additional payment to work pension or extra private pension?

Prudent

I am 41 and have a projected retirement pension of around £10500 per annum plus a lump sum.if I continue working to 60. I would like to top this up. I am a bit worried that I am too old to do anything meaningful? I currently pay 6% of my salary (think this is risng to 6.4) into my work scheme.My employers put in 13.5%. It is a final salary scheme. I have missed several working years due to time off raising a child. I can 'buy back' years, although I do not get my employers contribution.

Is it better to take a private pension in addition?

How do I go about finding one? How do you judge a pension scheme?

dunstonh

I am a bit worried that I am too old to do anything meaningful?

Not really. Another £100k built up will give you £5000 a year. You have until 67 to reach your state retirement age (I am assuming you will go to 67 as £10k isnt much to live on unless you have other means as well). So, 23 years to build up £100k in real terms isnt that hard. It will take commitment but not impossible.

£100k over 26 years at 2% p.a. (using 2% to reflect real growth above inflation to make sure £100k is £100k in spending power as it it was today) would cost you around £243.85 pm.

This is matched by my employers. I have missed several working years due to time off raising a child. I can 'buy back' years, although I do not get my employers contribution.

It sounds like you have a final salary scheme. In which case the employer contribution doesnt mean a thing. Nor does you own really as you that is really the cost of you buying a defined benefit. Unlike a savings ac or investment where you get more if you pay more.

Is it better to take a private pension in addition?

Added years is probably the better option although it will be less flexible than a personal pension. You would also need to look at how much more beneficial it may be as you dont really want your income to exceed £20k a year from taxable sources unless there is a good reason for doing so. Therefore using a stocks and shares ISA may make much more sense.

Prudent

Thank you This was very helpful.

My scheme is final salary.


If I use a stocks and shares ISA (which I have been considering), do I loose the tax benefit involved with pensions? I am a good saver and have money that I could currently put into a stocks and shares ISA. Is there still time for this financial year? Where can I get advice about good choices? I do have enough savings that I could 'drip' feed into a stocks and shares ISA for several years. Making the £100K should be possible within the time scale it would take the feed in this amount in the allowed sums.

Prudent

I should add that my current scheme pays out at 60. I would like to work part time (not necessarily in teaching) after that point.

dunstonh

Teachers have the new TAPS scheme which is very good but does not really give you any flexibility to phase retirement. i.e. you have to take it at the same time as the main scheme and not before or later.

You have to look at wether flexibility is important or absolute maximum benefit.

If I use a stocks and shares ISA (which I have been considering), do I loose the tax benefit involved with pensions?

Yes and no (dont you just love answers like that!)

The pension gets tax relief on contributions but the income in retirement is taxable. ISAs dont get tax relief on contributions but income in retirement from the ISA is tax free. The pension slightly beats the ISA as you can take 25% tax free from the pension so only 75% of the money then provides a taxable income (yet you get tax relief on 100% of your contribution). However, the issue you may have is the age allowance reduction.

At 65, your personal allowance is increased allowing you to earn more tax free. However, if you earn over £20,900 you start to get that age allowance increased reduced by £1 for every £2 of income you are over. Within a couple of years (based on treasury announcements) the loss of all the age allowance could equate to over £1000 a year in retirement.

So, you look at your projected income in retirement in todays terms and decide if you are likely to go through that £20,900 mark or not. Currently you have £10,500 in pension and the state pension will be another £5000. So, you have just over £5000 spare. However, any interest payments, rental income or dividends will also go towards that limit as well and I am sure you are going to want to have some savings in retirement.

If you were aiming for that £100k in real terms, then that could produce £5k a year easily. So, based on now, you could just about avoid having your age allowance reduced. However, what are you career aims? Are you likely to go for a higher paid role? In which case, any planning you do now in a pension coupled with a higher paid role resulting in a larger pension could take you above the age allowance threshold.

This is where stocks and share ISAs (And cash ISAs to some degree) come in. Any income they generate does not go towards that age allowance.

There is also the issue to consider that times change. 20 years ago Endowments were popular and maturities from those were 2 to 3 times what they were meant to be. You even had Which? recommending them. Now look at it. Endowments are a swear word and Which? have wiped their recommendations from their history and now say how bad they are. Endowments werent very flexible and neither are pensions. If you pay money into a pension (or added years) you cannot get it back. So, if something better comes along in 20 years time its tough. Whereas the ISA is flexible. If pensions are the best option in 20 years time or something better exists, you can take the money out of the ISA and put it into the pension (or other) but not the other way round.

That said, there are some benefits of pensions as well and the ISA vs pensions thread covers those.

Is there still time for this financial year?

Yes. Friday is the last chance realistically.

Where can I get advice about good choices?

Only one place to get advice and thats from IFAs (ok, two if you want tied agents but that wouldnt be good advice). If you are prepared to do your own research then you can go DIY and use an execution only broker like Hargreaves Lansdown.

Prudent

Thank you so much, you have been brilliant

I am considering promtotion at work. I work within a specialist field and have spent several years building up good skills. However I want to hold off for a couple of years yet, as I am a single parent and want to see my daughter through school before taking on more responsiblities. Flexibilty is important though. Whilst I really enjoy my job just now, I may like to try something else. Promoted posts in education can offer poor rewards in relation to the stress involved. If I do go for promtion, it is eventually realistic that my pension could be £15,000. Together with my state pension this would give me an income of £20,00. I am assuming in this case (I would not need over £20,000 regular income as I live on considerably less now), I could just use any stocks and shares ISA savings just as a tax free extra? I love travel and may want to use some to travel a bit. I would also like to retire at sixty when my work pension pays out. An ISA would come in very handy to fill the five years until my state pension.


Although I am ok (thanks to mse) with my day to day spends, I do not have enough knowledge to choose my own ISA and would feel more confident making such an important decision with the support of an IFA.:) Can I speak to an ISA online or do I need to see one in person? If I could do it online, I would have time to take advantage of this year's allowance.

dunstonh

I could just use any stocks and shares ISA savings just as a tax free extra?

Yes. You can use it when you like and how you like.

Can I speak to an ISA online or do I need to see one in person? If I could do it online, I would have time to take advantage of this year's allowance.

If you are doing it online then you have upto Friday coming. So, still time although decisions on where you should invest it need to be made so dont leave it until Friday. its a straight forward transaction and debit card can be used to pay the funds direct to the fund supermarket. If you prefer cheque, then you need to be doing it earlier in the week to allow for postage.

You can use a local IFA or one that is based online or has online services or telephone based or whatever.