Pension calculators - why are they all the wrong way round?

owlowlowl

I know, I know, it's not the "wrong way round". I'm probably just thinking about this weirdly or doing something wrong.

I have been ill for over a decade and unable to work. Recently I had an operation that was successful and I'm back at work. My husband and I are now desperately trying to get across our awful pensions situation to sort it out. I'm afraid I'm going to have a LOT of questions because I am finding this all incredibly confusing and intimidating, but I'm determined to crack it.

First things first: my husband is a higher-rate tax payer. He has a defined benefits work pension with an investment builder element. But it's a bit of a crap pension, and one that is not without risks. So we are thinking that it makes sense for us to make use of his tax allowance to get a SIPP and invest it passively in equities.

However, we are struggling with the calculators. All of them tell you what you could SAVE from the government when investing in a SIPP. So, e.g. we know we have about £34k spare that we can invest a year. But the calculators all say things like "To invest £34k, you only need to pay £20,141". We want to calculate it the opposite way round: if we put in £34k, how much will it be worth with tax relief? Can anyone point me to a calculator that does this please?

Mark_d

i'm note sure I understand the "risks" with your husband's DB pension.  Can you elaborate?
Is the "investment builder element" simply a DC scheme into which your husband pays AVCs?
Are you considering a SIPP instead of the "investment builder element"?
Your husband would need to apply to claim the tax relief of his SIPP contributions.  How much he can claim will depend on his tax code.

Marcon

owlowlowl said:

I know, I know, it's not the "wrong way round". I'm probably just thinking about this weirdly or doing something wrong.

I have been ill for over a decade and unable to work. Recently I had an operation that was successful and I'm back at work. My husband and I are now desperately trying to get across our awful pensions situation to sort it out. I'm afraid I'm going to have a LOT of questions because I am finding this all incredibly confusing and intimidating, but I'm determined to crack it.

First things first: my husband is a higher-rate tax payer. He has a defined benefits work pension with an investment builder element. But it's a bit of a crap pension, and one that is not without risks. So we are thinking that it makes sense for us to make use of his tax allowance to get a SIPP and invest it passively in equities.

However, we are struggling with the calculators. All of them tell you what you could SAVE from the government when investing in a SIPP. So, e.g. we know we have about £34k spare that we can invest a year. But the calculators all say things like "To invest £34k, you only need to pay £20,141". We want to calculate it the opposite way round: if we put in £34k, how much will it be worth with tax relief? Can anyone point me to a calculator that does this please?

Sounds like USS. What on earth makes you describe it as 'a bit of a crap pension' - and why do you think investing passively in equities is less 'risky'? Depends which fund choices your husband has made - is he in the Do it for Me section or Let me do It? If the latter there are various equity fund choices.

Assuming his contribution is within tax-relievable limits then:

• the SIPP provider would claim/add basic rate tax relief to his pot, so £34,000 grosses up to £42,500 (just divide his contribution by 4 and multiply by 5)
• if he's a higher rate tax payer, he would claim any further relief to which he is entitled via his self assessment tax return. 

Brie

I think the answer is about £49k but I could be wrong.  Just got to this by reversing the percentage that took the £20k to £34k.  (34k-20141=13859.   13859/20141=.688   34k/.688=49411)

So while we wait for someone to come along and say I'm wrong - have you both checked your pension forecasts?  And the DB pension in itself has few risks and he's very lucky to have it.   

owlowlowl

Marcon said:

owlowlowl said:

I know, I know, it's not the "wrong way round". I'm probably just thinking about this weirdly or doing something wrong.

I have been ill for over a decade and unable to work. Recently I had an operation that was successful and I'm back at work. My husband and I are now desperately trying to get across our awful pensions situation to sort it out. I'm afraid I'm going to have a LOT of questions because I am finding this all incredibly confusing and intimidating, but I'm determined to crack it.

First things first: my husband is a higher-rate tax payer. He has a defined benefits work pension with an investment builder element. But it's a bit of a crap pension, and one that is not without risks. So we are thinking that it makes sense for us to make use of his tax allowance to get a SIPP and invest it passively in equities.

However, we are struggling with the calculators. All of them tell you what you could SAVE from the government when investing in a SIPP. So, e.g. we know we have about £34k spare that we can invest a year. But the calculators all say things like "To invest £34k, you only need to pay £20,141". We want to calculate it the opposite way round: if we put in £34k, how much will it be worth with tax relief? Can anyone point me to a calculator that does this please?

Sounds like USS. What on earth makes you describe it as 'a bit of a crap pension' - and why do you think investing passively in equities is less 'risky'?

Assuming his contribution is within tax-relievable limits then:

• the SIPP provider would claim/add basic rate tax relief to his pot, so £34,000 grosses up to £42,500 (just divide his contribution by 4 and multiply by 5)
• if he's a higher rate tax payer, he would claim any further relief to which he is entitled via his self assessment tax return. 

Haha, you're quite right to call me out on this Marcon! It does read as inconsistent, and maybe it is. 

It IS USS. I'm impressed you figured that out. It has a defined benefit element and then an investment builder, which isn't AVCs because it's mandatory and comes out of his salary. (You can top it up with AVCs though). 

There are 3 reasons why I have the perception that it's a bit crap. I say this from a VERY ill-informed position so please correct me and please also assume I am a complete idiot when it comes to financial matters.

Firstly, it's mostly because my husband has already had to go on strike multiple times - at enormous financial cost to us as a household - to defend the defined benefit element - it was USS themselves who were saying they couldn't afford it and this makes me feel very nervous. Are we actually going to get the benefits they promise? Who is right about how well their funds are doing? I just don't feel like I know enough to have an opinion, but it scares me from investing additional AVCs in a scheme that might or might not be shaky.

Secondly, USS also seem to be invested in some highly dodgy companies like Thames Water too, which makes me think that perhaps the people who are making the choices on this aren't doing the greatest job of selecting good investments? I consider myself a very inexperienced and poor investor but even I would not have put money in Thames Water. 

Third, the benefits are SO MUCH less now than previous generations got, and are crap compared to the post-92 universities with their gold-plated Teachers' Pension. 

But no point in moaning about it. The question is... what to do?

I recognise that we might have to take some risks to get the life that we want. I have been listening to some YouTube videos on the FIRE movement (Rebel Donegans) and it sounds like equities are higher-risk but also higher-yielding. Maybe I have to take that risk now, given everything that's happened?

We have fairly substantial savings and we are in a position to save a further £2500 a month now. This is largely because we live in a not very nice house that we've paid off. 

So I am trying to figure out how we a) save for a house that's a bit nicer than the tiny box we live in and b) make sure we supplement pensions in a tax-efficient way to make up for the fact I've lost a decade of earnings. We have about 12-15 years to do this. I'm 47, husband is 52. 

The FIRE advice is to put money in a stocks and shares global equity all-cap fund, and to take out a SIPP and do the same. So I was thinking of doing that maybe for five-seven years and then transferring gradually to something slightly less risky?

owlowlowl

I should add, I'm not thinking of pulling out of the DB scheme, this would be in addition! I am thinking about whether I should take the investment builder pot and put it into a SIPP along with some of the £2500 a month we can save? 

LHW99

How about thinking at it from the other end (not the calculation itself though).

What will you need to live on when you retire eg what do you spend now minus work expenses & pension contributions plus costs of hobbies / holidays etc?

Then, What are your state pension forecasts? https://www.gov.uk/check-state-pension (read it all)

Then, what is the predicted income from (both?) your current pensions?

Add it all up - what's the gap?

Then, is it really best to add money to your husband's provision (yes I know the 40% bit), or would it be better to increase your own pension?

Doing that means that when you retire you have two personal allowances, yours and your OH's.

So if eg you had no other income (maybe retiring a few years earlier than SPA), you could take out just over £16k per year from a works DC pension or SIPP without paying tax on it (that's the personal allowance amount of £12,570, plus the 25% tax free amount).

JoeCrystal

owlowlowl said:

Third, the benefits are SO MUCH less now than previous generations got, and are crap compared to the post-92 universities with their gold-plated Teachers' Pension. 

But no point in moaning about it. The question is... what to do?

Except for TPS, universities post-1992 are increasingly finding TPS costs much harder to bear. Indeed, they are looking at the Universities that paid far less towards USS compared to them with sheer envy. Frankly, USS is still much better than a run-of-the-mill private sector DC pension scheme anyway. It is still a virtually gold-plated pension scheme compared to the vast majority of the DC pension schemes

Here is the FT article about the pension burdens that Post-92 Unis faces: https://archive.is/eDeUr

DRS1

owlowlowl said:

I know, I know, it's not the "wrong way round". I'm probably just thinking about this weirdly or doing something wrong.

I have been ill for over a decade and unable to work. Recently I had an operation that was successful and I'm back at work. My husband and I are now desperately trying to get across our awful pensions situation to sort it out. I'm afraid I'm going to have a LOT of questions because I am finding this all incredibly confusing and intimidating, but I'm determined to crack it.

First things first: my husband is a higher-rate tax payer. He has a defined benefits work pension with an investment builder element. But it's a bit of a crap pension, and one that is not without risks. So we are thinking that it makes sense for us to make use of his tax allowance to get a SIPP and invest it passively in equities.

However, we are struggling with the calculators. All of them tell you what you could SAVE from the government when investing in a SIPP. So, e.g. we know we have about £34k spare that we can invest a year. But the calculators all say things like "To invest £34k, you only need to pay £20,141". We want to calculate it the opposite way round: if we put in £34k, how much will it be worth with tax relief? Can anyone point me to a calculator that does this please?

Is that a genuine quote?  If so I wouldn't use that calculator if I were you.

Sometimes the calculators do it the "wrong way" because they are calculating the limit on what you can contribute.  So if the limit was £34k then you could only contribute the net amount (£27200) and that together with the 20% reclaimed by the SIPP gives a total in the SIPP of £34k.  What you could NOT do is contribute £34k and have it grossed up to £42500 because that would mean your gross contribution was more than was allowed.

As an aside are you also in the USS?  It is just that you talk about the Investment Builder as though it was yours and not your husband's.