum Allowance with no further contributions, and so be unable to take a tax-free lump sum on a part of their pension saving at age 57.

So that person has to play a guessing game - will returns be lower than 7% p/a, will the Lump Sum Allowance be uprated, etc. They could very easily end up contributing funds tied up for 15 years only to not get any tax free amount on that contribution (talking here of the margin, not the average) and maybe even paying a higher tax rate to get it out, given tax rates/allowances only look to be headed to raise more tax.

kempiejon

Pensions do lock the money away, seen as a positive. When I realised in my 30s that financial independence to get out the race was my desire. I concentrated on building capital and income maxing out ISA and GIA, there were more benign times for investors' capital and dividends unsheltered. Locking my money away for 20+ years didn't sound like a route to early retirement.

For a fifty something putting as much as possible into a SIPP gives the tax leverage and with 55/57 access age less of a problem of locking your money away. Financing the time before access to pensions is a consideration, depends how early one retires.