Saving too much into pension for retirement?

thegentleway

We are both higher rate tax payers and have been salary sacrificing income over higher rate of income tax. However, I'm wondering if we are saving too much into our pensions. We both have defined benefit pensions that are projected to give us comfortable retirement with state pension at 68 (according to PLSA). Obviously we can save more into our pension so we have the option of retiring earlier. But at our current salary sacrifice rates we have more than enough to bridge the gap from 55 to 68. So it would be better to reduce salary sacrifice and put money into ISA for retiring before 55? 

Albermarle

Do you think either of you will be higher rate taxpayers in retirement, remembering that the state pension is taxable income?

Sarahspangles

thegentleway said:

We are both higher rate tax payers and have been salary sacrificing income over higher rate of income tax. However, I'm wondering if we are saving too much into our pensions. We both have defined benefit pensions that are projected to give us comfortable retirement with state pension at 68 (according to PLSA). Obviously we can save more into our pension so we have the option of retiring earlier. But at our current salary sacrifice rates we have more than enough to bridge the gap from 55 to 68. So it would be better to reduce salary sacrifice and put money into ISA for retiring before 55? 

You don’t state your age, but are you in the group whose Minimum Retirement Age is 55, or 57?

kempiejon

When I was first making my retirement plans the restrictions on pensions, access, compulsory annuity etc put me off. ISAs were only £7k, dividends were untaxed so I had money in unsheltered accounts too, I preferred that route to extra pensions. I planned to retire before 55 so would need access to the money early. I had a few personal pensions and always made the contributions to maximise employer contributions.
If you can afford to retire before 55 putting that money aside outwith a SIPP is a good plan. Losing out on the SIPP tax clawback is a lost opportunity of at least 6% but I'd value retiring at 50 odd as worth giving up that 6%

Cus

thegentleway said:

We are both higher rate tax payers and have been salary sacrificing income over higher rate of income tax. However, I'm wondering if we are saving too much into our pensions. We both have defined benefit pensions that are projected to give us comfortable retirement with state pension at 68 (according to PLSA). Obviously we can save more into our pension so we have the option of retiring earlier. But at our current salary sacrifice rates we have more than enough to bridge the gap from 55 to 68. So it would be better to reduce salary sacrifice and put money into ISA for retiring before 55? 

If you know your required retirement number/withdrawal then it's a basic calculation to see which scenario, SIPP or ISA, gives the earliest date of that scenario.

thegentleway

Albermarle said:

Do you think either of you will be higher rate taxpayers in retirement, remembering that the state pension is taxable income?

Nope, comfortable retirement for couple is £59k net so £67.6k gross, i.e. quite a bit below higher rate for a couple.

thegentleway

Sarahspangles said:

thegentleway said:

We are both higher rate tax payers and have been salary sacrificing income over higher rate of income tax. However, I'm wondering if we are saving too much into our pensions. We both have defined benefit pensions that are projected to give us comfortable retirement with state pension at 68 (according to PLSA). Obviously we can save more into our pension so we have the option of retiring earlier. But at our current salary sacrifice rates we have more than enough to bridge the gap from 55 to 68. So it would be better to reduce salary sacrifice and put money into ISA for retiring before 55? 

You don’t state your age, but are you in the group whose Minimum Retirement Age is 55, or 57?

I'm 40. I'm guessing it'll be 57 for me (if not higher by the time I get there!)

thegentleway

Cus said:

thegentleway said:

We are both higher rate tax payers and have been salary sacrificing income over higher rate of income tax. However, I'm wondering if we are saving too much into our pensions. We both have defined benefit pensions that are projected to give us comfortable retirement with state pension at 68 (according to PLSA). Obviously we can save more into our pension so we have the option of retiring earlier. But at our current salary sacrifice rates we have more than enough to bridge the gap from 55 to 68. So it would be better to reduce salary sacrifice and put money into ISA for retiring before 55? 

If you know your required retirement number/withdrawal then it's a basic calculation to see which scenario, SIPP or ISA, gives the earliest date of that scenario.

I have no idea what our required retirement number/withdrawal; it's rather difficult to project that far ahead. I'm just going by PLSA numbers. I suspect as we approach retirement the numbers will become clearer and easier to estimate.

MallyGirl

thegentleway said:

Cus said:

thegentleway said:

We are both higher rate tax payers and have been salary sacrificing income over higher rate of income tax. However, I'm wondering if we are saving too much into our pensions. We both have defined benefit pensions that are projected to give us comfortable retirement with state pension at 68 (according to PLSA). Obviously we can save more into our pension so we have the option of retiring earlier. But at our current salary sacrifice rates we have more than enough to bridge the gap from 55 to 68. So it would be better to reduce salary sacrifice and put money into ISA for retiring before 55? 

If you know your required retirement number/withdrawal then it's a basic calculation to see which scenario, SIPP or ISA, gives the earliest date of that scenario.

I have no idea what our required retirement number/withdrawal; it's rather difficult to project that far ahead. I'm just going by PLSA numbers. I suspect as we approach retirement the numbers will become clearer and easier to estimate.

Without tying yourself up in spreadsheet hell, it is worth tracking spend at least into high level buckets that can be viewed as required spending, comfortable living, luxury/treats. That way you can arrive at your NUMBER.
First work out what you absolutely must have to keep the lights on, maintain house in good state, run car, whatever you would rather work for longer than try and do without. Then look at what you would like to do - hobbies, travel, subscription services, replacing whitegoods periodically. Then there might be a top level - dream holiday, 2nd car, camper van, gifts to kids.

Sarahspangles

There’s a thread at the top of this forum that discusses ‘The Number’. There’s some scepticism about the PLSA numbers, since the calculations are sponsored by pension providers who have a vested interest in suggesting you save more into pensions.

Hoenir

thegentleway said:

Cus said:

thegentleway said:

We are both higher rate tax payers and have been salary sacrificing income over higher rate of income tax. However, I'm wondering if we are saving too much into our pensions. We both have defined benefit pensions that are projected to give us comfortable retirement with state pension at 68 (according to PLSA). Obviously we can save more into our pension so we have the option of retiring earlier. But at our current salary sacrifice rates we have more than enough to bridge the gap from 55 to 68. So it would be better to reduce salary sacrifice and put money into ISA for retiring before 55? 

If you know your required retirement number/withdrawal then it's a basic calculation to see which scenario, SIPP or ISA, gives the earliest date of that scenario.

I have no idea what our required retirement number/withdrawal; it's rather difficult to project that far ahead. I'm just going by PLSA numbers. I suspect as we approach retirement the numbers will become clearer and easier to estimate.

Until you get there. You won't know what your investments will actually be worth.