Are extra pension contributions maybe not such a savvy move after all?

[Snickersnack1]

Just read another post on mumsnet about potential increases to the state pension age. I then googled it, and it does seem quite likely that, being in my 30s now with a state pension age of 68 already, it’s likely to be 70+ by the time I actually retire.

I have a public sector work pension (LGPS) and I have been merrily paying into a shared cost AVC, thinking I was being smart about my future.

My workplace pension and AVC fund are linked to state pension age though! And there is no way I want to be working until I’m 70.

Maybe I would be better off paying into stocks and shares ISA rather than a pension, so I can have access to my money when I need it (ie 60, which is the age I have been vaguely and naively been imagining as my retirement age). Thoughts?

Look up Rebel Finance school, and the Donegans. There's a Facebook page where you could ask this kind of question and you'll get good advice there.

If you have maxed out your employer contribution, and you are under 40, it's worth looking at a LISA. You pay up tp 4k a year, the government add 25% a year, and its not taxed when you take it out. You can't withdraw it until you are 60, and it counts towards your savings allowance (I.e. if you have more than 6k you aren't eligible for universal credit if you became unemployed). Its well worth opening one before 40 though as government will match contributions until you are 50.

AJ Bell and Hargreaves Lansdown offer them (check details as don't think you can transfer into HL if you open with someone else). You can do cash LISA or stocks and shares LISA. With stocks and shares, you can choose a fund or opt for a passive index fund.

Edited to add - I've done RFS and this is exactly the thing they talk about! I'm going to one of their meetups.

What tax rate are you paying?

You could invest in a SIPP and still reap the tax relief benefit (accessible probably for 10y pre state pension age).

Or a normal S&S ISA - which gives total flexibility

I do a bit of both.

You can still take out a tax free lump sum from about 10 years before your retirement age. Assuming it isn't a DB pension, of course, which I think you can't touch until the official pension age.

I’m a higher rate taxpayer (just!) It’s why I went for putting money in my pension over a LISA, as the tax relief is worth it. I just would rather it wasn’t locked away so long!

Are you sure?

I have a lgps pension. I can take my AVC’s any time after 55. I can also take my pension from 55.

obviously with some loss in yearly value/lump sum if I take it early, but I can access it before state pension age if I wish.

Yes it is a DB (defined benefit?) pension. I know I’m lucky to have that.

Then I would redirect it to a SIPP.

Claim your 40% tax relief, but you can access the pension earlier.

You can have this alongside your work pension.

This.

I’m not 100% sure, but I think those are the current rules for people taking their pensions now? I’m highly doubtful I will be able to go at age 55. I’m 38 right now.

You do not want to touch the DB pension then. But you need a plan for the period between getting this pension and when you want to retire.

Could be a mix of SIPP, LISA or downsizing your home.

Thanks everyone. I don’t know much about SIPPs, so off to do some research. Will be signing up to Rebel Finance course too! Many thanks!

Private/company persons are usually Normal Retirement Age which isn't usually the same as State Pension Age.

But if it names NPA rather than a fixed age it can still move so you are right to be cautious.

Try to plan your retirement. How much do you need to live on each year? What age would you partially retire and how much will the gap be between income and your needs? What year will you fully retire? What pension kicks in when?

I have isa investments to tide me over from planned partial retirement until my big pension kicks in at 60, then I've SIPP and state pension to come after that.

SPA is so very late, I can't imagine there'll be jobs for everyone too so do what you can.

I believe from 2028 you have to be 57+ to access your pension.

I'm currently slowly moving money across from S&S ISA into a SIPP in order to benefit from higher rate tax relief (I'm only transferring the amount I have over the higher rate threshold per year). Also have a public sector pension so for me the advantages of doing the SIPP rather than putting more money into that are that I was planning to use this for early retirement anyway and will be able to get it out at 57 in it's entirety if I want to. And also if I pop my clogs early then my DH will inherit either the SIPP or the cash, whereas with my defined benefit pension he'll only get a proportion - we are relying on my pension for a comfortable retirement, his is tiny.

I've just checked and my LGPS AVCs are payable from age 55. It's on the website so for everyone - not just older members. Are you willing to share what scheme you are in?

Your AVCs are probably going into a regular pension, not your Defined Benefit one and you will be able to access it at 57 as rules stand at the moment.

Sadly the pension age keeps rising. By the time i am old it may be 75 years old. The good news is it seems people are growing older more gracefully and youthful. There is much to be said about that. But whatever happens. Work a easy job.

I'm not so sure that it will keep rising at that rate. I believe the current situation is that a periodic review is done to determine if the state pension age needs to be raised to compensate for people living longer, but currently the expectation is that trends such as higher obesity etc may mean that in the UK life expectancy won't increase as quickly (if at all) as it has been in the past.

Your work (lpgs) scheme is probably accessible at age 57. My similar scheme is accessible at 55 (rising to 57). You should contact rhe scheme to double check.

Most DB pensions can also be taken early from age 55 (soon to change to 57 i.e. 10 years before State Pension Age). Always best to contact your own scheme if you are considering it. The pension will likely be reduced for early payment (basically spreading the same money you would have got anyway but over a longer period so it costs the scheme the same amount).

I panic opened a LISA at 39 knowing I couldn't have one 40+. I don't put much into it at the moment but I'm planning on maxing this out at £4k a year in the future.

I think most received wisdom is not to draw down DB pensions early though. My wife has one and will get an average earnings pension when she retires at state pension age. We joke that I am earning the big bucks now, but we'll be living off her pension when we retire 🤣

Why not? It simply depends on your own financial circumstances and life expectancy. I don't even recall seeing it anywhere as "received wisdom" before.

Are you confusing it with advice against transferring out a DB pension into a DC scheme? (Which is not necessarily always inadvisable but needs very careful consideration).