Mind the 'age' gap: retirement planning

Asked at work about front-loading my pension in the same way as you can with ISAs, with a view to perhaps getting a few extra sheckles from it being invested in the market longer with little effort on my part.

The answer was not what I was hoping for but something else to consider.

"You can increase your contributions in any particular month. If you paid over 3 months, you would be effectively paying 32% for one month. However, [employer] will only match up to 5% in any particular month.
As the pension scheme is a salary sacrifice one, you will miss out on tax and NI reductions if you were to lump several months into one, so I would advise against doing this. It would also be impossible to calculate this way as salary sacrifice calculations are somewhat complex.

Any pension contributions via salary sacrifice cannot take you below the National Minimum Wage, which would mean you would need to be left with a gross pay of £XXX per month.

So in a nutshell, you could temporarily increase % but [employer] will only match up to 5%, and then you would need to leave the scheme and re-join again the next year. An alternative could be to pay 11% for 6 months and 5% for 6 months, therefore maintaining the full contribution from [employer]."

So, is it better to get more in sooner to squeeze a few extra pounds out at a later date?

MallyGirl wrote: »

I pay enough into my pension via salary sacrifice to keep me in basic rate tax - that works out to be quite a lot in contributions. I also don't spread it completely evenly as NI is calculated differently to income tax. Income tax is an annual thing so it gets adjusted at the end of the year if you haven't paid the right amount. NI works on a pay period - possibly even weekly and then rolled up to the month, not totally sure on that. A few times a year I sal sac down to national minimum wage which means I only pay a few quid NI instead of nearly £400. It is not re-evaluated at the end of the year so that is money straight in my pocket.

So you pay something every month and get X% from your employer, then every now and then you do a huge contribution and take yourself right down to minimum wage and bring yourself under the higher tax bracket?

I have a terrible tendency to get analysis paralysis so I contacted my firm back and asked them to increase my contributions from my current 8% to 11% immediately, otherwise I will sit on this for another year wasting time. In November I will take it down to 5%, or, hopefully, find I can manage happily without the extra in my pay packet and leave it be. Who knows, this could become an annual thing

kidmugsy wrote: »

That seems a reasonable ambition to me.

Yes, I would agree but I only have 10 years to do it and that bit doesn't feel do-able. I currently can't see how I can accumulate what I need to last the stretch.

kidmugsy wrote: »

Is your husband's DB scheme one from which he could transfer out to a DC scheme? Has he asked for a calculation of his Cash Equivalent Transfer value?

It's Royal Mail and I'm not sure about doing that given the benefits he would be giving up. Also, there is a new scheme coming in that has a guaranteed minimum lump sum benefit attached to it. It has been mooted that for postman nearing retirement this would be more than the sum they could feasibly build up via their contributions so we're hanging on to find out a bit more. Whatever the CETV is, I cannot see it being extraordinary levels of magnitude over the standard 20x. Royal Mail is too tightfisted for that.

kidmugsy wrote: »

Shouldn't investigation of this idea be where you spend a large part of your energies at the moment? Could you compare it with converting the barn and letting it for a few years until you need it for yourselves?

There are a few things standing in my way, specifically 10+ classic cars in various states of restoration :rotfl: We bought the place so I could have my animals and he could have the barn to finally restore some of the cars we have been accumulating under sheets everywhere. The barn is off limits for development for the next 10 years.

kidmugsy wrote: »

Small beer.

Many small beers, accumulated consistently across time, make for a happier outcome On a more serious note, I can't help but feel that my lack of financial acumen will hamper us in the future. I don't know what I don't know and that could be making a few percent difference which, over 10-20 years if investing, adds up to a lot for two basic rate tax-payers. I hoping this thread helps me 'sharpen the saw' and find that few extra percent.

kidmugsy wrote: »

I don't know whether mortgage providers would object to your name being the only one on the mortgage.

I don't know either but while we need to fix our mortgage deal every 2-3 years (we're only 2 years into a 19 year stretch), they want to take DH's income into account and that may make him retiring and dropping income difficult. It may also affect my ability to save greater amounts for retirement.

There are only so many big things we can do before we start to erode our quality of life.

I work from home in a job with no stress, hardly any meetings and little responsibility. I have complete autonomy as to how I do my job and touch base with my boss once a month. DH and I have discussed me going after a promotion and pay rise, but that will take me out of home, into a car and travelling to see clients as well as managing a team. I settle for doing a little bit of freelance work on the side but not so much I end up working long evenings and weekends or end up in a different tax bracket. DH has been offered promotions before but he is like me and doesn't want the stress. Managers are often moved around different offices at RM so he may end having to commute to an office many miles away from the one he currently works at, which is currently only 7/8 minute drive.

We could - and are - going to screw down our expenses further and up our savings rate. We'll also sell off a couple of the least loved classic cars this year, which will be used to upgrade the house and add to savings.