Pensions and Savings

[Livvyliv18]

I would really appreciate some advice re pensions and savings
I’ve just turned 50 and have no idea what I need to be doing to ensure a good income going forward.
I’m a nurse working full time.I have a NHS pension but only 10 years.
I also have a private pension with Aviva from my divorce.It’s currently worth £300.000.
I have a £150.000 mortgage and have 15 years left.
I have been over paying my mortgage for the last year (£200)
I can probably afford to put away £200-£300 per month
My maintenance stops at 57yrs at which point I’ll only have my nurses salary to live off.
So I somehow need to top up my income before I can get my NHS and state pension.
So should I continue to pay off my mortgage or pay more into my private pension and take 25% at 55yrs ?
Or should I open another pension or increase my NHS pension?Due to only having 10 years NHS I don’t think it would be worth much at 55 (or I’m not even sure I can take at 55 anyway )
Any advice would really be appreciated
Thank you

I think you are in a much better position than most. £300k on top of your NHS pension, which should have 25 years in when you retire, should be fine. I would concentrate on the shortfall once maintenance stops, overpaying the mortgage is one option, another would be to put £200/month into an ISA on a world tracker, you will probably get more £££ that way, but obviously not guaranteed.

If it was me I would be aiming to clear the mortgage off by overpaying so that you were mortgage free when your maintenance stops.

There are calculators online you can use to work out how much extra to pay each month.

The good thing about being in NHS scheme is that there is loads of information about it on their websites, accessible to anyone.

www.nhsbsa.nhs.uk/sites/default/files/2019-08/Early%20Retirement%20factsheet%20%2805.2017%29%20V3.pdf

Yes, you can take an NHS pension at 55. You’re just young enough to still be under the 55 legislation, it will very likely change to 57 (or rather: State Retirement Age minus 10) in 2028.

However, for the portion of your pension (if any) in the 2008 scheme it will be reduced by 40%, and by 45% for the 2015 scheme portion.

So basically you’d have to be desperate to do that! Even without £300K sat in a DC scheme.

However, it’s not as simple as just taking 25% from your £300K. Once you go into drawdown on any pension, subject to a few small exceptions, you trigger the MPAA which limits your future DC contributions - potentially blocking you off from some significant tax relief. It doesn’t impact the DB contributions so if you remain an NHS nurse it won’t impact those contributions. It’s not something you have to think about today - but it’s why you need to get a good understanding before making final decisions. You can take 25% of that £300K tax free without triggering the MPAA - but only if you don’t take anything more from it. Once you do - annual contributions limit is triggered.

Why do you need to top up your income from 57-67? You can already save £300 a month and presumably at 57 though you’ll receive no maintenance, you also won’t have young dependent children.

Interest rates are at an all time low. If that continues, I’d just carry on paying mortgage as usual until you’re 65. Your £300K pension savings will likely increase at a higher rate than your mortgage interest.

Whether you overpay or pay into pension now is based partly on numbers and partly on personal comfort with risk levels and just preference - it can be a big deal to feel a mortgage is paid off. But purely on numbers, it’s unlikely to be worth overpaying the mortgage, if interest rates stay low.

Do your research on how your £300K fund is performing. You’re in a good position with that.

Check your state pension and make sure you have all possible qualifying years so far, and budget for buying extra if needed. That is laughably cheap for what you get - so I’d personally buy sooner not later in case it’s withdrawn.

Apologies for stalkerish search, but it sometimes helps to advise! So your daughter is 18, so is it spousal maintenance that stops at 57, not child maintenance? Or do you have younger children too?

Another option if the children are grown is to downsize or move to a cheaper area (nursing very portable!) for a cheaper mortgage at 57.

Are you working full time now? Financially, your best option now is to work full time and go for promotions. The NHS pension is very good and maximising that is probably the best thing you can do for retirement. The higher that is, the more comfortably you can take a reduction to take it early, or can bridge with your £300K. And of course, the more you will have coming in to use on monthly mortgage payments - so no need to do anything drastic with paying off mortgage.

Thank you so much for the advice.To answer a few more questions
I’m a band 6 and work 3 x 12 hrs shift.I’ve chosen these hours so I have more days to do extra agency work.I’m currently doing extra flu /covid clinics which pay quite well.
I definitely don’t want to be a band 7.
Yes it’s spousal maintenance that stops at 57
My only income then will be my salary which will prob be about £2000 pm plus any extra shifts
I have an 18 dd and 16yr twins DC.Child maintenance stops at 18 so I’m just constantly saving atm for when that happens.My pension from divorce has gone up £50,000 in 8 years.Is that good ?
So basically I’m trying to put myself in the best position for the future.
I can afford to put away about £300 pm until the the twins turn 18yrs
So should I stop the over payments of my mortgage and put that cash somewhere else?
I’ve got quite a bit of equity in my house and definitely plan to downsize as soon as I can.
I’m just worried about that period when it’s just my income coming in at 57.
I’m thinking that I’ll definitely need to take 25% off my private pension but then just leave it as you’ve suggested.
I will get full state pension.
Hope that’s a bit clearer

Do you have anything in an ISA?

Do you have an emergency fund (3 to 6 months of expenses)?

Income would be £2k, what would you anticipate for outgoings?

I would find out what drawdown options there are for the £300k pension... so instead of taking 25% tax free lump sum, could you take a smaller amount?

nannynick
I don’t have an ISA but I do have enough emergency funds.I dont have any credit cards or debt.
My biggest expense is my mortgage which is £1000 pm.It’s up for renewal next years and I will need to get I think a fixed 5 year mortgage,As I think I’ll struggle to get a mortgage once child and spousal maintenance stops.I suppose I could increase the term and then the monthly amount would be cheaper.
This is why I’m thinking to keep overpaying but I’m not sure if over paying £200 per month will make much difference.
How risky are ISA ?would I be better putting money in there for the next few years instead of mortgage ?
I’ll have a look at my pension.Can you usually take less than the 25% at 55yrs ?
Thanks again

Yes, you can usually take any lump sum under 25% that you like with a DC pension.

A mortgage of £1k when your income is £2k is going to be the problem. Is selling the property an option? Is there equity in it which is enough to buy somewhere outright?

Nannynick
That’s good to know.
I’ll plan to sell and have quite a bit of equity but will still need a mortgage.

@Livvyliv18 it sounds like you need to start really getting to grips with understanding your finances. MoneySavingExpert website is a great place to start.

You say that you don’t know if the £200 overpayment will make much difference… so - find out!

This calculator is really simple to use and clear.

www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

In 7 years (when you’re 57) that £200 monthly overpayment will mean that you owe £67K instead of £87K. Which means your 25% withdrawal from pension would pay it off.

Also on getting to grips with your money…
You have gained £50K in 8 years on the DC pension, yes?
So £250K becomes £300K.
Over the same period, the FTSE (U.K. stock market) would have increased to £318K.

www.swanlowpark.co.uk/savings-calculator

So it’s certainly possible that your pension is under performing, if delivering less than a fund that managed to track the FTSE.

I’m not going to say it did underperform - but that’s enough for me to say - review it with an IFA.

There is a wealth of information out there on the internet, and it’s not all buried. What impact a MN overpayment has, whether you can access an NHS pension at 55, whether you can take less than 25%… all that is quite accessible.

I really don’t want that to sound like I’m saying “and therefore you should have done it”. I’m trying to highlight that there’s no reason to be mystified - it’s actually really interesting to get on top of your money! (as well as being important!)

You’re actually in a pretty good position - that £300K is great, you won’t have a massive mortgage at 57, you want to downsize anyway, your NHS pension is good - and I expect better than you realise! Just understanding things a bit more is going to leave you feeling much more reassured!

Thank you cocomarine for taking time to answer my queries and yes I totally agree I need to do more research.
I just find over paying the mortgage vs adding to pension vs opening an ISA can be v split with peoples advice.
Thanks again

@Livvyliv18

Thank you cocomarine for taking time to answer my queries and yes I totally agree I need to do more research. I just find over paying the mortgage vs adding to pension vs opening an ISA can be v split with peoples advice. Thanks again

It is tricky, because a lot of it is just estimates. No-one can tell you what the interest rate will be in 5 years for sure. No-one knows if your particular find choice will perform well or not. Then there is your own personality and preferences.

I actually find it really hard that I’m not overpaying my mortgage. Because doing so is very “me” (born sensible 🤣) and because psychologically, paying off a home is such a boost.

For some people, the motivation to overpay is stronger than the motivation to invest - so even though on paper the investment is going to worth more, they’ll not stick to it.

So I wouldn’t tend to ever say to someone you “should” do xyz.

But the more information you have, the better you can make your choices. The good news is, overpaying your mortgage is never a bad thing! Even if something else might be better, that wasn’t bad. So it’s still great to do it, nothing to stop you changing strategy later. If your £300K pension is just as-is when you had it transferred though, I would definitely recommend reviewing that for performance and fees.

The suggestions are split because there is no right answer, well - not one that can be confidently predicted anyway.

Did your mortgage provider take your maintenance payments into account when you for the mortgage? I assume they did.

Why does maints stop at 57, out of interest? My sister has spousal and it doesn't stop until his state retirement age, and he's five years younger than her. Was it court ordered? (Hers wasn't and I know is ridiculously generous)

Re the pension vs mortgage over payment. Someone once said to me "you can only pay your mortgage off once", but things like pension and savings just keep growing (hopefully!) forever.

I get the dilemma noted above - paying down the mortgage feels like the sensible option. But, it's not necessarily the best financial option, especially if the rate is low.

Having said that, I still did it to some extent and was mortgage free at 49.

You could do a bit of both though! Carry on your £200pm over payment, which will increase your equity and make the remortgage easier (if you make it longer to bring down the monthly payment remember this costs you more in interest in the long term) and pay extra into your pension from the extra money you currently save. Use their online calculators to see what impact extra payments will make.

As you have an emergency fund, you could start to look at a stocks ISA (presumably your emergency fund savings are in a cash ISA?). The advantage of this is that as well as the tax free status of any income (and, massive for me, not having to report it on your tax return) you can draw from it at any time whereas the pension you cannot. I drew c£30k out of mine four years ago to move house so I could buy with no mortgage, I was (am) too young to take anything from my pension.

Both ISA and pension (not the NHS one, the one you got with the divorce) are simply wrappers for money with specific tax status and rules around how you use them (tax free limits, where the money comes from, age etc), the question you need to think about is what you invest in (buy) inside the wrapper. And this will be dictated by what you want the money for, when, and what your risk appetite is.

I agree paying off the mortgage should be your first priority. But eveybody's circumstances are different.

Is £150k your current mortgage balance?

VanGoghsDog
Yes my maintenance was included in my mortgage offer.I’m v aware that once the maintenance has finished I’m going to struggle to get a mortgage.Which is why I’m thinking just to continue paying off the mortgage
It’s a court order to stop at 57.I did have joint life(but that’s another story !)
My emergency funds are in premium bonds.I don’t have a cash ISA so I will certainly look into that.
CM stops in 2yrs and SM in 7 years so I need to save /pay off my mortgage as much as I can between now and then.

What is your actual annual gross salary, without overtime?

If it's around £30k, in seven years, if you can get 4x, you will probably be OK, though whether you pass the affordability test is another matter but that's where the overtime/bank helps

You could plan to downsize at 57, in the hope you won't then need a mortgage at all and will not need to house the DC full time? And take a bit of your DC pension as drawdown if you need a bit more money.

Mortgage has £156.000 and salary £31.000.
Salary will go up to £37.000 by the time I’m 57

I definitely plan to downsize when I don’t have 3 DC living at home

Personally I don't have a mortgage, I paid it off some years ago.

In hindsight, putting that money into S&S ISA in a global fund would have been better but I would still have had a debt, a monthly outgoing.

I would pay off as much of the mortgage as possible, so when you get to the point that you need to refinance it, you have as much equity in the property as possible, so your loan to value ratio is better. That could open up more lenders, and the amount you need may be 3x salary, not 4x. Would it be the best thing... no body knows, as putting that money into the stock market could return more over the next 5-7 years, but it could return less!

I paid off my mortgage because I felt the money was going in to bricks, it was not slushing around in a place when I could spend it on anything - an ISA is accessible.

Having been made redundant in April this year, I am very glad not to have a mortgage payment. You may find that you get in a position where at age 57 you do not have a mortgage because you have paid it down to a point where a lump sum from the DC pension is sufficient to pay it off completely, or you may pay it down to a point where you sell it and buy with the equity.