Dialing up DB pension?

[ThatIsNotMyNameSoWhyAreYouCallingMeThat]

My employer offers a non-contributory DB pension with an accrual rate of 1/80. Pension age is 65.

I can dial up to 1/65 for 4.5% of salary and 1/50 for 11.5%.

I will definitely dial up to 1/65 but is it worth the additional to go to 1/50?

I have a deferred civil service pension worth about £16k per annum, an NHS pension worth around £3k per annum, a LISA (£50k at 60) and a SIPP (another £70k ish). I’m 47, live with DH and teen daughter. Mortgage almost paid off but probably need new windows and doors, kitchen and decoration in the the next couple of years. House worth £450-500k. Intend to downsize when DD flies the nest. (DH is behind me in terms of pension savings.)

DD has a trust to cover house deposit and further education, and we’ve been saving £100 a month for her since birth.

if you die, can the remainder go to your DD? Or only a %?
that’s just one factor you might want to consider.

Usually I’d say do it but in your shoes I think I’d use the extra money for a S&S isa. Your pension provision sounds pretty good and an isa would give more flexibility (taking DB pensions early reduces the amount to an eye-watering extent).

I’m not planning to take any of them early. I get the LISA and civil service pension at 60. NHS at 67 and this one at 65.

S+S ISA wouldn’t be tax efficient in that it would come from higher rate taxed income, wouldn’t it?

I’ll check.

No tax relief going in but of course no tax coming out (unlike the pension, although that may be lower rate depending on how big it is). For most people it’s useful to have both pension and isa as they play different roles.

It would push me into the 60% tax trap now though.

Generally DB pensions can only go to a spouse or a child if they are under 18 or under 21 and in full time education.

Under death in service:

Spouse allowance is 60% of base pension (accrued and notional accrual to age 65) for life.

DD gets 20% of base pension (as above) until 18 or 23 if in full time education or unpaid vocational training.

I’ll be 61 when DD turns 18.

It’s 60% to spouse if I die after leaving/retiring.

Just wondering if anyone has any further advice. I need to decide by tomorrow.

It’s difficult to know without knowing your exact salary, which tax brackets you go in to etc.

I would compare taking the equivalent 7% of salary and putting either in to a SIPP (low cost tracker) for which you’d get the tax back but have more control over in retirement and an isa which is tax free on the way out.

And factor in what kind of retirement you’d like, when you think you’d like to retire. Also is it worth as a household upping you DH pension.

Spreadsheet and cash flow analysis!

Are you able to change or is it fixed for the rest of your employment?

It’s tricky without more information.

1. how much (in today’s terms) do you think you need in retirement?
2. when do you hope to retire?
3. what would you do with the money if you don’t make the contributions (pay a lot of tax!)
4. is this a one time decision or can you change in future?

Sorry crossed with PP and raised many of same issues

Thank you for the further questions.

I can choose every year. The rates can change.

Pay and taxable bens are a whisker over £100k.

So assuming the 10% bonus, I’m at £110k. Lose the personal allowance to the tune of £5k. So the £10300 it will cost me for the 1/50th accrual, I gain £700 a year of pension. Taking the £10300 as cash I only see £4k. Feels like a good conversion? (I can’t wait and see what the bonus is and then put it into pension, unfortunately.)

DH likely to keep working to 70ish. I intend to go to 65 (but my mum is still working at 70 just because she can).

Would like to be able to work less and travel more in 50s and 60s. Assuming we didn’t downsize would be looking for £50k to be comfortable in retirement (today’s prices). Once mortgage is paid off we will be able to put more away in ISAs etc.

Thanks for your help so far.

If an extra £700 a year of pension will cost £10,300 you only have to live 15 years or so for it to be worthwhile. Given you’re at the border of losing personal allowance it’s a no brainer surely?

I’d dial up the DB pension at least to the 1/65 level.

You may plan to work until 67, 70 but sometimes life throws shit at you.
The news is being quiet about it, but 1/3rd of the increase in working age people claiming disability/incapacity benefits is due to the increase in state pension age.
The risk of not being able to work full time increases alot once you’re over 50.

As you plan to downsize, you don’t need to pay off the mortgage sooner rather than later. So pension takes priority imho.

Thanks. I did highlight in bold in the OP that I would definitely be dialing up to 1/65 as a minimum.

I think it’s probably best to dial up to 1/50 as it will cost me 62% in tax otherwise.