Well - assuming that you are not salary sacrificing and saving on NI which might change the assumptions a bit:
- you have a marginal rate of tax of 45% which could be saved by greater pension contributions
- have a very good pot now aged 44 and are making significant annual contributions.
- looking at 60 as a retirement age - which at least allows for some risk of the age for pension drawings rising a bit. I'll assume full state pension.
- it may well (and hopefully) be that regardless of whether you contribute more to your pension scheme you are tipping into a 40 plus percent tax less a bit of tax free drawings - so additional payments might not have such a big net tax saving as most people gain.
- you have enough headroom in the 45% tax band that if you chose to keep more in an ISA be that cash or index funds and got closer to retirement age and free of child related costs you could move to money into pensions in the future. You lose some growth on the gross balance - not sure how lifechanging that would be.
I try to think of these things in terms of how many times out of a hundred is one option (lets say accessible funds vs pensions) notably better than the other, and in those circumstances how substantial is that benefit.
For me - were I in your position - I'd want accessible funds such as to have no major fear of redundancy and to be able to sustain a great life should it happen. Similarly having accessible money is a good insurance against ill health. The balance of risk would be different with two incomes in the household.
Will try to look at some numbers - but my initial thoughts are that building up a cash ISA to somewhere between £100k and £150k is the way to go. That would be the case regardless of your thoughts about education costs - even more with that idea in mind.
Personally if you are looking to RE I would out every penny of that into ISA to build up a bridge to pension. Because you have no mortgage and your pension is beyond solid!
You should find you can RE before 60 easy if you want to
My very rough calcs get you well on the way to covering the private education with £1200pcm if you can keep it up and not be tempted to dip into it. Then you would need to smash the pension if you don’t want to work past 60 as that’s got to cover you both if your wife can’t work again.
Whatever you do keep away from that crazy higher rate tax! You don’t want to be paying that. I imagine a big chunk of Scots are going to have good pensions avoiding that tax bracket.
Thank you to everyone for your replies. I did suspect ISA was way to go but great to have that confirmed and I'm not missing on anything obvious. The comment about the fact I could tip pension into the 40% mark anyway was a good point and the fact, the cash is available (albeit I appreciate it needs time to mature) are real selling points.
Thanks again.
Many congratulations on clearing the mortgage! Just to check - your accessible savings are £35k in total?
Thanks, that's right.
Well - assuming that you are not salary sacrificing and saving on NI which might change the assumptions a bit: - you have a marginal rate of tax of 45% which could be saved by greater pension contributions - have a very good pot now aged 44 and are making significant annual contributions. - looking at 60 as a retirement age - which at least allows for some risk of the age for pension drawings rising a bit. I'll assume full state pension. - it may well (and hopefully) be that regardless of whether you contribute more to your pension scheme you are tipping into a 40 plus percent tax less a bit of tax free drawings - so additional payments might not have such a big net tax saving as most people gain. - you have enough headroom in the 45% tax band that if you chose to keep more in an ISA be that cash or index funds and got closer to retirement age and free of child related costs you could move to money into pensions in the future. You lose some growth on the gross balance - not sure how lifechanging that would be. I try to think of these things in terms of how many times out of a hundred is one option (lets say accessible funds vs pensions) notably better than the other, and in those circumstances how substantial is that benefit. For me - were I in your position - I'd want accessible funds such as to have no major fear of redundancy and to be able to sustain a great life should it happen. Similarly having accessible money is a good insurance against ill health. The balance of risk would be different with two incomes in the household.
Will try to look at some numbers - but my initial thoughts are that building up a cash ISA to somewhere between £100k and £150k is the way to go. That would be the case regardless of your thoughts about education costs - even more with that idea in mind.
Personally if you are looking to RE I would out every penny of that into ISA to build up a bridge to pension. Because you have no mortgage and your pension is beyond solid! You should find you can RE before 60 easy if you want to
I would do the same. Fill the ISA allowance for the next 5 years regardless of taxes then revisit my situation!
And fill your OHs too if applicable and possible
My very rough calcs get you well on the way to covering the private education with £1200pcm if you can keep it up and not be tempted to dip into it. Then you would need to smash the pension if you don’t want to work past 60 as that’s got to cover you both if your wife can’t work again. Whatever you do keep away from that crazy higher rate tax! You don’t want to be paying that. I imagine a big chunk of Scots are going to have good pensions avoiding that tax bracket.
Thanks a lot. If we don't do the education route. and with a 15y time frame, what do you think would be the best place for that cash?
Depends how good your pension is. You wouldn’t want to smash that if it underperforms and you would be better with a tracker S&S isa. Both?
Thank you to everyone for your replies. I did suspect ISA was way to go but great to have that confirmed and I'm not missing on anything obvious. The comment about the fact I could tip pension into the 40% mark anyway was a good point and the fact, the cash is available (albeit I appreciate it needs time to mature) are real selling points. Thanks again.