How much for bridging pension?

[Scottishskifun]

DH is set to inherit shortly around 200k from a very much loved GP.

He has earmarked 100k for house renovations and a chunk off the mortgage and 15k each to set up two funds for DS's for when they are adults.

We are both public sector workers so our pension is linked to state pension age unless you take a big hit.
I have been saving to create a bridging private pension to take from 60 and DH wants to do the same.

We can't work out how much out of the 70k to put into a private pension (would be stocks and shares). He's 38 so can have it in high risk for quite a while.

My aim is 25k per year for 10 years until my public sector pension kicks in he would probably be aiming for around the same.

Your question would usually warrant formal financial advice.

if higher rate tax payer then a pension contribution would be particularly attractive for the additional relief available. To work out how much you can (not should) actually pay you will need to know the Pension Input Amount for the workplace scheme. This is not the same amount as being paid in by you and employer. If the employer offers an AVC scheme that would often be the lower cost option and could be accessed independently of the main benefits.

A stocks and shares ISA might also be worthy of consideration if not already maxed out. No tax relief but investment growth should be the same as pension and allows access and flexibility if required.

Thanks DH does AVCs already but again its only into his workplace pension which is linked to state pension age so hammers hard if you take it before then. Hence wanting to set up a private pension pot ontop

hammers hard...

what percentage of his pension would he suffer if he took it at 60?
is there a limit on AVCs? as you get the tax incentive?

5% per year you take early state pension age predicted to be 70 for us so would be a 50% loss.
Mine is the same but I can do AVCs to a private provider DH can't.

Are You sure it’s AVCs and not added pension? AVCs are usually DC schemes that only have the normals restrictions of age 55 (going up to 57).

Presumably it’s a defined benefit pension? The terms of the pension as it stands now will apply regardless of any change to state pension age - it’s similar to teacher pensions - when I started teaching, I could access a full teacher pension at 60. This changed for new starters in 2007 (I think) to 65 then again in 2015 to 67. So some teachers who started before 2007 have pensions in all 3 schemes.
taking such a pension early isn’t losing anything because you get to have access to it for longer hence the reduction. I did this and took mine at 58 instead of 60, with a 8% reduction. But have had that pension (plus continuing to teach PT) for 2 years more than had I left it to 60.

@Soontobe60 afraid so it has a lovely line of 65 or state pension age whichever is higher claus in it (same as mine) as we both started in the public sector after 2015. We obviously can take it before but with a big hit hence a "bridging" private pension pot.

@messybutfun thanks I went back to DH to check - there is a private pension AVC route he had been doing additional contributions to the employer one so is going to set up the private one.

So that will help even if he does a small amount per month then adds in a chunk from the inheritance.

We are still unsure how much to put in. It's a bit chicken and egg does he keep more in savings for access or put more into pension pot to build.

He will be making a lump sum payment to the mortgage but ours is quite low so decided not to pay it off fully at this point.

We realise this money becomes life changing for us (we have a fixer upper house and are 10+years in of saving up to do each room). Just sad he had to lose such a amazing person who always fought his corner.

I am like a promo for their free course but do rebel finance - will cover all this and more and help you make informed choices that won’t see costs and commissions eating up your gains.

Under current rules you can draw £16,760 from a pension during the bridging period without having to pay tax. That’s 25% (£4,190) tax free and £12,570 personal allowance. So that’s a sensible minimum to allow. Beyond that, you pay tax on anything you withdraw so the tax advantage is less generous.

Have you looked at LISAs? That’s another way to save for retirement. You have to open it before you’re 40 and can save up to £4,000 a year until you’re 50. The government adds 25% and you don’t have to pay tax on it when you withdraw it.

25k a year would be fine for most people, but whether it’s enough for you is something only you can work out.

@Quercus5 thanks DH already has a LISA set up and does pay into it too. I don't as when we looked into it was of little benefit to me as a higher rate tax payer.

We think 25k each per year would be sufficient (combined to 50k) and would do a draw down on that basis. We should be mortgage free by that point and DS's set with their own pots for a house deposit and should be enough for a couple of comfortable holidays a year.

Seems weird to plan for something so far off but we both want to enjoy ourselves unrestricted time whilst hopefully still mobile enough to do so.