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?

Also defo live a little. If you have plenty spare I’d be doing more than one holiday a year with my child. Make the memories. Doesn’t have to be expensive/ abroad even - UK fine! We try go away most school hols even if it’s just a couple of nights. Love our trips!

We'd like to but struggle with annual leave. We have no family help with childcare so cover all school holidays ourselves. It limits how much time we can take together. We use clubs and I buy as much as extra leave as I can. But it still means we're only getting 2 weeks max together. How do you manage to take most holidays off? Do you work term time?

Yer that’s hard then if you have no one to help. I’m term time only and husband gets nhs annual leave (6 weeks ish) so we can use all his leave for family time.

Could you pay for an extra week or twos holiday club so you can have more family time? Then you could both take some long weekends in school hols throughout the year to go away Friday- Monday sometimes in school hols?

Tricky balance I appreciate!

Sometimes we are covering 14wks a year depending on how inset days get structured! So we already use about 4 weeks of clubs to get 2 weeks together with me buying 2 weeks. So it's also that balance of making sure DC doesn't feel too farmed off to clubs! It would seem, there is no way to have it all 😆 hope as DC gets a little older (y3 atm) this will ease! Thanks!

I'm working on the assumption I won't be able to retire before probably 60 by the time I get to drawing pots down, so I am doing most of my savings in stocks and shares ISAs to try and give myself the flexibility I want on that.

Go and see a good chartered financial planner who is experienced at putting together cash flow forecasts and stress testing them.

The problem with all of this is that none of us have a crystal ball. Will one of your children have a physical or mental health issue which means one of you has to reduce your working hours or give up work entirely? Might you or your DH suffer a life changing event or even die?Might you or your DH lose your job and struggle to find one which pays as well?
Rather than lock everything into a pension (and risk rules changing around them), I would focus on other investments. I would also spend a bit more enjoying life now. We are now heading into our 50s with DC who are teens and, having seen how many friends have had significant events in their lives in the past few years, are spending more on enjoying the here & now.

When are you taxed on a higher rate at pension withdrawal

Yes sounds like you’ve got the best balance already. Yes as little one heads to secondary in years to come they can hopefully hang out with friends at yours or one of their houses and you can free little more time up.

Good luck with investment/ pension plans. Sounds like you have a good set up there!

We are similar, DDs are in Y4 and Y2 and no family nearby to support. We get a week off together in summer (when we will go abroad) and at Christmas but we utilise odd days here and there to get a holiday at another time. Usually when there is a bank holiday around Easter so we can have a long weekend away but we just did a Friday to Monday UK trip in May half term which limited how much leave we had to take. DDs don't talk about the fact they also did a few days of holiday club in May half term because their focus is that we went on holiday to Devon. It was only 3 nights but we still had a lovely time.

Under current rules I’d aim to reach £1m each in pension funds and then invest any other funds in a post tax investment account. Obviously put the next 40k pa between you in S+S ISA.

That should give you pretty much the most tax efficient outcome.

When you reach retirement the 2027 IHT changes mean that it will then make sense to spend your pension funds first unlike now when it makes more financial sense to spend them last.

Pension income is just income once you’ve taken the 25%tax free sum (capped at the lower of 25% and £268k). So it follows the normal income tax bands. It has to be combined with income from other sources eg savings interest, income from property rental etc. As a result many people will be taxed at higher rate on their pension income.

Now that labour have changed the rules to put pensions within the scope of IHT they are a golden handcuff for many. If there is money in your pension when you die then your estate pays IHT on it plus your kids pay income tax on the income it gives them.

Could you invest in property?

If you are comfortable I’d also think ahead to helping your child with a house deposit and maybe grandchildren too.

My mum was sadly widowed when I was a baby and my grandparents basically bought her a house (well topped up what she’d need). They also paid for my education. They didn’t live lavishly but were comfortable

Sadly I didn’t make sensible choices in my 20s and 30s so now saving like mad in my 40s. I’ve also committed to financially supporting my mum in the next few years. My DS won’t go to private school like I did as I simply don’t have the money

Investing in property is generally a poor financial decision nowadays. You’re taxed on their pension income income, taxed on the gain, pay double stamp duty, in some places pay double council tax and have renters rules which can leave big voids and also mean you can’t get rid of tenants.

there is a separate post about unpaid parental leave. Take a look at that and see if you could make parental leave work for this purpose.

Insurance is very expensive if your IHT will be £1 million plus, clearly it’s unaffordable! So you need to plan your estate better than that!

Pension is liable to IHT now and it’s making planning more difficult if you have other investments and property. I don’t know anyone who had retired at 53. Not one. Teachers retire at 60 it seems but most people like DH who own businesses tend to keep working and then sell them. There’s still tax relief on pension payments so I’d keep going up the max but it won’t provide riches at 53!

If you actually look at the workforce, not many people get to even 65 still working full time or working at all. 69% of people aged 50-65 are in work. But that will be weighted heavily towards those in their 50s. Its increasingly common to have a raft of health issues preventing work in your 60s.

DH and I are in a similar position to you but are working on the basis that we need to give ourselves the flexibility to stop from 60 if we need to, through separate ISA savings pots. We are deliberately doing this outside of pensions because the government can and has been changing the age at which a pension can be accessed & we don't want choices taken away from us.

This is misleading. Whole of life insurance is one of the most important tools for a large estate. It’s particularly crucial where there is an expensive house holding a lot of the wealth since in many cases the IHT has to be paid before probate is granted and funds are freed up. If your house is worth over c£2m (I noticed on a different thread you said yours is), the rules also change on how much can be passed outside of IHT so you have a much lower allowance of only £650k rather than a million. Life insurance shouldn’t be overlooked

We have retired early with DB pensions and also have investments and S&S ISA products, we have had the ISA products for decades. I retired at 54, I’m 60 very soon and DH retired at 56 which was just 18 months ago. He is my younger squeeze as I joke.

When working when to retire out the irritating thing is you don’t know your death day. We have had 5 friends between us who have died before 55. It really puts life in to perspective, our DD also died very young on the brink of womanhood.

We had an overseas holiday every year, one year we went overseas 3 times and plenty of breaks in the UK before. We did a couple of cruises and also spent a month on holiday in America once, we decided to never work out how much that trip cost overall as so expensive, we usually know to the penny.

You need to go down the S&S ISA route.

We bought a Motorhome with DH redundancy money, he was going to work till 60 but his sector is totally fucked currently and is in dire straits, higher education, so he took the chance to bail. We have just started to gift our DS 3k a year each that means zero tax is paid.

Do not touch property, we looked in to it seriously. It was a time when it was still worth it as well but one bas tenant can wipe out profits for years.

I have been thinking about this a lot lately.

We have done the opposite - most of our savings are in S&S isas for flexibility, we have DB pensions and then small SIPPs on top.

Our preference is to enjoy ourselves and our kids more now and then if necessary continue part time working until we are 70.

This is partly because we enjoy our jobs and I think will stay sharper and happier working part time than giving up work entirely. And also because we want to travel and have fun while our kids are young and we are healthy

My dad did so much saving for retirement but just clearly doesn't have the ability even to spend it and his mentality is now not to spend.

We don't have family childcare either. We get 6 weeks off each, sometimes do a week of unpaid parental leave and otherwise just do holiday clubs. Both my kids enjoy them and have done since age 4/5. I can see if you have a child that hates going, it's harder

Regarding childcare it was holiday clubs for us plus we used to each take a weeks leave with the children and not together to cover, we could cover six weeks between us.

I mentioned an odd scenario a few months back. If one half of a married couple has a large pension but the other doesn't, then yes it is possible to have "too much" in one pot.

The scenario is the larger pension pot is over the 25% tax free withdrawal amount. In that scenario it might be a tax avoidance route to get divorced, split the pension pots so both can get the 25% tax free allowance.

Imagine a £2.5 million DC pension pot. If held by one person only £268k is tax free. If split equally between two then the tax free withdrawal amount doubles to £536k.

Also income tax is individual, not joint for a married couple. So ideally any income is split to enable maximum use of tax allowances.

That would need to be balanced with the inheritance allowance on the family home which can pass to a spouse, but not a cohabiting partner. That's .£175k tax free allowance.

The UK system is generally very anti shared married resources where it benefits the couple, it's quite geared towards the state maximising income and minimising benefits and allowances.

@ViciousCurrentBun The £3000 a year to dc just reduces IHT bill. You don’t have thst much money if that’s all you need to do to reduce IHT liability. It’s part of tax planning and is an annual exemption.

Thanks! I have often looked at property and we don't live in an area where it stacks up if you are buying now financially. Let alone the risk of nightmare tenants! I'll definitely be sticking to something a lot more passive. It would be another stressor for us, even if we had great returns. Good to know many have been where we are and made it work!

Property won’t stack up for many people now.

the advice about isas is also less relevant for those with DC pensions than those with db pensions. If you have a db pension you are likely to have double the pension income of someone on a similar salary who worked in the private sector. Because of the pension constraints you are likely to use ISAs more than those with DC pensions. If you have a DC pension and you get an employer pension contribution and you are not over the £268k 25% lump sum then a pension is still the most tax efficient way to save by far because of the employer contribution and the 25% and the fact that you have a personal allowance and basic rate band in the payment in year and the payment out year.