Is the maths of my pension planning correct?

scoiattolino

I wanted to walk you through my pension planning calculations to see if there is anything incorrect or missing about my calculations?

Background

I'm 40, and pay into a direct benefits pension scheme and have done for around 15 years. I have no other pensions. I'm a basic rate tax payer.

I have a partner, who cannot work and has a tiny SIPP from past employment. I'm trying to plan for how my pension will take care of us both in the event that my partner remains unemployed.

Assumptions

• I continue to work in the same job until retirement. This is the most likely scenario for me. I'm at the top of my pay band so get very minimum automatic pay rises usually around 1% each year. If tax thresholds continue to be frozen for many many years, it's likely at some point I might stop being a basic rate tax payer, but that's not going to happen for at least the next 8 years.
  
• I will get full state pension. I'm absolutely aware that many people say to discount it as they think it won't exist by the time I get there (currently 68, but will likely rise). However I also don't think it's unreasonable to say that it's not going to suddenly fall off a cliff (there's not going to be the state pension one day, and then it entirely disappears the next) so for now I'm assuming it still exists, and then I check back in with my calculations and my plan and adjust it accordingly based on more concrete facts about where the state pension is going.
  
• I think I can forget about inflation and calculate everything in today's money? So for example when I start drawing my direct benefits pension, it will rise each year, but I discount that rise because presumably the cost of living is also broadly rising in line with that, so they just sort of cancel each other out in my planning and I do it in today's money - is that a correct assumption?
  
• I will have finished paying off the mortgage shortly before retirement.
  
• I am pretending below that we will need £30k a year in retirement between us. This is a number I have plucked out of thin air purely to check if the maths and line of reasoning is correct, not because I think £30k is sufficient. All numbers below are plucked out of thin air, I'm very aware that we would need more than £30k a year in retirement.

Calculations

• Let's say I take early retirement at age 60. The pension I can draw at this age is say £20,000 a year in today's money (that's taking a 0% lump sum and takes into account the reduction based on taking it earlier than normal retirement age). The pension scheme allows me to do this.
  
• Let's say I think we need £30,000 between us (to reiterate I'm just plucking that number out of thin air for the minute).
  
• So that means up until state retirement age of 68, all I'm missing is [ (£30,000 - £20,000) * 8 years] = £80,000.
  
• From age 68 I then get the state pension added to my £20,000. Which brings me up to around £32,000 a year, every year, until whenever the sweet release of death relieves me from having to do mathematics, more than covering the £30k a year we needed.
  
• So that means all I need is to make sure I've got £80,000 (that inflates to whatever the appropriate rise in cost of living is by the time I get there) to bridge us for those years until age 68.
  
• IMPORTANT- I know that £30,000 is not going to be enough for both of us and b) we are much more likely to be more active in our 60s than 90s so would likely need much more money in those early years.

Plan moving forward

• Ideally my partner will start working and aggressively attack their tiny SIPP as much as possible!
  
• Ideally I will try to get better paying job.
  
• My DB pension gives me the option of buying additional units. Currently, with any spare cash that I have, I have instead chosen to put this into a S&S ISA as I think this is smarter to give me more flexibility for bridging the gap in those earlier years. The DB additional units don't start rising until after state retirement age and are not accessible until then either so think I can afford to use the ordinary DB as the guaranteed safety barrier element of my pension planning, and then have the S&S ISA as the additional vehicle to bridge the gap. I do also have a SIPP with nothing in it and I guess if I ever stop being a basic rate tax payer I might start channeling money into there rather than the S&S ISA?
  
• Is there anything wrong about my line of reasoning in this whole post and / or anything I've neglected to think about?

Isthisforreal99

A lot of reading so just skim read it but a couple of points.

What is the current projection of your defined benefits (not direct bemefits btw). How much do you accrue each year.

Is your projected £30k income pre or post tax? If post tax then obviously you will need more than £30k.

Can your partner pay in £2880 a year to a SIPP to get the £720 tax relief. I'd be doing that.

Dazed_and_C0nfused

You seem more up to speed then many first time posters.

A couple of things to think about,

Don't forget your partners State Pension, presumably also available from 68 (under current rules). That could well be an extra £12.5k, at April 2026 rates.

A SIPP is likely to be a better option than a S&S ISA. If you go with the SIPP you don't get any tax relief on the way in and pay no tax on the way out. But with a SIPP you get tax relief on the way in and only pay tax on 75% of it on the way out. This gives you a 6.25% advantage over an ISA.

You could also consider using all of the SIPP first and referring your DB pension until that runs dry. Meaning less of an actuarial reduction.

GrumpyDil

What is the position in relation to your partner getting a state pension as I don't see any mention of that element in your planning?

Albermarle

You say 'partner', if you are not married or in a civil partnership, it is quite possible your DB pension will not pay any survivors pension to your partner.

Plus it can bring other problems, especially if one of you dies unexpectedly.

I will get full state pension. I'm absolutely aware that many people say to discount it as they think it won't exist by the time I get there (currently 68, but will likely rise). However I also don't think it's unreasonable to say that it's not going to suddenly fall off a cliff (there's not going to be the state pension one day, and then it entirely disappears the next) so for now I'm assuming it still exists

That is a reasonable view, if for no other reason than if any political party stopped the state pension, it would mean certain electoral oblivion. So they will not do it.

LHW99

Can your you / your partner claim any benefits? Eg attendance allowance / carer's allowance?

Some benefits provide NI credits, so may be worth your partner looking into

Linton

One thing that people tend not think about is whether your DB pension's inflation increases are capped. The problem is that if there is one year of very high inflation, such as happened with Covid you get less than inflation matching. This lowering of real income is not corrected in the following years.

Another aspect to consider is what happens if you die first. Could your partner be left in poverty? If they dont get NI credits, your paying for their voluntary NI could be a very efficient way of ensuring they get more income in their own name.

guymo

Your calculations do not seem to account for income tax in retirement. In today's regime you would be paying around £1500 per year while taking the £20k pension, and about £3900 once the state pension kicks in, so you need a bit more than you've calculated. The level of taxation is guaranteed to increase for the next few years at least, so the actual tax liability will be more than these figures suggest.