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Original poster

Building up pension challenge

206 replies

Dashel · 04/02/2021 07:47

Hi all,

One of the things that I have financially gotten around to looking at properly during Lock Down is my pension or lack there of.

I have a work place pension which is easy to log into and to make one off payments to, so I thought that now would be a great time to start trying to build up this pot as it’s not like I am spending normally, with hardly going out, no holidays or weekends away or meals out.

I wondered if anyone else out there would like to join me for support and to hopefully increase our pension pots to help have a more comfortable retirement?

A pension thread on here a few months ago, leads me to believe that I’m probably not the only one who has left it a bit late. I started this year with a work place pot of £3k so not going to keep me in a comfortable retirement unless it improves significantly.

Any money that I pay into this pot does get the 20% added to it (short of a lottery win I won’t be exceeding the £40k limit for the tax benefit) so I am hoping that I can finish the year on at least £10k but in an ideal world it would be more.

Thanks for reading and it would be great to have others for support and encouragement!

OP posts:
AddictedtoCrunchies · 09/02/2021 16:59

@MissOrganisedMe if you pay into a pension you'll get tax relief. So every £80 you pay, another £20 gets added automatically. If you're higher rate you can claim the difference. Also lots of employers will contribute so its free money.

PensionsYes · 09/02/2021 17:28

@MissOrganisedMe

That 20% back from government - more if you’re a higher rate tax payer - and that’s before any growth - blows overpaying the mortgage out of the park.

Obviously there will be exceptions with unusual circumstances etc.

PensionsYes · 09/02/2021 17:29

@AddictedtoCrunchies - thank you for clearing that up, I was starting to doubt myself.

PensionsYes · 09/02/2021 17:31

@Dashel I get a kick out of those small wins too!

GuppytheCat · 09/02/2021 17:37

On the flip side, you do then pay tax on (some of) your pension income and not on your ISA savings etc.

Might as well have that extra 20% sitting there earning for you beforehand, though.

AddictedtoCrunchies · 09/02/2021 17:49

This has just prompted me to have a look at mine. My financial adviser seems to be on top of it but I like to keep a spreadsheet too. I have a Plan to retire on my 60th birthday, 1 September 2030, so all roads lead that way. Have a DC and DB with previous employer, plus a contracted out pot I've transferred onto a platform and 3 years at my current employer. Am paying 11% and they are paying 6%. Plus saving into ISA and investment account. Cant wait to retire!!

PensionsYes · 09/02/2021 18:13

@GuppytheCat - I’m a bit unclear how tax works when you retire... (if rules are
the same?)

I’m guessing that a non-taxpayer receiving less than £10k annually from their pension won’t pay tax?

Whereas (currently) someone who receives about £20k pa from their pension pays minimal tax? 20% ish?

Have I understood this ok?

PensionsYes · 09/02/2021 18:19

17% contributions and an ISA and investments... @AddictedtoCrunchies - it sounds like you have a great plan. Would love to get my younger self interested in doing similar!

I’d love to retire at 55-60 but I’ll need to get my finger out!

AddictedtoCrunchies · 09/02/2021 18:31

@PensionsYes the ISA and investment is only £30 a month each but its a start!!

When you take your pension, there are different options you can take depending on your personal circumstances.

You can take 25% of the fund tax free and buy an annuity (guaranteed income for life) with the remainder. You can't change that at a later date.

You can take the lot - 25% tax free then the other 75% which will be taxed at your usual rate.

You can take it in stages. First 25% of every lump sum would be tax free and you'd be taxed at your normal rate on the remainder of that lump. Until your fund has gone.

Or you can take your 25% upfront then leave the rest to take as and when you like. But it'll be taxed at your usual rate.

Or you can leave it invested and do nothing.

Have a look at the Money Advice Service website. Impartial information.

AddictedtoCrunchies · 09/02/2021 18:31

And that had paragraphs when I typed it!! Angry

fitflop · 09/02/2021 20:48

WombatChocolate

I am in the LGPS and my understanding is that you have to take all your pension, final salary and care at the same time. That it can’t be taken in separate stages.
I would be very happy to be proved wrong about this but I certainly didn’t think this was the case.

PensionsYes · 09/02/2021 21:10

@AddictedtoCrunchies - more options than I’d realised... Thank you. I can see paragraphs!

fitflop · 09/02/2021 21:19

WombatChocolate

Unless of course you are talking about flexible retirement which would make more sense.......

AddictedtoCrunchies · 09/02/2021 21:19

@PensionsYes those options aren't for DB (final salary) schemes. Pretty sure you have to take your tax free cash and pension at the same time on those. So thats Local Government, NHS, Teacher's etc.

lachy · 09/02/2021 21:35

Please can I join you?

I'm hoping to retire in 18 years (will be 65) so I need to structure my pension pot.

I have 2 different LGPS pensions, so along with the state pension I'm on track to seeing a £27k pension, DH doesn't have as much but between us we should have £35-40k a year before we start seeing what a private pension would eventually add.

Will start doing some reading!

WombatChocolate · 09/02/2021 21:55

FitFlot, my Defined benefit pension isn’t LGPS. In my scheme, if you take early retirement in the final salary scheme you have to take both parts of the pension early...the final salary and the career average.
If you wait until your NPA (normal pension age) for the final salary part...and mine is 60, and don’t take it early, you can wait to take the other part, the career average part which only pays out at SPA (state pension age) which for me will be 60.

By taking pension before the scheme ages, I would lose about 4% per year. I am keen not to do that and can afford to live without doing so.

This is definitively the case in my scheme, which is the Teacher scheme.

And no, I’m not talking about flexible retirement.

With all these schemes, the precise terms of your defined benefit peansion depend on when you started it. I was in mine well before 2007 which means my NPA is 60 and I get an automatic tax free sum on final salary scheme. People joining after 2007 had a NPA of 65 and no automatic lump sum, but a better accrual rate. For people who joined after 2015 they are on career average which only pays out the full amount at state pension age with no lump sum and is career average and not final salary based.

I can certainly take the 2 different parts of my pension at 2 different points. The only thing that would mean I had to take it all in one go would be if I retire and take my benefits actuality reduced before I’m 60. My final salary pension would be actuality reduced by about 4% per year and the career average by a similar amount...but because there would be more years to go until state pension age, the hit would be pretty big.

The LGPS may have similar terms for those who were in it from many many years ago. But it’s not quite the same as the civil service and teacher and NHS schemes...it’s not funded in quite the same way as government, so there may well be differences.

WombatChocolate · 09/02/2021 22:00

An when I talk about early retirement, I mean actually taking the pension before the specified age.

I intend to stop work early...at 58. But I won’t be taking my pension early, as I said upthread. I will fund that gap with other money. So I will take the final salary part which has a pension age of 60 at 60. And because I do that, I don’t have to take the CARE part until the age of that part of scheme which is 68.

The key thing isn’t when you stop work (and become a deferred member) but when you claim the benefits.

WombatChocolate · 09/02/2021 22:02

And sorry..my SPA is 68. Somehow I typed 60 for both NPA and SPA.

It is usual in these schemes where people have service in both parts that you can take the benefits separately and don’t have to take them together AS LONG AS you are taking them at the age specified and not taking any early retirement as in not taking the benefits early.

Broadbeanssleeping · 10/02/2021 19:25

@SeasonsInTheAbyss thank you for the reply. That sounds reassuring.

Original poster
Dashel · 11/02/2021 11:09

Another payment of a whooping £67.08 to my pension today, made of £50 premium bond win and some survey money. When the regular contributions go in later this month I should be at just over £4K so although not great, it’s going up and I’m getting DH more and more on board. He has said that he wants to get some big bills out of the way and review things in April/May time.

He is keen to retire at 55 or as soon as possible and look at the possibility of moving abroad, so it is possible that we could spend a few years paying the vast majority of our salaries into pensions , when we have finished with renovation costs which probably won’t be for 12 to 18 months, but hopefully we can at least find a middle ground before then.

If we did move abroad we would also look at potentially downsizing in this country and renting the new house out or selling the current house and only using some of it to buy abroad. There is so much to think about but currently it’s at the pipedream stage.

OP posts:
Lollipity · 11/02/2021 13:20

Well done Dashel! I am sure now you are focussing on it it will shoot up Smile

Fleurchamp · 11/02/2021 21:00

Great work @Dashel! Don't forget the tax credit too - another £17 or thereabouts.

Original poster
Dashel · 11/02/2021 21:28

Thank you @Lollipity and @Fleurchamp.

I think about from being at about £26 on YouGov (but need another £24 to cash out) I’m pretty low on all my various small money making schemes, so I think I’m done for extra payments this month, which sucks!

On the other hand, confirmation came from HMRC About my tax code changing slightly to get the working from home allowance, so I’m pleased that has gone through.

OP posts:
PensionsYes · 11/02/2021 22:02

@Dashel - you are inspiring! Well done.

I need to get more organised with my savings, but I’ve decided this is the year I do it. Hopefully we can keep encouraging each other!

Like you @Dashel I have a reluctant FIRE partner, but I’m convinced I’ll get us there quicker, even if it takes me a while to get him around to my way of thinking.

LaPufalina · 12/02/2021 09:24

Hi all. I'm a bit of a personal finance/pensions obsessive, I'm an accountant but enjoy my busman's holiday of retirement planning!
For those of you interested in FIRE, have you looked at the Mr Money Mustache website? The forum is good, too.

My grandparents enjoyed winters in the Canary Islands so I've always overpaid into my pensions with the aim of doing the same. I didn't think I wanted kids and my aim was to retire at 50, but the little darlings have probably put me back to 55, with those pesky nursery bills!

I'm 41 now. I have nine years of contributions in a civil service final salary pension (about £5k a year benefit taken at 58) and £157k in a work DC scheme (I've overpaid for years but taking this year off extra contributions due to nursery costs). The plan is to use S&S ISAs to bridge the gap between 55-58 (earliest age I can access work pension) and also to top up before state pension at 68.