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    • Aylesbury Duck
    • By Aylesbury Duck 14th May 18, 3:04 PM
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    Aylesbury Duck
    Some general pension/savings pointers please
    • #1
    • 14th May 18, 3:04 PM
    Some general pension/savings pointers please 14th May 18 at 3:04 PM
    Hi everyone
    I would be grateful for some advice – some general pointers as to how to balance my finances more effectively, make best use of pension opportunities and where to go to get any professional advice you think I need. Here’s my situation:

    Me: 46 years old, Wife: 46 years old. Both in good health.

    No mortgage and no plans to move house or undertake any large building projects. No personal loans, credit card debts, car debts or any other borrowings. Run two fairly old cars that we typically replace every 5-7 years so it’s possible that one or both of those will need replacing in the next year or two but we would only spend £4-7k on a car. Two children heading to university in the next three years.

    My salary is c.£80k, wife’s is £25k. Jobs seem as stable as any jobs are nowadays. We are currently saving c.£2,000 per month.

    £142k in savings (and growing by £2k per month), £32k of that in S&S ISAs (no longer adding to), the rest in cash accounts earning 1.4% - 3.0%. £58k in cash ISAs and the rest spread around in small pots with as much in my wife’s name as possible.

    Wife has public sector pensions projected to generate £15-20k p.a. on retirement. She also has a personal scheme currently valued at £50k and is adding £400 a month into via salary sacrifice (on top of the continuing LGPS contribution).

    I have company schemes currently valued at £165k and am paying in 11% of my salary (employer adding 6%) each year via salary sacrifice.

    To my untrained eye, we have too much in cash that although I am managing well and making sure to maximise interest on, still seems too high. I am conscious that we will need to provide some cash support to our son and daughter soon (they will only attract half of the maximum student loan) and in, say, five to ten years we might want to help them get on the housing ladder.
    Would a good first step be to increase our pension contributions, particularly mine as higher-rate taxpayer? At our age and health, is that a better bet than starting another S&S ISA with monthly contributions?
    Please forgive the deliberate omission of apostrophes on some posts whilst I await MSE to do something about the daft codes that appear in their place when typing on certain devices.
Page 1
    • Brynsam
    • By Brynsam 14th May 18, 3:49 PM
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    Brynsam
    • #2
    • 14th May 18, 3:49 PM
    • #2
    • 14th May 18, 3:49 PM
    Tax efficient savings are always attractive, but don't get carried away by that alone! If you are happy to tie up cash in the longer term in readiness for your old age, increasing your pension contributions makes a great deal of sense.

    Do you need advice? You seem to be managing extremely well and have a very sensible outlook, so it's tempting to say no - but a preliminary discussion with an independent financial adviser (for which you aren't normally required to pay) would be no bad idea. Do remember the discussion is to establish if it's worthwhile going into things in more depth/whether you get on in personal terms.
    • Aylesbury Duck
    • By Aylesbury Duck 14th May 18, 3:55 PM
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    Aylesbury Duck
    • #3
    • 14th May 18, 3:55 PM
    • #3
    • 14th May 18, 3:55 PM
    Thanks Brynsam. I'll look into the preliminary IFA discussion.
    Please forgive the deliberate omission of apostrophes on some posts whilst I await MSE to do something about the daft codes that appear in their place when typing on certain devices.
    • cloud_dog
    • By cloud_dog 14th May 18, 4:05 PM
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    cloud_dog
    • #4
    • 14th May 18, 4:05 PM
    • #4
    • 14th May 18, 4:05 PM
    I don't know what outgoings you are likely to need in the coming years but....
    1. Way too much cash
    2. Why are you no longer contributing to the S&S ISA?
    3. Why are you not maximising your OH pension contributions via SS; gaining an additional 12% NI savings?
    4. Why aren't you maximising your pension contributions (tax savings)?
    5. Are you self employed; specifically a director of a/your own company?
    Personal Responsibility - Sad but True

    Sometimes.... I am like a dog with a bone
    • kidmugsy
    • By kidmugsy 14th May 18, 4:34 PM
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    kidmugsy
    • #5
    • 14th May 18, 4:34 PM
    • #5
    • 14th May 18, 4:34 PM
    Me: 46 years old, Wife: 46 years old. Both in good health. ... My salary is c.£80k .... I have company scheme ... and am paying in 11% of my salary ... each year via salary sacrifice.I have company schemes currently valued at £165k and am paying in 11% of my salary (employer adding 6%) each year via salary sacrifice. ... We are currently saving c.£2,000 per month.
    Originally posted by Aylesbury Duck
    Do you positively enjoy paying 40% income tax? Why not contribute enough to a pension (by sal sac) to avoid it altogether? That £2k per month is far more than enough to achieve that. Look around the threads and you'll even find a stunt for paying the sal sac in unequal monthly amounts so that you save more than just 2% in NICs. Anyway your pension provision isn't particularly good for a high earner of 46 - upping your pension contribution is a good idea on those grounds alone.

    wife’s is £25k. ... Wife has public sector pensions projected to generate £15-20k p.a. on retirement. She also has a personal scheme currently valued at £50k and is adding £400 a month into via salary sacrifice (on top of the continuing LGPS contribution).
    Originally posted by Aylesbury Duck
    If your wife hasn't maximised her sal sac there's room in your budget for her to do so, using a little capital if needs be: she'll eventually be limited by her employer's need to pay her at above minimum wage. Note that it makes no sense to do sal sac so much that she ceases to be a 20% tax payer. If she wants to save even more in pensions than that then she could make conventional contributions to her personal pension as a tax-efficient route. Perhaps that would be a bit obsessive, but it might be rational if she hopes to retire before her occupational scheme retirement ages.

    Cash: there are two ways to protect yourselves from the slings and arrows: (i) hold lots of cash (and even gold); (ii) buy some insurance. If you already have ample life insurance consider income protection insurance and so forth.
    http://monevator.com/do-you-need-income-protection-insurance/

    http://monevator.com/family-income-benefit-the-forgotten-policy/

    Moving surplus income from cash savings to pensions gives a natural opportunity to rebalance away from cash towards equities and so on.
    Free the dunston one next time too.
    • Aylesbury Duck
    • By Aylesbury Duck 14th May 18, 4:47 PM
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    Aylesbury Duck
    • #6
    • 14th May 18, 4:47 PM
    • #6
    • 14th May 18, 4:47 PM
    Thanks for the input. I'll answer your questions below:
    I don't know what outgoings you are likely to need in the coming years but....
    1. Way too much cash
    2. Why are you no longer contributing to the S&S ISA? We stopped years ago because at the time they were a high proportion of our savings. We didn't restart them because we are naturally cautious and wanted to pay off the mortgage and build savings. We did both of those much faster than expected and we're now where we are.
    3. Why are you not maximising your OH pension contributions via SS; gaining an additional 12% NI savings? What's OH?
    4. Why aren't you maximising your pension contributions (tax savings)? As above - caution to date but recognise the chance to look at it now
    5. Are you self employed; specifically a director of a/your own company? No. A regular salaried employee.
    Originally posted by cloud_dog
    Please forgive the deliberate omission of apostrophes on some posts whilst I await MSE to do something about the daft codes that appear in their place when typing on certain devices.
    • kidmugsy
    • By kidmugsy 14th May 18, 4:57 PM
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    kidmugsy
    • #7
    • 14th May 18, 4:57 PM
    • #7
    • 14th May 18, 4:57 PM
    Ha! "OH" is an allusion to that rather twee expression "other half".
    Free the dunston one next time too.
    • atush
    • By atush 14th May 18, 6:49 PM
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    atush
    • #8
    • 14th May 18, 6:49 PM
    • #8
    • 14th May 18, 6:49 PM
    So too much cash.

    Pay more into AVCs with OH's pension, and pay more into yours- maybe even enough to take you out of HRT alltogether.

    Get back to paying into S&S isas. Pick a multi asset fund, or a global tracker for diversity- less volatility.

    Consider using some of your cash pile to put into the S&S isas. Esp for yoru longer term goals like helping the kids with Uni. You have mroe than enough for that, plus replacing 2 cars, amnd still have a lot left over.
    • Brynsam
    • By Brynsam 14th May 18, 6:51 PM
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    Brynsam
    • #9
    • 14th May 18, 6:51 PM
    • #9
    • 14th May 18, 6:51 PM
    Thanks for the input. I'll answer your questions below:
    Originally posted by Aylesbury Duck
    You don't have to justify what you are or aren't doing...most of the questions posed (some rather abruptly!) are rhetorical.
    • Aylesbury Duck
    • By Aylesbury Duck 14th May 18, 7:02 PM
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    Aylesbury Duck
    Thanks Brynsam, and all who have responded. I don't mind abrupt questioning. It's an anonymous forum so I don't take anything personally. You've all given me some confirmation of the way I was thinking, so that's been useful, and I'll look into the various options you've suggested.

    As an immediate step I've contacted my HR department to raise my pension contributions from 11% to 15%. I appreciate that it could (and probably should) go higher still, but I'll also speak to the OH (thanks kidmugsy!) about increasing her contributions and both of us restarting regular investments in our S&S ISAs. Then we can reassess and I will consider a further increase in my pension contributions.
    Please forgive the deliberate omission of apostrophes on some posts whilst I await MSE to do something about the daft codes that appear in their place when typing on certain devices.
    • AlanP
    • By AlanP 16th May 18, 9:57 AM
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    AlanP
    Just checking - are you sure your wife's contributions are under Salary Sacrifice terms as that would be unusual for a LGPS aligned scheme?

    Is it a standard LGPS AVC pot which can be taken entirely tax free at the same time as the main LGPS scheme subject to 25% overall limit?

    Have you worked out what income level you need (floor level) and would like (nice to have level) in retirement? A useful exercise as you can start to get an idea of how much you need to be putting aside for retirement.
    • Aylesbury Duck
    • By Aylesbury Duck 16th May 18, 11:58 AM
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    Aylesbury Duck
    Just checking - are you sure your wife's contributions are under Salary Sacrifice terms as that would be unusual for a LGPS aligned scheme?

    Is it a standard LGPS AVC pot which can be taken entirely tax free at the same time as the main LGPS scheme subject to 25% overall limit?

    Have you worked out what income level you need (floor level) and would like (nice to have level) in retirement? A useful exercise as you can start to get an idea of how much you need to be putting aside for retirement.
    Originally posted by AlanP
    Thanks AlanP, I'll check if her contributions are under SS. Her employer (a local authority) works with Prudential to offer an AVC scheme, the overview of which is:

    The money is deducted directly from your pay before your tax is worked out, so, if you pay tax you receive tax relief automatically. You have your own personal account and you decide how the money in your pot is to be invested.

    Doesn't that make it salary sacrifice? I don't have it to hand now but I'm sure her P60 states her taxable salary as lower than her actual salary by the amount of AVCs.

    Good suggestion on the floor and aspirational levels. We've never done that before, thinking that we'd be alright by starting pensions early (we both started them in our early 20s) and by paying more than the minimum amount. With hindsight, we should have diverted more into pensions in recent years rather than paying off the mortgage so quickly and building up a large cash reserve. Still, we're in a more fortunate position than many because of prudence, but we can afford to be a little less cautious and make our money work much harder for us than it has to date.
    Last edited by Aylesbury Duck; 16-05-2018 at 12:05 PM.
    Please forgive the deliberate omission of apostrophes on some posts whilst I await MSE to do something about the daft codes that appear in their place when typing on certain devices.
    • kidmugsy
    • By kidmugsy 16th May 18, 12:28 PM
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    kidmugsy
    The money is deducted directly from your pay before your tax is worked out, so, if you pay tax you receive tax relief automatically. You have your own personal account and you decide how the money in your pot is to be invested.
    Doesn't that make it salary sacrifice?
    Originally posted by Aylesbury Duck
    No; if it were sal sac they'd mention the savings in National Insurance too. Anyway, note "if you pay tax you receive tax relief automatically". She shouldn't contribute so much by this route that she ends up wasting tax relief by virtue of reducing her taxable pay below the Personal Allowance. That's the point at which contributing to a personal pension as well becomes a good move.
    Free the dunston one next time too.
    • Aylesbury Duck
    • By Aylesbury Duck 16th May 18, 1:01 PM
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    Aylesbury Duck
    Thanks. So as long as she maintains the £400 she pays in AVCs, or perhaps increases them to £500 or £600 she'll still be earning more than her personal allowance.

    So far I've upped my pension contributions to 15% and will look at the OH's contrition increasing to £500 or £600. I'm also looking at evestor for a S&S ISA into which we'll both put £500 a month as part of balancing the cash/investment amounts we have as well as reducing them both overall in favour of more pension contributions. Does that sound sensible?
    Last edited by Aylesbury Duck; 16-05-2018 at 3:55 PM.
    Please forgive the deliberate omission of apostrophes on some posts whilst I await MSE to do something about the daft codes that appear in their place when typing on certain devices.
    • AlanP
    • By AlanP 16th May 18, 3:45 PM
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    AlanP
    Thanks AlanP, I'll check if her contributions are under SS. Her employer (a local authority) works with Prudential to offer an AVC scheme, the overview of which is:

    The money is deducted directly from your pay before your tax is worked out, so, if you pay tax you receive tax relief automatically. You have your own personal account and you decide how the money in your pot is to be invested.

    Doesn't that make it salary sacrifice? I don't have it to hand now but I'm sure her P60 states her taxable salary as lower than her actual salary by the amount of AVCs.

    Good suggestion on the floor and aspirational levels. We've never done that before, thinking that we'd be alright by starting pensions early (we both started them in our early 20s) and by paying more than the minimum amount. With hindsight, we should have diverted more into pensions in recent years rather than paying off the mortgage so quickly and building up a large cash reserve. Still, we're in a more fortunate position than many because of prudence, but we can afford to be a little less cautious and make our money work much harder for us than it has to date.
    Originally posted by Aylesbury Duck
    As it is an LGPS AVC she will be able to take the pot tax free under current regulations at the same time as taking the main LGPS pension (up to 25% overall limit) so worth making the most of as you propose to.

    When working out your numbers, take a pessimistic view as well and consider where you will be as and when one of you dies and the household income drops. Does it still "work" whichever one of you goes first, hopefully well after you have retired and are both getting your State Pensions.
    • Aylesbury Duck
    • By Aylesbury Duck 16th May 18, 4:04 PM
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    Aylesbury Duck
    My wife apparently has two options available. One is to continue with the AVCs through the Prudential pension linked to the LGPS. The other is an APC scheme (Additional Pension Contributions) into which you can pay additional contributions to buy up to £6,755 of extra pension in the LGPS itself, rather than in the separate Prudential pot.

    Is the LGPS APC a better way forward in that it will provide a guaranteed pension level based on salary, or is it good to diversify and grow the separate pot alongside it and accept that it's value is not predictable? She may put a lump sum into the LGPS or spread it over monthly contributions and with the cash we have at hand, we can do either.
    Please forgive the deliberate omission of apostrophes on some posts whilst I await MSE to do something about the daft codes that appear in their place when typing on certain devices.
    • kidmugsy
    • By kidmugsy 16th May 18, 6:28 PM
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    kidmugsy
    Is the LGPS APC a better way forward?
    Originally posted by Aylesbury Duck
    I'd look carefully at the effect of retirement age. Would the APCs lose a lot of value if she opted to retire early and draw her LGPS early?
    Free the dunston one next time too.
    • Silvertabby
    • By Silvertabby 16th May 18, 9:05 PM
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    Silvertabby
    I'd look carefully at the effect of retirement age. Would the APCs lose a lot of value if she opted to retire early and draw her LGPS early?
    Originally posted by kidmugsy
    LGPS APCs are subject to early retirement reductions. A couple of years early isn't too bad, but buying APCs with the intention of retiring at 60 may not be the best option.
    • Aylesbury Duck
    • By Aylesbury Duck 16th May 18, 11:00 PM
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    Aylesbury Duck
    Thanks both. We've looked into it and you're right. I think the AVCs are a more flexible product, and unlike APCs, they are inheritable.
    Please forgive the deliberate omission of apostrophes on some posts whilst I await MSE to do something about the daft codes that appear in their place when typing on certain devices.
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