Is there such a thing as too much money in a pension?

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I've been reviewing mine and my Husband's collective plans for retirement. We are late 30s and are projected to have enough to sustain our current living standard (have accounted for inflation) thanks to compounding, at the current state pension age of 68 for us. The mortgage would be paid off and I haven't factored in receiving a state pension.

Savings are diverse and a mix of DB and various pension funds and a SiPP.

We are comfortable financially but do a lot of work budgeting and do make hard choices and sacrifices. Lucky enough to go on 1 holiday a year and run two cars. We will also likely downsize in older years to release more capital. Child does lots of expensive extra curricular and we plan to continue to invest in them in this way as well as saving for them.

I'm struggling to justify maintaining the high level of pension savings we make given the limitations on pensions withdrawal ages. We could also increase our current lifestyle. We don't plan on moving anytime soon and don't need to so this would likely be an extra holiday or experiences for us as a family. We have adequate but not extravagant savings plans for our child.

Anything we contribute from now to pensions will be towards retiring early.

I'm keen to hear from those who have retired. How do you know when you have the right balance between living in the now and enjoying life and making sure you have enough for the future?

I don't won't to live a more luxurious retired life at the expense of present life if I can avoid. I'm unclear how well balanced we currently are and projections are not guaranteed. We are still at the point where if our income stopped, after a year this would be an issue.

Does anyone think they saved too much or did anyone misjudge it and end up short? Should I focus more now on S&SI even though we'd lose a huge amount of tax relief as one of us is a higher rate tax payer? Did you realise that you needed access to cash with fewer restrictions?

We retired at 60 and eight years later have far too much in our pension fund. But the stock market has been riding high for a few years and returns have far exceeded what we expected. And now Rachel Reeves has brought pension funds into Inheritance Tax we won’t be able to pass it all on.

But during Covid we lost upwards of £250,000 in a few weeks. It took two years to come back, but it did. So what I am saying is, it’s very unpredictable and almost no one can tell you the answer.

You should invest what you can afford, check regularly, have a range of sources of income (I had an occupational pension too and we have substantial cash savings from inheritance) and pay off your mortgage. But we’ve also seen friends who have died months before claiming state pension or a few years after. You need to live a good life too as tomorrow isn’t promised.

@theresnolimits thank you. This is helpful to hear there is such a thing as too much. I'm thinking we carry on as we are for another year or two and hope compounding works even harder for us to enable us to ride the ups and downs of the market. Then maybe to take a more moderate approach and plan to retire late 50s and build up cash we have instant/better access to. I think I find it hard because we already live an objectively comfortable life, we both come from humble means so appreciate what we have greatly. Hard to get my head around spending more and enjoying money!

I would aim to retire early and keep contributing. All these calculators and AI make a lot of assumptions and you just don't know how it will pan out and what the rules will be at the time etc.

It is still a long way off for you but rather than wondering if you have too much in your pension funds, I would be working on the assumption you will be retiring well before SPA.
I retired at 57 and my OH (who is 3yrs younger than me) went PT because we were in such a good position pension wise.
THAT was more important to us.

I think this is what I'm trying to work out. If we continue saving towards pensions as we are, we can retire and sustain our lifestyle at 54. But we won't be able to access it under the current rules until we are 57. So it's playing on my mind wether we reduce payment and retire around 57 and live a bit more now..or keep up but switch to an S&S ISA. I think realistically it's going to be a bit of both. Hopefully we'll have some pay rises too.

Its impossible to be definite. Personally I have made the most of having several holidays a year when the kids were little as those years fly by. Both my in laws had life limiting health incidents in their early 50s and have not been able to travel much since. But being able to retire early if you want is nice. I love my current job so don't have a desire to. But am going PT in my late 50s

Thanks for your perspective. I have several chronic conditions and work PT now because FT is way too much. No idea how it'll progress and how long working is realistically going to be a thing. That's also an unknown variable! Probably a big driver in the live for the now vs prepared for the future conundrums. I feel like I need to live as much as I can now, save as much as I can and work while I can. All conflicting wants haha 😆

Pensions are tax effective to pay into but not get income from. It might make sense to consider putting some of your money into s&s ISAs to provide some tax free income and of course it’s much more flexible about when and how you take it

Thank you. Yes. I've completely overlooked not knowing what I'll be taxed on a pension in the future!

Yes, you can have too much in a pension.

• for your age group, state pension age will be 68, not 67, so you might not be able to access your pension until 58.
• depending on the amounts we're talking about, you may end up paying higher or additional rate tax to access the pension. Pensions are tax efficient when you put the money in and for many people that means they can get relief at higher or additional rate, then only pay basic rate when they take it out. But if you have a very large pension that advantage is lost.
• if your estate is going to be subject to IHT and you die after 75, your pension will be taxed at 40% plus the marginal tax rate of your beneficiaries (rather than just the IHT for other assets)

Better to have some S&S ISA as well- having both gives you more flexibility. FWIW our wrapped investments are 2/3 pension and 1/3 ISA.

In short, yes…you need to think about a bridge to take you up the the age that your pensions are actually available to you…I went for maxing S&S ISAs which I can live off for about 4 years.

Keep an eye too on the entire financial fund and be mindful of IHT …

It's a tricky balance isn't it? I'm late 30s and DH is in his early 40s. Nothing is guaranteed of course but we're currently on track to have good pensions so we've left those ticking over (other than an annual review of the funds they're invested in).

Five years or so we both opened up a S&S ISA each for long term savings but with a bit more flexibility than our pensions. Mine is essentially my "early retirement" fund and DH's is earmarked for helping DDs with house deposits. We also have opened up JSIPP pensions for both DDs and make a small monthly contribution to those.

We try and aim for a balance of saving a good chunk of our income that also allows us to have two holidays a year. Not always abroad but we have tended to fall into a pattern of one foreign holiday and one UK break a year. They are some of my most precious memories though and in reality, the years where we will be paying for travelling and holidaying with DDs are relatively short. I want those experiences for all of us while we can have them.

It's trying to find that balance between enjoying life now and saving for the future. I figure if you can do a bit of both, you're not going far wrong.

Yes once you get to the point where you are over the tax free lump sum allowance (I think £268k - meaning you have circa £1.1m in your pension) then the tax efficiency of pensions is eroded and there are potentially better and more flexible options.

I made sure S&S ISA was topped up to bridge the gap between retirement and pension age which was 55.
I’m 55 now and still living off savings and ISA, not started to draw SIPP yet.
Basically if you want to retire early you need adequate savings

I have close family who are well into retirement and have huge pension pots untouched. They are at the stage where they can't and don't actually want to do anything. Most will go in IHT. A lot of financial advisors say the hardest part of their job is getting people to spend. It's a question of balance, not much point in dying rich.

Just don’t forget to live your life now. Nobody knows what the future will hold, you could die before you retire

A friend of mine has just retired in their early 60's & as part of a financial review they were told they had basically worked the last 15 years to pay it all in tax & they will not see any benefit from it, so I would be very wary of having all my funds in a pension - as other people have advised you wont be able to access until you are 58 & possibly later.
I am supposed to be retiring within the next 12 months before I am 53 as long as I can get my head around the psychological side of retirement. I have a mixture of incomes, pensions & investments some of which I already get others I can access at 55/57 & then state pension

I retired at 57 and DH retired at 60. Both have occupational pensions and I have both an annuity and a sippy I still pay into. DH occupational pensions is very good and he gets a lot more than me. I have more investments. We go on 2 holidays each year overseas usually we cruise. We have a holiday home in France we visit also and a holiday home in Withernsea. We eat out 3 or 4 times a week although sometimes it's just a breakfast and we go on lots of day trips away and a few weekends breaks. My health is deteriorating so we are making the most of it before it's harder for me to go away as frequently. I pass money on to DC by gifting DC every month by direct debit. I know I won't have a long retirement so I'm making the absolute best of it now.

Well we thought we had enough. Full state pensions plus 2 small additional pensions. But once the earnings level for tax was frozen we soon started to eat into savings more for diy and holidays as we were paying about £120 a month in Tax! At 70 and 71 we decided to downsize and move from the very expensive Cotswolds to North Wales. Now we have savings and can afford holidays. And a 3 Year old car.
But our children are grown. No uni to fund or deposits to help with. But I wish we had done it sooner as health issues now loom so we are doing as many of the things On our bucket list NOW before its too late. Dont focus too much on retirement and pensions funds. So many people don't get to collect!

I suspect we have too much in DH’s pension which will potentially be a problem from next year for our DC’s inheritance. DH retired 3 years ago at. 60 and we take enough that he only pays 25% tax. We took the lump sum when he was 56 and purchased a property outright, which we live in. We also have a second paid for property that one of our DC lives in. We are conflicted about what we do with that, which is another issue. We have good amounts in ISA’s too. We do already gift our DC’s monthly amounts from our income. We have one ‘big’ holiday per year with an additional week away in Europe somewhere as well as breaks away in the UK, days out, regular eating out and live comfortably.
I appreciate this is lovely problem to have but we have discussed speaking to an estate planner to look at how we can minimise IHT for our DC’s. We had a conversation a couple of weeks ago about actually spending more from our ISA’s as DH’s pension has outperformed the predicted range.
I’ve just started taking my occupational pensions, which are small amounts and my lump sum was small-ish and has to last me until I get my state pension in 5 years time.

I did everything from in my 20s to ensure I could retire at 55. Mid 40s and pension scheme rules changed and I lost about 40% of my pension forecast. I retired at 57 after the death of a close family member and inheritance.

I would guess there may be no state pension in 20/30 years?

No, I'm not banking on there being SP. Don't factor it in to any calcs. Sorry to hear your plans went a bit off. Proof of there being no guarantee no matter how hard we plan!

Potentially in theory, but it's hard to be more helpful without having a rough idea of how much you expect to have. I've had a few conversations with people recently that have highlighted that people have very different ideas of 'a lot of money'.
Saving and spending should always be balanced with a view to the knowledge that you may not live or be well long enough to be able to spend your pension. Memories and experiences with your children can be proceless in my experience. Likewise, you don't want to be spending your retirement in financial stress when you could have prepared more carefully.
A few things to consider...
Are you prepared to sit down and pay for some proper professional advice.
I wouldn't make any assumptions about what state pension might be available to you in the future.
What sort of financial support do you want to offer your children in terms of university, houses, weddings etc.
Assuming you are in a position of reasonable abundance, are you making sure that you carve out the budget for really special things to share with your children.

Personally, I think you would have to go quite a way to have too much if you are managing to do the above. Me and my husband are both benefiting from his prudence earlier in life when he had no wife or children. His employer adds loads to his pension and he just put lots in when he had the chance. This has given us so many freedoms in our 40s and 50s. We both currently work but the next 10 years will look dramatically different for us compared to some people we know because of early prudence. I have also been sensible, albeit with a lower teachers salary.
Good luck op, and whatever you decide do remember that tomorrow isn't guaranteed so smell the roses of today too!

People often don’t like to use financial planners a they feel they can do it themselves and don’t want to pay for advice….but mistakes can be costly and even if no outright mistakes are made, things are often not arranged in the most advantageous manner.

In your situation I would consult with a financial planner for a full pension review plus cash flow modelling.

They can model different retirement ages and drawdown options, account for inflation and tax etc.

That's absolutely gutting! Thanks for sharing.