35 / 35 / 35 - SIPP Salary Sacrifice Pension Questions
Discussion
I'm sure this has all been asked before, so apologies for perhaps repeating a well worn question... but:
- I'm 35
- have £35k in my NEST pension
- likely have 35 years working before the state pension is likely to kick in (it's 67 now but I'm sure that can and will change)
ideally I'd like to taper down a little in my early 60's (the age my Parents are at now).... but am certainly not trying to fully retire by that time.
I'm in the fortunate position to have had a significant jump in my earnings over the last 12 months or so that's put me comfortably into the 40% bracket and means that I'm looking at things for the first time with a little more focus as I understand decisions made now will have a large impact in the years to come.
My 20's were not perhaps that well paid and having opted out of pensions on employment paying just above minimum wage, I spent that time building a house deposit instead... it was a reasonable decision as we have been homeowners since 2018.
I started saving into a pension at age 29 using the 'Half your current age rule' putting 15% of qualifying earnings in (this is now £550pcm after 20% tax relief, but has not always been the case) with my employer paying 5% of the same (Approx £185pcm)
6 years or so later I have a pot of £35k with NEST - though it does not seem to have grown much I understand I'm perhaps benefitting from cost averaging in a challenging market. The charge on deposits is approx 1.8% according to my calculations - With a previous income fluctuating due to bonus between £30 > 35k and COVID affecting things for a while this seemed to be on track and proportional.
However, my current position will give me a fairy consistent income (albeit with marginal increases year-on-year to counter inflation and some fluctuation due to bonus) for the foreseeable future - and puts me in a position I was not honestly expecting to be in - that where I can comfortably push a significant amount into a pension if I so choose....
The £8,800 currently going into the employer scheme is probably not sufficient.
I was advised by a partner of St James's Place that a salary sacrifice of £26,500 Gross would be the target to work to giving me combined annual contributions of £32,350, however this seems fairly significant a jump and whilst affordable in principal, does not give us any leeway really.
It seems their fees are very high and you are locked in so I'm not comfortable with that - I've not run the numbers but their £1.2m projection at age 60 is also likely to include a significant amount of loss in management fees and chargers - numbers not included in the illustration provided.
my questions are:
_________________________________
A. How much is proportionate and appropriate considering I want to also enjoy the opportunities this money affords my family - My 1yr old son and wife whom I wish to continue supporting working part time (albeit M6 Teacher banding so circa £20k p/a).
My initial thoughts are that £18k p/a or £1,500 pcm combined from a mix if Salary Sacrifice on my behalf, Employer Contributions @ 5% of qualifying and the benefit of investment of employer NI contributions @ 13.8% on my sacrifice would give me enough to hit £1m comfortably over 30 years and perhaps even £1.25m to allow me to draw down 25% and use it to clear a mortgage running until I'm 65 as and when needed. (based on Vanguard pension calculator, targeting £35,000 Income At 65 @ 50% of current earnings)
This is approx 25% of my base salary, not including bonus and seems like a good number to run with - I can choose to pay a percentage on this on my bonus also (upto the same 25% would be acceptable perhaps), but that money could equally also go towards S&S ISA's, my Son's investment fund, mortgage overpayments or general lifestyle, albeit without the Tax savings available via the SIPP route.
_________________________________
B. Where should my investment go - I've had some discussions with a wealth manager from SJP but have been enlightened to the high fee's and their impact on long term achievement (on funds that don't over-perform it would seem) and it's been quite sobering - I have been recommended S&P500 Funds with minimum chargers from Vanguard but hold some stocks and shares ISA's with AJ Bell who also seem to be quite reasonable and do appreciate they offer greater service and choice as a result of this.
_________________________________
C. Would it be best to transfer my NEST pension or leave it alone and start afresh? As I've paid in at varying rates it's averaged somewhat whereas moving it all into a SIPP would provide more exposure to market downturn against a buy in price
_________________________________
For balance we have 9 years remaining on a £193k fixed rate mortgage at 1,94% (Luck or judgement) and are overpaying to build up a 6 month buffer (in addition to cash savings as an emergency fund) and could continue this longer term, albeit it seems more sensible to trust the money to the market and aim for a higher rate of return.
No debt aside from the mortgage, though do want to finance a bigger family car @ £25k soon and purchase (with cash and our current cars) 997 Carrera S I've long promised myself as soon as the house renovations stop swallowing most of my disposable income hopefully in early 2024.
__________
We have financial advisors on retainer with my employer who handle the current NEST pensions and my recently started S&S ISA's, but I'm wondering if it's best to try and do this myself to keep the cost low - using a spread of global trackers and largely forgetting about it.
I've also fancied buying some shares in Porsche gradually over time (out of personal interest) and would like to build a little of that in plus perhaps any other companies that are of interest, as a minor part of the portfolio to keep some interest.
Thoughts and opinions much appreciated.
- I'm 35
- have £35k in my NEST pension
- likely have 35 years working before the state pension is likely to kick in (it's 67 now but I'm sure that can and will change)
ideally I'd like to taper down a little in my early 60's (the age my Parents are at now).... but am certainly not trying to fully retire by that time.
I'm in the fortunate position to have had a significant jump in my earnings over the last 12 months or so that's put me comfortably into the 40% bracket and means that I'm looking at things for the first time with a little more focus as I understand decisions made now will have a large impact in the years to come.
My 20's were not perhaps that well paid and having opted out of pensions on employment paying just above minimum wage, I spent that time building a house deposit instead... it was a reasonable decision as we have been homeowners since 2018.
I started saving into a pension at age 29 using the 'Half your current age rule' putting 15% of qualifying earnings in (this is now £550pcm after 20% tax relief, but has not always been the case) with my employer paying 5% of the same (Approx £185pcm)
6 years or so later I have a pot of £35k with NEST - though it does not seem to have grown much I understand I'm perhaps benefitting from cost averaging in a challenging market. The charge on deposits is approx 1.8% according to my calculations - With a previous income fluctuating due to bonus between £30 > 35k and COVID affecting things for a while this seemed to be on track and proportional.
However, my current position will give me a fairy consistent income (albeit with marginal increases year-on-year to counter inflation and some fluctuation due to bonus) for the foreseeable future - and puts me in a position I was not honestly expecting to be in - that where I can comfortably push a significant amount into a pension if I so choose....
The £8,800 currently going into the employer scheme is probably not sufficient.
I was advised by a partner of St James's Place that a salary sacrifice of £26,500 Gross would be the target to work to giving me combined annual contributions of £32,350, however this seems fairly significant a jump and whilst affordable in principal, does not give us any leeway really.
It seems their fees are very high and you are locked in so I'm not comfortable with that - I've not run the numbers but their £1.2m projection at age 60 is also likely to include a significant amount of loss in management fees and chargers - numbers not included in the illustration provided.
my questions are:
_________________________________
A. How much is proportionate and appropriate considering I want to also enjoy the opportunities this money affords my family - My 1yr old son and wife whom I wish to continue supporting working part time (albeit M6 Teacher banding so circa £20k p/a).
My initial thoughts are that £18k p/a or £1,500 pcm combined from a mix if Salary Sacrifice on my behalf, Employer Contributions @ 5% of qualifying and the benefit of investment of employer NI contributions @ 13.8% on my sacrifice would give me enough to hit £1m comfortably over 30 years and perhaps even £1.25m to allow me to draw down 25% and use it to clear a mortgage running until I'm 65 as and when needed. (based on Vanguard pension calculator, targeting £35,000 Income At 65 @ 50% of current earnings)
This is approx 25% of my base salary, not including bonus and seems like a good number to run with - I can choose to pay a percentage on this on my bonus also (upto the same 25% would be acceptable perhaps), but that money could equally also go towards S&S ISA's, my Son's investment fund, mortgage overpayments or general lifestyle, albeit without the Tax savings available via the SIPP route.
_________________________________
B. Where should my investment go - I've had some discussions with a wealth manager from SJP but have been enlightened to the high fee's and their impact on long term achievement (on funds that don't over-perform it would seem) and it's been quite sobering - I have been recommended S&P500 Funds with minimum chargers from Vanguard but hold some stocks and shares ISA's with AJ Bell who also seem to be quite reasonable and do appreciate they offer greater service and choice as a result of this.
_________________________________
C. Would it be best to transfer my NEST pension or leave it alone and start afresh? As I've paid in at varying rates it's averaged somewhat whereas moving it all into a SIPP would provide more exposure to market downturn against a buy in price
_________________________________
For balance we have 9 years remaining on a £193k fixed rate mortgage at 1,94% (Luck or judgement) and are overpaying to build up a 6 month buffer (in addition to cash savings as an emergency fund) and could continue this longer term, albeit it seems more sensible to trust the money to the market and aim for a higher rate of return.
No debt aside from the mortgage, though do want to finance a bigger family car @ £25k soon and purchase (with cash and our current cars) 997 Carrera S I've long promised myself as soon as the house renovations stop swallowing most of my disposable income hopefully in early 2024.
__________
We have financial advisors on retainer with my employer who handle the current NEST pensions and my recently started S&S ISA's, but I'm wondering if it's best to try and do this myself to keep the cost low - using a spread of global trackers and largely forgetting about it.
I've also fancied buying some shares in Porsche gradually over time (out of personal interest) and would like to build a little of that in plus perhaps any other companies that are of interest, as a minor part of the portfolio to keep some interest.
Thoughts and opinions much appreciated.
Edited by MEames on Monday 21st August 07:47
Broadly speaking it's your savings rate that matters and as you've rightly highlighted keep your costs low.
Globally diversified trackers are a great way of doing this and personally I'd be hesitant about investing just in the S&P even if historically you'd have had a fine result from doing so.
Remember investing is one of a few things where you can get a fantastic result with minimal effort and where there's little benefit in paying more than you need to.
If you are comparing costs use this as it's an eye opener on how much difference paying someone else "just" 1% (or whatever) to manage your money makes to how much of it you get to keep and how much you get to keep.
https://larrybates.ca/t-rex-score/.
Globally diversified trackers are a great way of doing this and personally I'd be hesitant about investing just in the S&P even if historically you'd have had a fine result from doing so.
Remember investing is one of a few things where you can get a fantastic result with minimal effort and where there's little benefit in paying more than you need to.
If you are comparing costs use this as it's an eye opener on how much difference paying someone else "just" 1% (or whatever) to manage your money makes to how much of it you get to keep and how much you get to keep.
https://larrybates.ca/t-rex-score/.
Gassing Station | Finance | Top of Page | What's New | My Stuff