Maximising for later years

moneyworrier2021

Hi all, I am 36 and my husband and I are almost debt free. Except our mortgage, we want to both focus more on saving for later years and retirement.

He has been hired by Kent police for 2 years now and his pay increments are starting to go up more now he has become a Detective. I will also be joining Kent Police this January but as a staff member (not officer) but will also be eligible to a good pension plan.

We've checked our state pension and despite gaps, are on course for full entitlement if we continue for the next 14 years.

With Private pensions, would I be right to assume that the most sensible thing to do is pay the maximum % contributions against the maximum % that it will get topped up by?

Once he hits the 40% tax threshold, Is it right that he can instead paying the tax, put it into his pension to avoid the extra tax rate? (although that's not topped up by employer)

After that, we both opened a LISA but only have £5 each in them with moneybox. Is that the next best investment to make? Even if we can only commit £2k each a year, that's an extra £500 each a year we can gain until we are 50.

Then after that, just a high rate everyday savers account and paying down mortgage faster? 

Cobbler_tone

If you can afford to paying extra contributions via salary sacrifice to stay below the 40% tax bracket is a really good move. The limit for total pension contributions being £60k per year.

Albermarle

With Private pensions, would I be right to assume that the most sensible thing to do is pay the maximum % contributions against the maximum % that it will get topped up by?
Just FYI and to avoid confusion, if it is a pension organised and paid into by your employer, it is normally referred to as a 'workplace pension'
Otherwise yes maximising free money from your employer makes sense.

Once he hits the 40% tax threshold, Is it right that he can instead paying the tax, put it into his pension to avoid the extra tax rate? (although that's not topped up by employer)

This depends on how the contributions are made ( it varies between employers).
In the case of Salary Sacrifice schemes or Net pay arrangements, your taxable income is effectively reduced so the right level of contributions would mean no 40% tax was paid.
If it is a Relief at source scheme, normal tax is paid and tax relief is added to the pension, and for 40% taxpayers, you can claim additional relief. 

moneyworrier2021

Cobbler_tone said:

If you can afford to paying extra contributions via salary sacrifice to stay below the 40% tax bracket is a really good move. The limit for total pension contributions being £60k per year.

Thank You. He should be able to be well under that.

moneyworrier2021

Albermarle said:

With Private pensions, would I be right to assume that the most sensible thing to do is pay the maximum % contributions against the maximum % that it will get topped up by?
Just FYI and to avoid confusion, if it is a pension organised and paid into by your employer, it is normally referred to as a 'workplace pension'
Otherwise yes maximising free money from your employer makes sense.

Once he hits the 40% tax threshold, Is it right that he can instead paying the tax, put it into his pension to avoid the extra tax rate? (although that's not topped up by employer)

This depends on how the contributions are made ( it varies between employers).
In the case of Salary Sacrifice schemes or Net pay arrangements, your taxable income is effectively reduced so the right level of contributions would mean no 40% tax was paid.
If it is a Relief at source scheme, normal tax is paid and tax relief is added to the pension, and for 40% taxpayers, you can claim additional relief. 

He pays a % each month and then Kent Police also put a % ( so I assume a workplace pension) in which I believe is higher than what he pays in. I said he needs to find out what the maximum that they can pay but he's struggling to find an answer anywhere. 

saajan_12

Anything with an employer match is likely to be a good idea because tax aside, you're getting a 100% increase on that amount in gross terms, provided you leave it it a pension. Unless you'd need the money and have to borrow at very high rates to make up for it, its better to take that employer match. 

Beyond that, there's a lot of variables which you'll never 100% know, so you just have to make a reasonable guesstimate.
- Eg there could be a Lifetime pension allowance reinstated, and if you get close to that by unmatched contributions now, you may not be able to benefit from an employer match in later years. 
- Eg if tax rates rise or you have enough passive income in your retirement years, then you could save the 40% tax now only to pay a higher tax as you withdraw it from your pension. 
- ...

Re the LISA, for basic rate tax payers its similar to a pension, in that the 25% bonus offsets the tax you paid on getting that money. eg if you took 2.5k of your gross income, thats 2k net income, which you put into a LISA and get a 500 bonus, meaning you have 2.5k invested. If instead you put the original 2.5k into a pension and not pay tax, 

So the two are somewhat interchangeable, unless you're maxing out either one or you become a higher rate tax payer. 

SpeedSouth

moneyworrier2021 said:

He pays a % each month and then Kent Police also put a % ( so I assume a workplace pension) in which I believe is higher than what he pays in. I said he needs to find out what the maximum that they can pay but he's struggling to find an answer anywhere. 

If you are both with the police, I would assume this is a DB pension.  Meaning you contribute an amount of money each month as does the employer, and at the end of it you get a percentage of your annual salary guaranteed for life.  The amount you have contributed is largely irrelevant, and defined by your salary bracket.

Whilst you are contributing money it's not the same as it would be for DC pension. This is essentially a investment account that is easy to see what it is worth at any point.  Here what you put in, is directly related to what you get at the end of it. (Plus of course growth/employer contributions etc.)

My missus has an NHS pension which I assume (might not be) similar to the police pension.  Her % paid each month buys a pension amount of 1/55 of her annual salary at retirement.  She can buy extra amount of pension but she doesn't get more input from the NHS.  These are typically deemed AVC in this instance.

We have chosen to setup a personal SIPP alongside her NHS pension for flexibility which operates as DC pension.

moneyworrier2021

Thank you for your replies.

The police pension is an absolute find field it seems. I think when I start in January and go through it, I'll understand it much better (husband is useless as finding out and explaining things) Hopefully he will have the option to make changes if possible,

The LISA thing makes sense and getting the tax back essentially. 

I'll aim to find out how we can maximise the pensions and then use the LISA if we have spare money but paying down the mortgage quicker maybe a good idea.

german_keeper

A public sector pension is a thing of beauty, but it is essentially just deferred salary, pay rates are set at a level to take account of this. I have seen comments that public sector workers don't appreciate how good their pensions are but that hasn't been my my experience. What I have seen (civil servants in my case) is people who do understand that they have a good pension but don't take the time to understand it and when they do they give up at the first hurdle.

But actually it's all quite logical, and I think the best thing you can do is make the effort to understand the pension and particularly all the options you have.

Dazed_and_C0nfused

If it's the 2015 scheme then it's a completely different beast to building up a pension pot.

It's a pension many people can only dream of!

It seems to have a much younger than average NPA of 60.  A lot of similar schemes would be 67/68 and tied to your State Pension age.

It also has a generous (compared to other schemes) annual revaluation rate of CPI +1.25% whilst in service.

The contributions rates are more than some schemes but the accrual rate (1/55.3) is better than some similar schemes.

Someone earning £45,000 will pay £6,048 (which is likely to be a real cost of £4,838 once the tax saving is factored in).

In return you will get a pension of £813 🤩

Kernowshep

Try this it's The police pensions scheme 2015: member’s guide, English
https://assets.publishing.service.gov.uk/media/5a823f2fed915d74e340282d/PPS_2015_Members__Guide.pdf