Mid-30s and starting to think about retirement

TwentySomethingGirl

Hi!

Don't let the username fool you, I joined this forum as a TwentySomethingGirl with a first mortgage, and 10/11 years later all that's happened is it's increased!

Anyway, I'm now 35, husband is 36 and we're starting to be in a position to think about retiring early, at least earlier than state pension age, if it even exists when we get there!

A bit of background, we have 2 kids (8 & 4) and expecting number 3 in the spring. Husband has just had a confirmed promotion which brings his salary to about 64k, though with overtime and other allowances this FY I'm expecting his taxable pay to be in the region of 75k. We will also be moving house in the next 5 years which will increase the mortgage from 206k to upwards of 350k.

We both work for the civil service and have DB pensions through that. I only joined about 3 years ago and my salary is about 29k, he has been in it since 18 so I'm relatively happy that those pensions will see us through retirement post SPA. No imminent plans to change jobs. I have 2 DC pensions, one with about 4k and one just shy of 27k. 

What I'm currently looking into, and seeking advice for, is setting him up a private pension to pay into to start building a pot we can use pre-SPA, but also to bring down his adjusted net pay so we don't have to incur the HICBC. I figure it's better to be putting it to a pension than paying it back. This is not my area of expertise and I don't understand enough about stocks to be picking funds etc so we want something there is pretty self-sufficient. It's my understanding he would also benefit from the higher rate tax relief.

I've also been thinking about combining my 2 DC pensions, and maybe paying a bit into them though I don't think there would be much benefit to that when he is the higher rate tax payer?

This has turned into a long waffle so apologies, but really appreciate any advice anyone can give, or real life stories of anyone in a similar situation.

Thanks!

El_Torro

Two small pension pots split across two people is better than one person having one large pension pot. Reason being that two people have twice as much personal allowance. Then again as you say your husband reducing his 40% tax bill is also an advantage. 

Regarding which fund to invest in, you won’t go far wrong with global trackers or multi asset funds. It’s well worth understanding where your money is invested rather than just taking a recommendation from people on the internet. So whichever fund you choose it’s worth understanding the pros and cons of that particular fund. 

It might be worth investing in an ISA, or even LISA. It depends on when you plan to retire. If 58 years old is already an ambitious target for you then you might not need to worry about ISAs too much.

Yorkie1

I am not an expert in SIPPs, but as a starter before the others arrive on the thread, you may wish to consider:
- The platform fees for a SIPP
- Other fees e.g. commission, trading or purchases
- What funds you invest in (which can be similar across platforms)

The savings and investments board on here has lots of useful threads about picking a broad fund or tracker, rather than individual companies' stocks.

Also don't overlook the Civil service possibilities. There is Added pension (which you buy and take at the same time as Alpha), EPA (which is the right to take Alpha up to 3 years early, for you (it's only 2 years early for me)), and AVCs (Additional Voluntary Contributions, which I think of as a SIPP administered via payroll). All of these go towards raising the threshold at which higher rate tax kicks in (and other useful issues such as the HICBC).

The AVCs can be taken separately from the main pension, and irrespective of whether you are still working.

The AVCs are by default placed in a fund which considers your anticipated normal retirement date (aged 67 or 68), which I think are then likely to be moved into less volatile (risky) funds as you get closer to that date. But you can change where your contributions go if you wish. I use AVCs as they are easier for me administratively, but others will have different views.

If your husband has been in the CS for 18 years then he will have some pre-Alpha pension contributions (e.g. in Premium), which are likely to have an earlier Normal Retirement Age (NRA) than Alpha - perhaps 60 for Premium, compared to state pension age (SPA) which for you and your husband is currently likely to be age 68. You can take these two parts separately, from age 57 (unless it goes up further in the interim). If taken before the NPA for each part, it will be reduced by a certain % as it will be paid earlier and thus for longer.

There will also be a choice to be made, when taking the pension (or at least the first part), as to whether the pension benefit relating to contributions in 2015-22 is treated as being in the Premium or Alpha scheme (Annual Benefit Statements will illustrate both options from later this year). 

It's also worth considering other threads on the Savings and investments board, and this one, about ensuring you have sufficient emergency funds; paying off high value debt (excluding student loans and mortgages); considering when you might need funds (i.e. in next 5 years, keep in cash or cash-like funds / over 10 years, investments are usually best / between 5 - 10 years, a mixture); and about likely expenditure on children e.g. university, driving lessons, house deposits).

Finally, most CS departments offer free retirement planning webinars. You don't need to be within xxx years of retirement. Would highly recommend them.

Sam_666

Yes, bit long post, could been shorter if only relavant info was posted.

You need to find out what is running cost of each of yours DC pensions and what range of funds they have (too few or plenty). Then you need to calculate how much pension allowance is left unused after DB pension contributions. Find out how much is your net salary.

Same for your other half, find out his net salary and how much his pension allowance is spare.

You dont need stock picking expertise, just pick one of index funds mentioned here. Plenty discussions on that subject here.

Albermarle

Anyway, I'm now 35, husband is 36 and we're starting to be in a position to think about retiring early, at least earlier than state pension age, if it even exists when we get there!

We see this comment quite often. In fact people have been saying the same for the last 50 years or more, and if anything the state pension has got better.
It is best to think about it from a political angle - the main point being that older people vote in larger numbers than younger people, and changes to the state pension and/or pensioner benefits are very politically sensitive.
You may be aware that the current Govt. removed the Winter Fuel Allowance for most pensioners. It caused a massive political stink and had to be largely reinstated. It is worth only between £300 and £100 a year.
So you can imagine what would happen if any significant changes were made to the state pension - it would be political suicide, so will not happen.
Probably the date you get it will continue to slowly increase, but not much else.

hugheskevi

TwentySomethingGirl said:

Anyway, I'm now 35, husband is 36 and we're starting to be in a position to think about retiring early

Opening LISAs might be attractive, particularly for you. It may be optimal to contribute now, contribute in the future, or just to have as an option value in case of future policy change.

TwentySomethingGirl said:

We will also be moving house in the next 5 years which will increase the mortgage from 206k to upwards of 350k.

Mortgage debt can be a very useful tool. It can be very tax efficient to pay off a mortgage using pension income - basically moving a liability from working life when you are very heavily taxed to after minimum pension age when the tax burden may well be lighter.

TwentySomethingGirl said:

We both work for the civil service and have DB pensions through that. I only joined about 3 years ago and my salary is about 29k, he has been in it since 18 so I'm relatively happy that those pensions will see us through retirement post SPA. 

The Normal Pension age is largely irrelevant in the career average schemes. It is simply the reference point for benefit entitlement. The pension can be taken either earlier than Normal Pension age with a reduction, or later with an enhancement. You should be planning commencement around what works best for you, not just defaulting to Normal Pension age.

TwentySomethingGirl said:

I've also been thinking about combining my 2 DC pensions, and maybe paying a bit into them though I don't think there would be much benefit to that when he is the higher rate tax payer?

A LISA is likely to be preferable given you are not benefitting from anything other than basic rate relief. After that, if you expect to be a higher rate tax payer in the future then an SSISA could be a good option, using the SSISA money in the future to substitute for income going into a pension to take advantage of higher rate relief.

You might find working your way through this clickable tool useful.

Yorkie1 said:

If your husband has been in the CS for 18 years then he will have some pre-Alpha pension contributions (e.g. in Premium), which are likely to have an earlier Normal Retirement Age (NRA) than Alpha - perhaps 60 for Premium, compared to state pension age (SPA) which for you and your husband is currently likely to be age 68. You can take these two parts separately, from age 57 (unless it goes up further in the interim). If taken before the NPA for each part, it will be reduced by a certain % as it will be paid earlier and thus for longer. 

18 years ago was the start of 2008. That is just after the introduction of nuvos, so depending on the exact date of joining, the pre-alpha pension will either be Premium (final salary, NPA 60) or nuvos (career average, NPA 65). Either of these will have a protected minimum pension age of 55.

Yorkie1 said:

There will also be a choice to be made, when taking the pension (or at least the first part), as to whether the pension benefit relating to contributions in 2015-22 is treated as being in the Premium or Alpha scheme (Annual Benefit Statements will illustrate both options from later this year). 

Annual Benefit Statements (ABS) from 2025 should have included this information, although for 5% of members only one option was shown. The 2025 ABS might not be available in the Capita portal yet following transition.

Sam_666 said:

You need to find out what is running cost of each of yours DC pensions and what range of funds they have (too few or plenty). Then you need to calculate how much pension allowance is left unused after DB pension contributions. Find out how much is your net salary.

Same for your other half, find out his net salary and how much his pension allowance is spare.

At a salary of £64K (assuming allowances are non-pensionable), pension input will be around £24K of the £60K allowance, depending on how the rate of inflation is changing but that won't have  a big effect. If the partner is in Premium the salary increase might generate a bigger pension input however.

I think the reference should be to earnings that attract tax relief rather than net salary? Although that is unlikely to be a constraint, given the OP was discussing contributions of under £20k.

GunJack

OP, when you mention not looking for another job at the moment, don't discount the overall benefits of staying in the Civil Service...ok, the salary may not be as good as private sector but as effectively the second income in the household it gives you access to often far superior employment benefits than in most private sector jobs.

Albermarle

GunJack said:

OP, when you mention not looking for another job at the moment, don't discount the overall benefits of staying in the Civil Service...ok, the salary may not be as good as private sector but as effectively the second income in the household it gives you access to often far superior employment benefits than in most private sector jobs.

There are some good jobs in the private sector, usually with bigger companies at middle management level and above.
You might get a company car, free broadband/laptop/mobile phone, private health cover, expense account, business trips abroad etc . You might even get a half decent pension.
But of course you will probably have less job security, and an almost certainly significantly inferior pension provision.