Age 57: ISA bridge or pension top-up for early retirement?

Remolino

Hi folks,

I’m 57 and trying to plan seriously for possible early retirement or semi-retirement. My aim is not to work full-time beyond age 62, and possibly earlier if realistic, partly due to health concerns. I own my home outright with no mortgage and only have a small remaining interest-free debt of around £1,000.

I have estimated my basic recurring monthly living costs at around £1,250–£1,350, so roughly £15k–£16k per year at a basic level. For a more comfortable and realistic retirement target, I think I should probably plan around £1,650 per month, or about £20k per year net, with perhaps £24k per year as a higher-comfort figure.

My pension position is currently around £146k total, split across three defined contribution workplace pensions of approximately £107k, £32.7k, and £6.3k. I realise I left pension saving a bit late, but I am still working and contributing to my current workplace pension, with a strong combined employee/employer contribution rate.

I also have significant ISA/cash savings, including around £98k in Cash ISAs maturing this summer, another £53k fixed until 2028, £50k in Premium Bonds, and around £11k in a Stocks & Shares ISA, so roughly £212k in tax-free savings/investments. I only started the S&S ISA fairly recently, so I know the current gains may not be representative long term, but it has performed well so far. Overall, my savings/investments are more heavily weighted toward ISAs/cash than pensions.

My main question is what to do when the two Cash ISAs mature this summer. Should I keep most of the money within the ISA wrapper for flexibility as an early-retirement bridge, transfer some into a Stocks & Shares ISA for longer-term growth, or withdraw some and contribute to a pension/SIPP to benefit from tax relief while I am still a higher-rate taxpayer?

My concern is balancing pension tax efficiency and long-term growth against the need for accessible funds, especially if redundancy happens before I reach my intended retirement age. I’d be grateful for thoughts on how others would think about the ISA versus pension balance in this situation.

Thanks so much

Marcon

You're 57 so there's no problem accessing your pension - you're over the minimum age to do so.

QrizB

contribute to a pension/SIPP to benefit from tax relief while I am still a higher-rate taxpayer?

If you're a higher-rate taxpayer now, and (based on your £24k pa calculations) expect to be a basic-rate taxpayer in retirement, I'd suggest that contributing to your pensions is a clear winner.

af1963

Once you're at an age when you can withdraw from the pension, which you are, there's less reason to keep your money outside it.

£80 in your ISA remains as £80

£80 moved to your pension (existing pension, or a SIPP) becomes £100 after tax relief is added, and is only partially taxable when you withdraw it, so it becomes £85. Even better if you're a higher rate taxpayer, you get another £20 back so your net contribution is only £60 to get that £85 back - although note that you only get higher rate tax relief on the amount of your earnings that exceed the higher rate threshold, and you may already be maxing that out with workplace contributions.

If your workplace pension uses salary sacrifice, you'd also save some NI by making increased contributions there - you can salary sacrifice down to min wage level.

You can invest in pretty much the same things in a pension as you can in an ISA.

El_Torro

At the very least you should contribute enough to your pension to no longer be a higher rate tax payer.

Arguably you should contribute even more to your pension, especially if you are planning to retire within the next year or two. Even if you are a basic rate tax payer today and a basic rate tax payer in retirement the pension is still more tax efficient than your ISA.

mrklaw

1. save as much as you possibly can from salary while you’re working
2. Prioritise pension for tax relief especially if salary sacrifice. you’re at access age so that’s not a reason to avoid pension
3. I’d have at least year ones cash in the isa for simplicity of access
4. Still need to be wary of accessing pension. You can access it but if you take any taxable money it’ll reduce your contribution limit to 10k which might be an issue if you’re piling in as much as possible in the last push.

dunstonh

Age 57: ISA bridge or pension top-up for early retirement?

It's not even close. The pension wipes the floor with ISA.

My concern is balancing pension tax efficiency and long-term growth against the need for accessible funds, especially if redundancy happens before I reach my intended retirement age. I’d be grateful for thoughts on how others would think about the ISA versus pension balance in this situation.

Pensions and ISAs can share the same investments and have the same charges. Actually, with the proposed 2027 changes to ISAs, the pensions actually will have slightly better taxation than the ISA on some defensive assets.

As both will be accessible. Both have the same investments and both have the same charges. Then the only difference is the taxation and pension wins by a big distance in this scenario.

LHW99

My concern is balancing pension tax efficiency and long-term growth
against the need for accessible funds, especially if redundancy happens
before I reach my intended retirement age.

If you are made redundant, there should be some payment from the employer, which could help bridge?

Remolino

https://forums.moneysavingexpert.com/discussion/comment/82019378#Comment_82019378

Yes I know but I wouldn't want to touch it at this early stage, I'd rather keep all the funds intact and allow it to grow. If I need access to cash then I have some easy access savings (forgot to mention)

Remolino

https://forums.moneysavingexpert.com/discussion/comment/82019837#Comment_82019837

I think the redundancy package amount could vary substantially. For example if we compare statutory minimum weekly multiplier versus a higher multiplier and other factors. Enhanced package can be 3 or 4 times larger in cash terms, even with the tax threshold at £30k

Remolino

Thanks for feedback so far. I think overwhelmingly what I'm hearing is that I should withdraw from one of my cash ISAs at least (when it matures), and deposit that into pension. So, if I take one of those ISAs valued at £50k. Are we saying that the value of that would effectively be £70k when it enters the pension pot? (40% tax relief). And is this a smart thing to do? I did notice the pension pot value dip substantially at the start of the military conflict in middle east, and then recovered somewhat (investments are weighted to more conservative the nearer I get to retirement age though)