Inheritance and Pension

Kinclad

Hi,

Looking for any advice on the following, any guidance would be appreciated.

It's likely I will benefit from a inheritance in the near future.

Im 55 and for the last 5-7 years I have been contributing as much as affordable via salary sacrifice into my workplace pension (my employer matches up to around 10% iirc, obviously need to check that %). (I'm in the 40% tax bracket)

Does it make general economic sense to increase my pension % contributions to a point where I almost become reliable on my savings for month to month living expenses?

This would be based on the premise that my savings would have: -

Already cleared my mortgage.
I would have exhausted my annual ISA allowance. 

Thanks Mark 

Dazed_and_C0nfused

Kinclad said:

Hi,

Looking for any advice on the following, any guidance would be appreciated.

It's likely I will benefit from a inheritance in the near future.

Im 55 and for the last 5-7 years I have been contributing as much as affordable via salary sacrifice into my workplace pension (my employer matches up to around 10% iirc, obviously need to check that %). (I'm in the 40% tax bracket)

Does it make general economic sense to increase my pension % contributions to a point where I almost become reliable on my savings for month to month living expenses?

This would be based on the premise that my savings would have: -

Already cleared my mortgage.
I would have exhausted my annual ISA allowance. 

Thanks Mark 

You cannot salary sacrifice below NMW.

Do you mean salary sacrifice down to NMW and then make separate personal contributions?

vacheron

When you are close to retirement, subsidising your lifestyle with external funds to maximise employer pension contributions (which you will have access to in less than 2) years is certainly a good option to consider. 

By sacrificing down to NMW you will be paying very little tax and NI, plus you may even be entitled to certain benefits! 

Marcon

Kinclad said:

It's likely I will benefit from a inheritance in the near future.



Does it make general economic sense to increase my pension % contributions to a point where I almost become reliable on my savings for month to month living expenses?

'Likely' isn't the same as 'certain'. When will you know (ie this tax year?).

How near is 'near future'?

Without knowing that, it's hard to answer the rest of your question helpfully.

DRS1

Even without an inheritance salary sacrificing to get yourself below the higher rate tax band can have advantages (eg 0% tax on £1k of savings interest instead of just £500).

Bear in mind that there are limits on how much you can put into a pension just as there is with an ISA so depending on the size of the inheritance you may not be able to get it all into a tax shelter in one year.  Of course there are always premium bonds.

Kinclad

Thanks for your responses.

Likely = Pretty certain. Just waiting on house sale, my brother and I are sole beneficiary's.

Unsure if I should be sacrificing down to NMW, tbh that is part of my reason I'm looking for guidance.

Ultimately, if I'm fortunate in that I'm inheriting enough to clear my mortgage (the outstanding is only about 15% of the value of my house and it's got a year remaining on a 5 year fix, so wouldn't even clear it until renewal). Does it make sense to then exhaust all tax free savings allowances and then use the benefits of salary sacrifice (ie tax and company contributions) to bulk up my pension and use the cash I hold to live day to day?

Obviously at my age, my focus is on trying to build a adequate retirement fund.

Thanks 

DRS1

People on here would prioritise  pension contributions over ISAs (you may be 6.25% better off with the pension contribution) but you do have a bit more flexibility with an ISA.  I think you should get as much as you are comfortable with into both

I am not sure what other tax free savings allowances you mean - the 0% band on £1k or £500 of interest is not quite the same thing as an ISA or pension and can be changed at the next budget.  So personally I would only use it for the interest on money I can't get in a tax shelter.

Premium bonds are not everyone's cup of tea but the prizes are tax free.

Low coupon short dated gilts are a bit niche (but you only pay income tax on the coupon which is minimal and the gain on maturity is CGT free)

VCTs and EIS/SEIS are not for anyone who can get more tax relief making pension contributions 

I am sure there are things I have missed

dunstonh

Unsure if I should be sacrificing down to NMW, tbh that is part of my reason I'm looking for guidance.

you can always use an individual pension to go further.  That would not be handicapped by auto-enrolment rules.  You would still get tax relief but no NI reduction.

Does it make sense to then exhaust all tax free savings allowances and then use the benefits of salary sacrifice (ie tax and company contributions) to bulk up my pension and use the cash I hold to live day to day?

Pension beats ISA as long as your pension is not going over £1m (due to the LSA).  So, that should be at the top of your pecking order.

Triumph13

First priority on the pension front would be to aim to sacrifice all your higher rate taxed income over the rest of your career.  So don't put money in this year with 20% relief (unless there's an employer match) if that would mean not being able to afford to sacrifice all your 40% income in future years.

af1963

At 55, another option worth considering might be to use the funds to allow you to reduce your working hours while maintaining your income living expenses.

Financially, it might also be better *not* to clear your mortgage, if it's likely that you can earn more from investing the funds in a pension than it costs to pay off the mortgage. Depends on your mortgage rate. Pension contributions will benefit from immediate tax relief topups or from saved tax/NI, even if they are then invested in something relatively low risk/return.  But there's sometimes a psychological benefit from paying off the mortgage.

HedgehogRulez

Mortgage debt also gets eroded by inflation over time. Loving my 1.14% fix atm!