Realistic Pension Contributions

[Rick101]

I've very little savings and have a couple of hundred extra coming free every month later this year. Obviously I'm intent on spending it on a ludicrous sports car.

I however think I should revisit my pension contributions and actually come up with a plan.
I have a rough idea what I'd like. I need to sense check the figures, find a realistic plan and likely lower my expectation!

Age: 40 this year
Job: Fairly secure. Pay a % via salary sacrifice for a DB scheme
Pay £50pm additional as AVC
Have 5 years in an old DB scheme
Aim: Retire or be part time by 60 with £1500pm net income

190k & 30 years remaining on mortgage
Currently pay £80 extra per month
MSE calculator suggests upping over payment to £260pm would being it down to 20 years.

No/minimal debts

Pension
AVC
Current funds £14K

Current scheme due age 65
Basic Pension £23K

Old Scheme finished 2014
Preserved benefits of £4kpa

State Pension due age 68
9K


A few questions
Does the 4K in the Preserved scheme 'grow'. I'd assume it should as 4K in 20yrs time I imagine would buy a lot less.
Once all pensions are drawable, thats 23+4+9, am I right in thinking £36K pre tax guaranteed a year?
Am I right in thinking I can't access AVC funds until normal age 65?
If so, I would need to bridge a 5 year gap, I figure, with no mortgage, i'd want around £1500 pm net.

Where do I start?


Thanks all.

Edited by Rick101 on Sunday 29th March 14:30

[mike9009]

Very broad brush, based on conservative figures, I reckon you need to be putting in about £1000 per month to retire at 60 with your pension wishes.

You don't mention how much you earn. At the moment, if you are a higher earner putting more in your pension is advantageous.

It's a tricky balancing act between living for now, paying off mortgage and putting in pension.

I have been putting a third of my disposable income into each pot. Hopefully pay mortgage by age 50, retire at 63ish and still own a few vehicles and have foreign camping holidays.

Try writing it all down with the targets projecting how to achieve them. Update the spreadsheet once per annum to see how you are getting on and adjust as necessary. ( And then coronavirus comes a long and upsets all the calculations!!!)

Mike

[Rick101]

I do have a fairly good awareness of my expenditure. I log everything, and I do mean everything, I spend and have done for around 12 years now.
Doesn't stop me overspending but I'm aware of what I could cut back on.

Just into higher rate with overtime but mostly 20%.

Is there a way to get pensionable tax benefits but still get the money out at 60 or should i just start an ISA of some sort?
Worth continuing with the AVC? If I've understood right the DB part should be enough for me from 65.

I don't really follow the £1000 figure? I'm more querying, am I understanding what I'll get at 65/67 right and secondly how do I get a 'pension' for to cover me 60-65.

Direct saving cost seemingly 375pm *12months = £4500pa, 20 years of that is 90K which works out at the £1500pm for 5 years.

Edited by Rick101 on Saturday 28th March 21:47

[Rick101]

A quick interwebnet search suggests a Lifetime ISA might be what I need to do.

I can't really get clarity on whether I can access my AVC funds at 60 (I'm in RPS65 scheme)

The LISA allows me the funds at 60 and, as I understand it, basically the same as paying it into and AVC.
Yes, I pay tax & NI on my income at around 25% but I get the 25% bonus in the LISA so should even out??


I'd likely go S&S for the ISA as that risk is surely no different to my AVC risk. I have the DB at 65 so that's a worst case scenario.
Is there much difference between the ISA companies. I'd have thought it's all dependant on the investor and what pot they choose to put your money in.
AJ Bell has come up. I'd prefer a someone I could call or write to over an app only style account.

Any other recommendations?

Edited by Rick101 on Sunday 29th March 10:36

[snuffy]

Let me see if I have understood what you required ?

You want to stop work at 60 but you will not receive your current pension(s) until 65, so you need to fund those 5 years.

And you want £1500 a month for that period, so £1500x12x5 = £90k.

The simplest way is to save £90k and then spend it until it's gone. You are 40 now, so you have 20 years to save £90k. That's £375/month assuming zero growth. Current cash ISAs pay almost zero interest. Stocks & shares ISAs ? Who knows over the next 20 years ?

So I would say £375 a month to be saved if you assume zero growth over the next 20 years (which you could argue is a fairly valid assumption).

[chrishumes1978]

Rick101 said:

A quick interwebnet search suggests a Lifetime ISA might be what I need to do.

I can't really get clarity on whether I can access my AVC funds at 60 (I'm in RPS65 scheme)

The LISA allows me the funds at 60 and, as I understand it, basically the same as paying it into and AVC.
Yes, I pay tax & NI on my income at around 25% but I get the 25% bonus in the LISA so should even out??


I'd likely go S&S for the ISA as that risk is surely no different to my AVC risk. I have the DB at 65 so that's a worst case scenario.
Is there much difference between the ISA companies. I'd have thought it's all dependant on the investor and what pot they choose to put your money in.
AJ Bell has come up. I'd prefer a someone I could call or write to over an app only style account.

Any other recommendations?

Edited by Rick101 on Sunday 29th March 10:36

No expert, but i thought you had to be under 40 to start a LISA?

[snuffy]

chrishumes1978 said:

No expert, but i thought you had to be under 40 to start a LISA?

That is correct.

And a maximum of £4k a year and the government adds 25%. So starting just before you turned 40 would give you £5k x 20 years which is £100k at 60. (Assuming zero growth).

[anonymous-user]

You say you're just into 40% tax. That is, presumably, after any contributions you're making to the employer's pension scheme.

For starters you want IMO to be chucking enough into additional pension to get rid of that 40% tax.

The dream ticket of pensioning for many people is IMO,

• Tax relief at 40% going in
• 25% out tax free at the end, and
• Only 20% tax on the rest.

It's massively efficient.

Once you've killed your 40% tax liability I'd be looking at ISA for the rest. Great tax relief on the cumulation and total flexibility regarding age for withdrawals.

With a bit of care the combination of pension and ISA can be extremely effective over the years.

[grahamm]

snuffy said:

That is correct.

And a maximum of £4k a year and the government adds 25%. So starting just before you turned 40 would give you £5k x 20 years which is £100k at 60. (Assuming zero growth).

I believe you can only contribute to a LISA up to the age of 50

[snuffy]

grahamm said:

snuffy said:

That is correct.

And a maximum of £4k a year and the government adds 25%. So starting just before you turned 40 would give you £5k x 20 years which is £100k at 60. (Assuming zero growth).

I believe you can only contribute to a LISA up to the age of 50

I didn't know that, but that is correct:

https://www.gov.uk/lifetime-isa

[Rick101]

A few bits to answer there.

No expert, but i thought you had to be under 40 to start a LISA?
I'm 40 later this year so time to get in on a LISA. Unlikely I'll get near 4K so no rush to do it before April 5th.

You say you're just into 40% tax. That is, presumably, after any contributions you're making to the employer's pension scheme.
I''m guessing so. Not that clear on how it's paid. I think it's around 8% by Salary Sacrifice so I have a deduction from my gross.
My gross after the salary sacrifice has come off is around 47K with one more pay to come this tax year.

I believe you can only contribute to a LISA up to the age of 50
Yes as I understand it. Then matures for 10 years. I'd look at moving the payment elsewhere to a SIPP or whatever is available at that time.


I don't really see the benefit of paying the brass if I don't need a lump sum at 65. The DB part would be enough.
I'm thinking of stopping the AVC and moving the amount towards the LISA. I can access it at 60 then, not 65.
If I was to reach 40% in future, I'd just do a single payment to bring me under the threshold.

[eyebeebe]

You also need to take into account inflation. To have the same purchasing power as 90k today at 2% inflation for the next 20 years you would need 133k. So you either need a return of 2% pa or assuming no growth you would need to save about 550 a month. Seems the best cash ISA rates are 1.6% at the moment, so you would need to save just over 400 a month to cover the difference.

[Rick101]

I'm going to go with AJ Bell for a S&S LISA.

Seems legit but always worth asking the question, barn door and all that.

Anybody have accounts with them? Good service? Am I protected as much as I can be with a shares account? If anyone knows any reason these two should not be joined in financial matrimony for 20 years, speak now or forever hold your peace.

[95JO]

Rick101 said:

I'm going to go with AJ Bell for a S&S LISA.

Seems legit but always worth asking the question, barn door and all that.

Anybody have accounts with them? Good service? Am I protected as much as I can be with a shares account? If anyone knows any reason these two should not be joined in financial matrimony for 20 years, speak now or forever hold your peace.

I had a S&S LISA with AJ Bell for a couple of years (used mine for house deposit) - It's very much DIY, which is what I wanted.

I also used to work there, so that influenced my decision at the time... Go for it.

[Rick101]

Thanks,

All set up with AJ Bell. Fairly easy website to use. Started with a direct debit for £100pm and have also increased by AVC to £100pm as I'm into higher tax.
My pension has a huge penalty for finishing at 60 so I need a separate option to fund that gap.

Found a compound interest calculator which suggested my required £1500pm would be close to £2200 in 2040 at 2%.
That means I'd need to be putting closer to £400pm in which is unrealistic at present but something to work towards.

Currently overpaying Mortgage by 40% so quite a lot of spare disposable is going there.

eyebeebe said:

You also need to take into account inflation. To have the same purchasing power as 90k today at 2% inflation for the next 20 years you would need 133k. So you either need a return of 2% pa or assuming no growth you would need to save about 550 a month. Seems the best cash ISA rates are 1.6% at the moment, so you would need to save just over 400 a month to cover the difference.

Perfect I just needed to understand it better!

Edited by Rick101 on Thursday 9th April 16:03

[dodsi2000]

This all seems terribly complicated, have you considered marrying well and becoming a kept man?

[Rick101]

All the good ones are taken. Just crazies and drunkards left by 40.

Always good to have a revisit of pension stuff. Had 50% going to an old floozy!