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

Marcon

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?

Assuming you aren't earnings upwards of £200,000, when taper relief would kick in….

If you put £50K into a SIPP, the provider adds basic rate tax relief, bringing the 'pot' up to £62,500. Any higher rate tax relief has to be claimed by you and isn't added to the pot - and you will only get higher rate relief on the whole £50,000 if you've paid higher rate tax on at least £50,000 in the tax year in which you make the contribution.

You also need to have sufficient Annual Allowance to enable you to pay in another £50K on top of any other personal contributions (including tax relief on those) + employer contributions, unless you have scope for using carry forward (?not sure if you're familiar with that - see https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/carry-forward).

Whether it's a smart thing to do depends on your objectives and attitude to risk.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82019911#Comment_82019911

Alternatively you can increase your workplace pension contributions to a much higher level still, ( your employer should be able to advise you of any limitations on doing this), and use the cash ISA money to live off.

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)

Assuming that the pot is planned to last a long time, then :

1. It is best to not get too cautious in your investment profile, as you at least want to keep pace with inflations and hopefully plus a bit more.
2. The recent dip and recovery is something you will see many times.( and will have seen in the past) It also did the same in 2025 due to Trumps 'Liberation Day' Most likely over a long drawdown period, you will see also sustained periods of higher growth, and at least a couple of proper big crashes.

DRS1

investments are weighted to more conservative the nearer I get to retirement age though

Absolutely nothing wrong with that but is it your choice or are you just invested in a default lifestyle type investment fund? Does that gear itself to you buying an annuity at say 67? You may want to think about how you will use the pensions when you come to retire. Will you actually buy an annuity? Or will you use drawdown? If drawdown then you maybe need to reconsider the investment horizon because it won't stop at 67.

Having said that some people on here who seem to know what they are talking about and are in or near drawdown say they aim to have 5 years of pension draw in cash or cash like investments then the next 5 or 10 years in bonds such as index linked gilts and the money for the longer term in 100% equities. I admit it is not something I have done myself but then I bought annuities because I don't trust myself to make good investments.

If you treat your ISAs PB and pensions as one pot that might mean keeping say 50k PB and 70K cash ISA to cover the first 5 years of spending then treating the extra ISA cash and pensions as something for more long term investing like the bonds or equities. So switch some of the cash ISAs to S&S ISA or the pension.

Of course now may be a bad time to become more invested - lots of threads on here about markets being at an all time high and bound to drop. And regardless of that fear investment is a long term thing which is why it would make sense to keep a decent amount in those cash ISAs.

Remolino

https://forums.moneysavingexpert.com/discussion/comment/82019413#Comment_82019413

Thanks for feedback

Yes, in meantime I decided to increase my individual contribution to workplace pension to 25%, from 12%. Employer contributes 12%.

For the moment I can afford for that additional not to come into my bank balance, therefore may as well put it somewhere more useful, especially with the higher band tax relief.

Remolino

https://forums.moneysavingexpert.com/discussion/comment/82020091#Comment_82020091

Yes it's just a default model within workplace fund, and I don't get involved with manipulating any weightings etc. I prefer the generic model behaviour which tends towards safety the closer to retirement, which appears to be prudent at the moment given the uncertainty in the world.

I'd probably go with drawdown, rather than annuity route

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82024746#Comment_82024746

These funds that automatically derisk as you approach your estimated retirement age are often referred to as Lifestyling Funds , or Target Retirement funds or similar.

In the past they were targeted to someone buying an annuity, so effectively went to 100% cash for the last couple of years. With more modern ones there will be a choice, but probably the default will be one that targets drawdown, so will only derisk down to say 30/40 % equities. You must make sure you are in the right one !

 Employer contributes 12%.

Just in case you are not aware, this is very much at the generous end of the spectrum. So something to keep in mind if you ever look for another job.

Remolino

https://forums.moneysavingexpert.com/discussion/comment/82025166#Comment_82025166

When you mention "the right one" can you elaborate? I wasn't sure if you meant the right one for me, or a certain model is more advisable, depending on what is configurable with that provider? Also is the portfolio strategy normally based on the preferred retirement age I stipulate (therefore start of drawdown) or the state pension age default? Thanks

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82025896#Comment_82025896

I meant that you need to be sure that you are in the correct lifestyle fund that corresponds to your future plans.

So if when you retire you plan that the pension remains invested, and that you will drawdown an amount from each year, hopefully for many years. In this case you need to be in lifestyle fund designed for drawdown.

If you plan to buy an annuity then you need to be in one designed for that.

We have seen plenty of threads from people who did not realise they were in the wrong one until it was too late.

More experienced investors would probably not be in one of these funds at all, as they would prefer to organise their own portfolio. However for most people they are OK as long as you have some understanding of how they work, which you do.

Regarding the age, the default is typically 65. It should be possible to check this on their website and also possible to change it. If you do this it should then change the portfolio mix accordingly.

ali_bear

One of the better moves I made was to set my planned retirement age to the maximum during my last several years of employment, thus preventing the onset of "lifestyling" the investments within my workplace pension. But then I was also fortunate with how markets were moving in this period.

Eventually I moved out of the default lifetyled investment plan into my own chosen funds. I also ring-fenced some of it in a bond-based fund for a planned annuity purchase. Again I was lucky with the timing of that.

DT2001

https://forums.moneysavingexpert.com/discussion/comment/82024746#Comment_82024746

Why are you favouring drawdown over an annuity? On the face of it you are not a risk taker and an annuity providing guaranteed income to move you into a more comfortable retirement would seem a good choice. If you have health issues you can get an enhancement. It is also not an either or situation so you could use some of your funds to buy an annuity (maybe to ensure at SPA you have guaranteed income of X) and the rest left to drawdown. This could affect your underlying investment strategy. Peace of mind plays an important role.

I think pension top up as you have implemented is a sound move.