Prudent Pension Planning Principles
Discussion
I could do with a bit of help clarifying my thoughts on retirement income planning, I think I've got the gist of it, but left with a few questions:
1, My wife and I are both likely to meet the current criteria for full new state pension, so ~£8k pa each, but we're 30+ years off retirement. Are there any standard assumptions about the value and availability of state pensions so far into the future, can they form a core part of my planning?
2, My wife is probably going to stay at home to look after children for a few years, so no real personal income. I understand that she can contribute to a pension to a max this year of £2880 pa which is topped up to £3600. If I was a higher rate tax payer, depending on circumstances, might it be better to contribute more to my own pension? Are there any other ways to utilise a spouse's income tax free allowance?
3, Our core plan is probably going to focus on a minimum income via an annuity for a single surviving spouse, so joint annuities with ~50% survivor benefit look like a sensible starting point. If both spouses have similar retirement income requirements it appears to be sensible to try to balance pension pots on both sides and buy a joint annuity each so that on death household income only drops by ~25%. Is that rule of thumb about right? If so, are there any tips for balancing pension pots between spouses who may have differing incomes?
Reasonable assumptions are that we're both likely to be PAYE employees with defined contribution pensions only.
1, My wife and I are both likely to meet the current criteria for full new state pension, so ~£8k pa each, but we're 30+ years off retirement. Are there any standard assumptions about the value and availability of state pensions so far into the future, can they form a core part of my planning?
2, My wife is probably going to stay at home to look after children for a few years, so no real personal income. I understand that she can contribute to a pension to a max this year of £2880 pa which is topped up to £3600. If I was a higher rate tax payer, depending on circumstances, might it be better to contribute more to my own pension? Are there any other ways to utilise a spouse's income tax free allowance?
3, Our core plan is probably going to focus on a minimum income via an annuity for a single surviving spouse, so joint annuities with ~50% survivor benefit look like a sensible starting point. If both spouses have similar retirement income requirements it appears to be sensible to try to balance pension pots on both sides and buy a joint annuity each so that on death household income only drops by ~25%. Is that rule of thumb about right? If so, are there any tips for balancing pension pots between spouses who may have differing incomes?
Reasonable assumptions are that we're both likely to be PAYE employees with defined contribution pensions only.
grantone said:
I could do with a bit of help clarifying my thoughts on retirement income planning, I think I've got the gist of it, but left with a few questions:
1, My wife and I are both likely to meet the current criteria for full new state pension, so ~£8k pa each, but we're 30+ years off retirement. Are there any standard assumptions about the value and availability of state pensions so far into the future, can they form a core part of my planning?
* I don't think there are any such "standard" assumptions. I expect you'll get something but it would be prudent not to rely too greatly on it.
2, My wife is probably going to stay at home to look after children for a few years, so no real personal income. I understand that she can contribute to a pension to a max this year of £2880 pa which is topped up to £3600. If I was a higher rate tax payer, depending on circumstances, might it be better to contribute more to my own pension? Are there any other ways to utilise a spouse's income tax free allowance?
* All other things being equal, it can make sense to utilise the allowance of the higher rate taxpayer first. Maximising any available employer contributions is the first step.
3, Our core plan is probably going to focus on a minimum income via an annuity for a single surviving spouse, so joint annuities with ~50% survivor benefit look like a sensible starting point. If both spouses have similar retirement income requirements it appears to be sensible to try to balance pension pots on both sides and buy a joint annuity each so that on death household income only drops by ~25%. Is that rule of thumb about right? If so, are there any tips for balancing pension pots between spouses who may have differing incomes?
* "Drawdown" schemes can offer good alternatives to annuities. It would be worth spending some google time on this.
- ISAs can also form part of a long term financial plan. Many people use them alongside traditional pension schemes.
Reasonable assumptions are that we're both likely to be PAYE employees with defined contribution pensions only.
Sounds like you are v much on the right track. A good IFA would help you build certainty over the details for a fee that you'll more than recover over time.1, My wife and I are both likely to meet the current criteria for full new state pension, so ~£8k pa each, but we're 30+ years off retirement. Are there any standard assumptions about the value and availability of state pensions so far into the future, can they form a core part of my planning?
* I don't think there are any such "standard" assumptions. I expect you'll get something but it would be prudent not to rely too greatly on it.
2, My wife is probably going to stay at home to look after children for a few years, so no real personal income. I understand that she can contribute to a pension to a max this year of £2880 pa which is topped up to £3600. If I was a higher rate tax payer, depending on circumstances, might it be better to contribute more to my own pension? Are there any other ways to utilise a spouse's income tax free allowance?
* All other things being equal, it can make sense to utilise the allowance of the higher rate taxpayer first. Maximising any available employer contributions is the first step.
3, Our core plan is probably going to focus on a minimum income via an annuity for a single surviving spouse, so joint annuities with ~50% survivor benefit look like a sensible starting point. If both spouses have similar retirement income requirements it appears to be sensible to try to balance pension pots on both sides and buy a joint annuity each so that on death household income only drops by ~25%. Is that rule of thumb about right? If so, are there any tips for balancing pension pots between spouses who may have differing incomes?
* "Drawdown" schemes can offer good alternatives to annuities. It would be worth spending some google time on this.
- ISAs can also form part of a long term financial plan. Many people use them alongside traditional pension schemes.
Reasonable assumptions are that we're both likely to be PAYE employees with defined contribution pensions only.
grantone said:
I could do with a bit of help clarifying my thoughts on retirement income planning, I think I've got the gist of it, but left with a few questions:
1, My wife and I are both likely to meet the current criteria for full new state pension, so ~£8k pa each, but we're 30+ years off retirement. Are there any standard assumptions about the value and availability of state pensions so far into the future, can they form a core part of my planning?
2, My wife is probably going to stay at home to look after children for a few years, so no real personal income. I understand that she can contribute to a pension to a max this year of £2880 pa which is topped up to £3600. If I was a higher rate tax payer, depending on circumstances, might it be better to contribute more to my own pension? Are there any other ways to utilise a spouse's income tax free allowance?
3, Our core plan is probably going to focus on a minimum income via an annuity for a single surviving spouse, so joint annuities with ~50% survivor benefit look like a sensible starting point. If both spouses have similar retirement income requirements it appears to be sensible to try to balance pension pots on both sides and buy a joint annuity each so that on death household income only drops by ~25%. Is that rule of thumb about right? If so, are there any tips for balancing pension pots between spouses who may have differing incomes?
Reasonable assumptions are that we're both likely to be PAYE employees with defined contribution pensions only.
No way to say what might be better (you or your wife) but something for you to bear in mind in your accumulation phase. If you earn over 50k, you lose child benefit on a tapering basis until you get nothing - assuming you earn 60k. A pension contribution can recover some, or all, of your lost child benefit. Therefore, the tax relief and the recovered child benefit, effectively, can be well in excess of the usual 40% that a pension contribution might return to you. That's not to say it's automatically the right thing to do, just something for you to bear in mind (it's not what you make, it's what you keep).1, My wife and I are both likely to meet the current criteria for full new state pension, so ~£8k pa each, but we're 30+ years off retirement. Are there any standard assumptions about the value and availability of state pensions so far into the future, can they form a core part of my planning?
2, My wife is probably going to stay at home to look after children for a few years, so no real personal income. I understand that she can contribute to a pension to a max this year of £2880 pa which is topped up to £3600. If I was a higher rate tax payer, depending on circumstances, might it be better to contribute more to my own pension? Are there any other ways to utilise a spouse's income tax free allowance?
3, Our core plan is probably going to focus on a minimum income via an annuity for a single surviving spouse, so joint annuities with ~50% survivor benefit look like a sensible starting point. If both spouses have similar retirement income requirements it appears to be sensible to try to balance pension pots on both sides and buy a joint annuity each so that on death household income only drops by ~25%. Is that rule of thumb about right? If so, are there any tips for balancing pension pots between spouses who may have differing incomes?
Reasonable assumptions are that we're both likely to be PAYE employees with defined contribution pensions only.
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