Saving to plug pension gap

[rainydogday]

Hi, can I pick your money matters brains. We have paid our mortgage off (aged 45
&48). Small house no plans to move or go bigger. We have a decreasing life insurance policy £68 a month. That still has 10 years left. Originally taken out to cover the mortgage for critical illness etc. my question is do I stop that now? Save the money and add a bit more elsewhere? I have a nhs pension (missed the 55 age), but would like to go before 67! How could I best save to plug the gap so could leave a bit earlier? (Also have two kids that may go to uni so most of the mortgage money will help towards that). I am band 8 full time so can save a bit more, but not sure where. Thank you if you have any advice

You can stop it but don't have to, I wouldn't, especially as you still have dependent children, that money would be very handy to support you to live if one of you is dealing with an awful diagnosis and treatment (we think of it as being for the person but its highly likely the other would have to have time off work for example).

Its hard to say though, how much impact is that £68 a month having on your finances? Surely the difference between that and the mortgage payment still leaves you a fair whack to put into pensions/savings/uni support funds?

If your kids 'may go' to uni they are presumably both still dependent? I'd leave the life insurance in place.

If I were in your position I would not get used to spending every month what previously went towards the mortgage. I'd pretend my circumstances hadn't changed and get used to saving the entire lot. Max out your ISA allowances first as you may still need to access that to fund uni costs. Whatever's left put it in a SIPP.

Thank you. I think I will keep it. We paid about 1k a month. Some of that will now be going towards one child's 6th form (2 years). Got a scholarship and bursary but need to top up, also the other child's car insurance! (Which is hideous). Leaves us with a couple of hundred to save. Either in ISA or possible second private pension? Not sure what be best? Really to help is not work until we are 67 😱

If you're in band 8 you are a higher rate taxpayer, so you'll be able to claim 40% tax relief on what you put into a SIPP. The SIPP provider will claim 20% of it back automatically and you can claim the rest through the tax system. This means that to put £1,000 into your pension pot you'd only need to put £600 of actual cash in. If you can spare it, it's probably a no brainer. The flip side is you would have to wait until at least 57 to get your hands on it. The earlier you start, the longer you'll have for the underlying investments to grow and compound.

What might work well is for you to save some in an ISA to have ready access to it, and the rest in a SIPP.

You (well not you!) would get a very good death in service payment if you died so not sure if you need the life insurance certificate?

Pay AVCs (ask HR what your options are) to top up pension. It's tax efficient so if you paid £100 pm AVC it would really cost you £80 (or £60 if higher rate tax payer).

AVC means Additional Voluntary Contribution - your union may also have information to assist

What's the benefit of a SIPP over AVCs?

If you are in the NHS career average pension scheme there are options to boost it.

Firstly, the normal pension age for this scheme is state pension age, in your case 67. You can take your pension early but it is actuarially reduced I.e. for each year you go early you appear to lose a %. However, the reason your pension is reduced is because you will receive it for longer.

A simple example is a pension of £24k at 67 paid for 13 years until you are 80 = £312,000 gross. If you took a reduced pension of c£17k at 62, and this paid for 18 years to 80 = £306,000 gross. This is very simple and you have to factor in annual increases etc. but illustrates how spreading you pension gives you a longer retirement.

The NHS scheme allows you to pay extra to take your pension in full at 65 and then actuarily reduce to say age 62. The drop is not as great.

Do all the sensible things:

• check state pension entitlement
• read and understand what your annual pension statement is saying.
• use the modellers on the NHS website
• think about what your expenditure will be in retirement
• think about the type of retirement you want - I ring fenced money to travel.

If you want to stop working before 67 then saving into a second pension (eg a SIPP) to bridge the gap is more tax efficient than saving into an ISA. The money you put into a pension is before tax (any tax you have paid on it gets repaid). When you retire you can still use your personal tax allowance, so you’ll be able to take out 25% PLUS up to your personal tax allowance each year without having to pay any tax on it.

Once you reach state pension age the tax advantage is much smaller as your tax allowance will be used up by your state/NHS pensions.

Some really helpful advice here! Thank you for the post OP!

You get to control the investment. And while there might be platform fees for holding the SIPP, you don't have to pay a manager to manage it.

You have said that your life insurance is the decreasing type and £68 each month so the question for me would be can you get the level of insurance offered cheaper in a non decreasing form.

E.g. if your life insurance has decreased to 100k and is only going to keep decreasing but costing the same can you get 100k level term (that will stay the same) for the same price or cheaper? You could get some quotes from reputable companies.

We (my husband and I) have 200k level term cover for first death for less that £22 each month with Legal and General - but we took it out in our 20s with no health issues so I don't know how much more it would cost to take it now.

Wow thank you so much.
Sorry not sure I was clear. We used to pay 1k for the mortgage but that will mostly be used for school and kids. But I would like to use a couple of hundred to save or add to pension so I don't have to take the nhs pension early as it decreases....that's my understanding. That's the probable so many of use really don't understand the nhs pension or pensions in general. I am off to google some of the things mentioned as I have no clue!