Paid off the mortgage. Want to invest. Pensions/SIPP help!
Discussion
First of all, congratulations on paying off your entire mortgage by your early thirties - that is a remarkable achievement!
Also, I would not be looking to change jobs with that pension provision!
For you the SIPP/pension route makes the most sense from a tax perspective as if you pay in £2,000 a month this is grossed up to £2,500 a month automatically and you can claim back a further £500 a month on your tax return. So it costs you £18,000 a year to get £30,000 a year into your SIPP/pension.
If you do this for 25 years you would have £750,000 in your SIPP at a cost to you of £450,000 (I've been pessimistic here and assumed your funds only grow by the equivalent of inflation and charges) so you have effectively had £300,000 of free money - half in your SIPP and half in your hand whilst you were saving.
You can then take a further £187,500 in tax free cash (25% - presuming that is still there!) so the total tax saving for you would be just she of £0.5m.
However, there is a ridiculous rule called the Lifetime Allowance. You are without doubt going to fall fowl of this (and you really don't want to) when you add together the values of this hypothetical SIPP and your Defined Benefit workplace pension.
To that extent you really need an accurate projection of your workplace pension before you consider using a SIPP/pension so you can find out what margin you may have to put money into SIPP without breaching this allowance.
You can still place £40,000 a year into ISAs (between yourself and your wife) and take all the gains from these without any personal tax to pay so I would look at this route until you have been soundly advised regarding your workplace pension and the Lifetime Allowance.
The Lifetime Allowance aside, you don't seem to be missing any of the basics (though there are usually no trading fees on funds and ETFs).
Keep costs to a minimum and consider low cost tracker funds/ETFs as an alternative to managed funds. If you want to use £4,000 each of your annual ISA allowance to put money into a Lifetime ISA then remember you can't withdraw from this until you are 65 if you want to retain the 25% government uplift.
Anything else, just ask.
Also, I would not be looking to change jobs with that pension provision!
For you the SIPP/pension route makes the most sense from a tax perspective as if you pay in £2,000 a month this is grossed up to £2,500 a month automatically and you can claim back a further £500 a month on your tax return. So it costs you £18,000 a year to get £30,000 a year into your SIPP/pension.
If you do this for 25 years you would have £750,000 in your SIPP at a cost to you of £450,000 (I've been pessimistic here and assumed your funds only grow by the equivalent of inflation and charges) so you have effectively had £300,000 of free money - half in your SIPP and half in your hand whilst you were saving.
You can then take a further £187,500 in tax free cash (25% - presuming that is still there!) so the total tax saving for you would be just she of £0.5m.
However, there is a ridiculous rule called the Lifetime Allowance. You are without doubt going to fall fowl of this (and you really don't want to) when you add together the values of this hypothetical SIPP and your Defined Benefit workplace pension.
To that extent you really need an accurate projection of your workplace pension before you consider using a SIPP/pension so you can find out what margin you may have to put money into SIPP without breaching this allowance.
You can still place £40,000 a year into ISAs (between yourself and your wife) and take all the gains from these without any personal tax to pay so I would look at this route until you have been soundly advised regarding your workplace pension and the Lifetime Allowance.
The Lifetime Allowance aside, you don't seem to be missing any of the basics (though there are usually no trading fees on funds and ETFs).
Keep costs to a minimum and consider low cost tracker funds/ETFs as an alternative to managed funds. If you want to use £4,000 each of your annual ISA allowance to put money into a Lifetime ISA then remember you can't withdraw from this until you are 65 if you want to retain the 25% government uplift.
Anything else, just ask.
Forgot to mention about platforms/providers.
AJ Bell and Hargreaves Lansdown are both good. HL is a bit more expensive but people seem very happy to pay for it because of their high service levels.
Club Finance remains pretty much impossible to beat on charges though and the service is good. £60 a year for the platform (plus fund charges)...!!! I think I should start a new thread on this alone!
Disclosure - I know David and Philip (who own Club Finance) but equally I know Peter Hargreaves and Andy Bell. I don't get paid a penny to recommend any of them! I'm just in the same industry.
AJ Bell and Hargreaves Lansdown are both good. HL is a bit more expensive but people seem very happy to pay for it because of their high service levels.
Club Finance remains pretty much impossible to beat on charges though and the service is good. £60 a year for the platform (plus fund charges)...!!! I think I should start a new thread on this alone!
Disclosure - I know David and Philip (who own Club Finance) but equally I know Peter Hargreaves and Andy Bell. I don't get paid a penny to recommend any of them! I'm just in the same industry.
Buy more property - there will inevitably be future failures and displacements in the financial sectors and no matter the provisions in place to buffer and guarantee investments and returns it isn't worth the risk long term.
I retired at 50, and have a mix of residential and industrial property in several countries. Some locations I use management proxies,others I look after myself.
I have year on year increases in equity and rental income without additional investment that no fund could ever match, with lower levels of risk.
And it keeps me busy and allows me to introduce myself as a 'businessman', rather than pensioner!.
I retired at 50, and have a mix of residential and industrial property in several countries. Some locations I use management proxies,others I look after myself.
I have year on year increases in equity and rental income without additional investment that no fund could ever match, with lower levels of risk.
And it keeps me busy and allows me to introduce myself as a 'businessman', rather than pensioner!.
Beanbob said:
Thank you for your reply - very useful. I know I am in a fortunate position through a mixture of hard work, luck and a dash of risk along the way! Now the mortgage has been cleared which has been my main goal for some time, I need to focus on the saving until retirement
My workplace pension is through the LGPS, so my understanding is that the capital value is based on 20x the defined benefit. Based on existing salary and probable service (c.28 years if I retire early as planned (!) at 55, although far too many variables there!) the pension payable would be c.£28k per annum, or £560k towards my lifetime allowance although of course this is based on values today. If I choose to continue working to NRA and assuming no change to the many variables, it'd be £820k again based on values today.
I'll contact my LGPS scheme administrator regarding a lifetime allowance prediction. My last LGPS statement, dated 31 March 2015, predicted c.53% but didn't go into any further detail, was based on retirement at NRA plus my salary has increased by over 50% since that date.
I'm in no rush really, but I know I am going to start to accumulate cash at a fair rate from next month and don't really want it sitting around earning pittance in some easy access savings account! Equally, I don't want to rush into making the wrong decision.
I sounds as though you have more than just the basics covered. You obviously do have some flexibility for SIPP/pension investing to get the generous tax breaks and given these may change in the future it makes sense to take advantage of them now by placing any available monthly funds (that would otherwise be taxed at the high rate) into a SIPP/pension with the balance into an ISA.My workplace pension is through the LGPS, so my understanding is that the capital value is based on 20x the defined benefit. Based on existing salary and probable service (c.28 years if I retire early as planned (!) at 55, although far too many variables there!) the pension payable would be c.£28k per annum, or £560k towards my lifetime allowance although of course this is based on values today. If I choose to continue working to NRA and assuming no change to the many variables, it'd be £820k again based on values today.
I'll contact my LGPS scheme administrator regarding a lifetime allowance prediction. My last LGPS statement, dated 31 March 2015, predicted c.53% but didn't go into any further detail, was based on retirement at NRA plus my salary has increased by over 50% since that date.
I'm in no rush really, but I know I am going to start to accumulate cash at a fair rate from next month and don't really want it sitting around earning pittance in some easy access savings account! Equally, I don't want to rush into making the wrong decision.
Re Club Finance, further reading has told me that it is £4.95 a trade (shares and funds) or £15 a quarter if you don't make 3 trades that quarter. So the £60 a year is the price of buying and holding. If you have, for example, 10 funds/shares and you want to rebalance all of them every quarter it would cost you £198 a year. Still incredible value though and I will call the owner tomorrow to find out more.
You seem to have your head screwed on in all the right ways with retirement income pushing towards (but, with planning, controlled just below) the 40% rate of tax at age 55 and completely mortgage free in your early thirties. Very few people manage to achieve that.
jimreed said:
Buy more property - there will inevitably be future failures and displacements in the financial sectors and no matter the provisions in place to buffer and guarantee investments and returns it isn't worth the risk long term.
I retired at 50, and have a mix of residential and industrial property in several countries. Some locations I use management proxies,others I look after myself.
I have year on year increases in equity and rental income without additional investment that no fund could ever match, with lower levels of risk.
And it keeps me busy and allows me to introduce myself as a 'businessman', rather than pensioner!.
Jim, we have not even touched on any asset classes to invest in, just tax efficiency through a SIPP/pension or ISA, so I don't quite get your comment. I retired at 50, and have a mix of residential and industrial property in several countries. Some locations I use management proxies,others I look after myself.
I have year on year increases in equity and rental income without additional investment that no fund could ever match, with lower levels of risk.
And it keeps me busy and allows me to introduce myself as a 'businessman', rather than pensioner!.
Property has exactly the same risk of failure as any other asset, with no guarantees either.
The OP is completely free to invest in property within a SIPP whilst still getting the tax advantages. Are you aware that a SIPP is a tax allowance (not an investment or asset class)?
Whilst I also have done well with property (and so certainly don't knock you on that front) I would never claim that "no fund could ever match" these returns. And how are you quantifying lower levels of risk? You are geared, therefore in debt, and relying upon singular entities to service your debt and market prices to deliver your returns until the debt is cancelled. Even then, you will pay full income tax and capital gains tax on the proceeds.
I hold my property (and land) within my SIPP to ensure the tax man pays for nearly half of it and I have no CGT or Income tax (on rent). I also invest in shares (and bonds) to ensure a balance.
Sorry if this sounds like a rant but it annoys the hell out of me when people don't understand the difference between a tax wrapper (allowance) and an investment (asset class).
Cheers!
If you're hoping to retire at 55 by accessing your pension then I think you'll be out of luck. I believe the current legislation will mean the earliest you can benefit will be 10 years before your state retirement age - so late 50s. Maybe even 60.
Your ISA funds might see you through.
Your ISA funds might see you through.
DeuceDeuce said:
If you're hoping to retire at 55 by accessing your pension then I think you'll be out of luck. I believe the current legislation will mean the earliest you can benefit will be 10 years before your state retirement age - so late 50s. Maybe even 60.
Your ISA funds might see you through.
Aged 55 for workplace and personal pensions (which include SIPPs) still...Your ISA funds might see you through.
https://www.gov.uk/early-retirement-pension/person...
CaptainSlow said:
It sounds like you're using up most of your £40k pa pension allowance.
It depends on his salary, he needs to be earning over £100k a year for this. That (and the Lifetime Allowance) is why I suggested maximising payments now as in the future this may not be possible.CaptainSlow said:
I doubt he'll have anywhere near the £30k spare allowance you first suggested. By the sounds of the numbers the OP is talking about I get the feeling he's not far off three figures.
Perhaps not. That is why I said about getting a detailed projection. The OP could be on any amount over the 40% band, there is nothing here to tell other than the final pension income stated (which will have many things factored into it).Credit where it is due though, he has done f
g well!!!Beanbob said:
Thanks chaps.
Current salary is £60k. Considerable likelihood of an reasonable increase in the next 12-18 months but sadly not into six-figures quite yet. LGPS pension banding mean anything more than a cost of living rise is likely to see my contribution rate increase from 8.5% to 9.9%.
Based on existing salary, I currently pay £5,100pa into my pension and my employer pays £15,840. Leaving £19,060 remaining, although can I roll previous years' allowance forward?
So you have the provision to put £19k a year into a SIPP/pension (£15,200 net), but what if this grow beyond the Lifetime Allowance (with a 55% tax charge),Current salary is £60k. Considerable likelihood of an reasonable increase in the next 12-18 months but sadly not into six-figures quite yet. LGPS pension banding mean anything more than a cost of living rise is likely to see my contribution rate increase from 8.5% to 9.9%.
Based on existing salary, I currently pay £5,100pa into my pension and my employer pays £15,840. Leaving £19,060 remaining, although can I roll previous years' allowance forward?
It also sounds like you have used up all of your higher rate tax band for SIPP/pension contributions.
There are great tax benefits in using an ISA though. Don't be disappointed that you have potentially maximised your options so far, that is a very good place to be!
JulianPH said:
DeuceDeuce said:
If you're hoping to retire at 55 by accessing your pension then I think you'll be out of luck. I believe the current legislation will mean the earliest you can benefit will be 10 years before your state retirement age - so late 50s. Maybe even 60.
Your ISA funds might see you through.
Aged 55 for workplace and personal pensions (which include SIPPs) still...Your ISA funds might see you through.
https://www.gov.uk/early-retirement-pension/person...
Beanbob said:
Thanks chaps.
Current salary is £60k. Considerable likelihood of an reasonable increase in the next 12-18 months but sadly not into six-figures quite yet. LGPS pension banding mean anything more than a cost of living rise is likely to see my contribution rate increase from 8.5% to 9.9%.
Based on existing salary, I currently pay £5,100pa into my pension and my employer pays £15,840. Leaving £19,060 remaining, although can I roll previous years' allowance forward?
I read with interest your projected pension income would be 28k (i think)Current salary is £60k. Considerable likelihood of an reasonable increase in the next 12-18 months but sadly not into six-figures quite yet. LGPS pension banding mean anything more than a cost of living rise is likely to see my contribution rate increase from 8.5% to 9.9%.
Based on existing salary, I currently pay £5,100pa into my pension and my employer pays £15,840. Leaving £19,060 remaining, although can I roll previous years' allowance forward?
Are you sure you've got that right? I am in the career average civil service pension, have been for nearly 9 years, earn 52k a year, have been pretty much since I joined the scheme and I don't anticipate any vast increases in salary over my career.
The projected pension income at age 55 is 18k, 60 it's 22k and 65 it's 25k. Given your salary isn't vastly different to mine and I would assume our service lengths are about the same I just thought I would raise this for you to double check...
So you are age 33 on a salary of £60k and reckon you will be maxed out on pension at age 55? Doesn't sound very likely to me. You'll need to manage another 28 years with the same employer for starters and without the pension scheme undergoing any change during that period. How big's your crystal ball? Do you not have any ambitions which might involve a change of employer?
And the house. Mortgage paid off but are you never going to move to a bigger/better place? Few successful people would declare "game over" at age 33.
As Julian PH has already said it's time to work that ISA if you really don't think you can do more pension.
And the house. Mortgage paid off but are you never going to move to a bigger/better place? Few successful people would declare "game over" at age 33.
As Julian PH has already said it's time to work that ISA if you really don't think you can do more pension.
Congratulations OP, top work on the mortgage.
It's interesting to read these threads to see what people have to say about SIPPs. With the LTA and AA's so low I currently face being quite a bit over LTA so investing in another pension doesn't seem like a smart move at the moment. I'm reading these threads to get an idea of a smart way to sequester a little extra cash to make retirement that much more comfortable and hopefully bring it forward a few years.
It's interesting to read these threads to see what people have to say about SIPPs. With the LTA and AA's so low I currently face being quite a bit over LTA so investing in another pension doesn't seem like a smart move at the moment. I'm reading these threads to get an idea of a smart way to sequester a little extra cash to make retirement that much more comfortable and hopefully bring it forward a few years.
Can I ask, what is your goal / aim?
Do you want a nice car, nice holidays, children in private school? (No house move).
The reason I ask is, are you spending your 30's planning on retirement? In that, are you maximising all your outgoing solely to provide for your future?
In the past 12 months I know of 2 people who have passed away in their 30's and 1 in in their early 40's, 1 from cancer and two of heart attacks / failure.
We are only here once, all well and good anticipating a nice retirement, as long as you get there!
I don't mean to be morbid, as what you have achieved is excellent so far, with an astounding company pension, but surely there is more to life than planning your old age?
Good luck with whatever you choose, a good position to be in and one I hope to be in at 32
Do you want a nice car, nice holidays, children in private school? (No house move).
The reason I ask is, are you spending your 30's planning on retirement? In that, are you maximising all your outgoing solely to provide for your future?
In the past 12 months I know of 2 people who have passed away in their 30's and 1 in in their early 40's, 1 from cancer and two of heart attacks / failure.
We are only here once, all well and good anticipating a nice retirement, as long as you get there!
I don't mean to be morbid, as what you have achieved is excellent so far, with an astounding company pension, but surely there is more to life than planning your old age?
Good luck with whatever you choose, a good position to be in and one I hope to be in at 32
Beanbob said:
Trexthedinosaur said:
Can I ask, what is your goal / aim?
Do you want a nice car, nice holidays, children in private school? (No house move).
The reason I ask is, are you spending your 30's planning on retirement? In that, are you maximising all your outgoing solely to provide for your future?
In the past 12 months I know of 2 people who have passed away in their 30's and 1 in in their early 40's, 1 from cancer and two of heart attacks / failure.
We are only here once, all well and good anticipating a nice retirement, as long as you get there!
I don't mean to be morbid, as what you have achieved is excellent so far, with an astounding company pension, but surely there is more to life than planning your old age?
Good luck with whatever you choose, a good position to be in and one I hope to be in at 32
A very valid question. Do you want a nice car, nice holidays, children in private school? (No house move).
The reason I ask is, are you spending your 30's planning on retirement? In that, are you maximising all your outgoing solely to provide for your future?
In the past 12 months I know of 2 people who have passed away in their 30's and 1 in in their early 40's, 1 from cancer and two of heart attacks / failure.
We are only here once, all well and good anticipating a nice retirement, as long as you get there!
I don't mean to be morbid, as what you have achieved is excellent so far, with an astounding company pension, but surely there is more to life than planning your old age?
Good luck with whatever you choose, a good position to be in and one I hope to be in at 32
In my case, I'm maximising the surplus money I have available to plan for my retirement. However, this is not at the expense of enjoying day to day life - I put aside plenty for things I enjoy; a nice car, several holidays a year and socialising as much as I want to. I don't scrimp and save. I also gain plenty of enjoyment (smug satisfaction, maybe) knowing that I have a well funded retirement to look forward to - if I make it that far! I don't really buy into the whole "spend it now whilst you can" position, as I know far more people that have lived to their 70s, 80s or beyond than have died in their 30s or 40s.
Good luck
If you take your LGPS pension early you'll be looking at an actuarial reduction of about 5% p/a for each year before your NRA.
You would do well to check what the scheme says, if indeed it commits to a specific.
You could spreadsheet the hell out of your options for taking early/ not and filling the gap with something else, etc, etc, but to be honest I'm rather surprised that it still pays 60ths and kicks out at 60, because the main civil service pension scheme ditched that for 2015, as did the NHS (save those close to retirement who had transitional protection), so where this would explain why my council tax is so fking high, I would struggle to think it can remain for the next 28 years, tax payers like libraries being open, not to bung 20% of their monthly bill into staff pensions.
You would do well to check what the scheme says, if indeed it commits to a specific.
You could spreadsheet the hell out of your options for taking early/ not and filling the gap with something else, etc, etc, but to be honest I'm rather surprised that it still pays 60ths and kicks out at 60, because the main civil service pension scheme ditched that for 2015, as did the NHS (save those close to retirement who had transitional protection), so where this would explain why my council tax is so f
king high, I would struggle to think it can remain for the next 28 years, tax payers like libraries being open, not to bung 20% of their monthly bill into staff pensions. Gassing Station | Finance | Top of Page | What's New | My Stuff