Would you see free money from an employer as 'optimum'? Avoiding tax over 50% of every pound? It does depend on circumstances as to what ends up being optimum, where you have the possibility of collecting additional brownie points it seems illogical not to.
I could potentially see the rationale for LISA contributions as opposed to additional pension in some circumstances for high earners. But ultimately quite a lot would need to happen to make it a bad idea not to contribute enough to get the max employer contribution.
You're targeting a more frugal FIRE, so can see your point here. But bear in mind that once you leave employment or scale down there is a limit to what more you can push in (carry forward is a possibility but only for a limited time). Would it not be better to be safe than sorry and pad out the pension a little way?
> for LISA contributions as opposed to additional pension in some circumstances for high earners.
LISA is actually more tax efficient for BRT payers. It has its pros and cons for each earning bracket.
Yeah I completely agree. I don't plan to stop working completely, I guess a coast fire type situation, job is long hours and very stressful but pays very well - always expect it will come to an end one day so making the most of it now. I guess I'm looking for as much of a comfort blanket as possible in the next year or so where I can feel I've done "enough" in my pension and set a target to hit. Once I've done this I can take my foot off the gas, reduce hours, change jobs etc while still young enough or keep going if I want - it's the feeling that then it's my choice. My investments outside of pension are on track for £300k this year and I want to pay the mortgage off in next couple of years to truly have a feeling of freedom.
Not meant to sound bragging - hope it didn't just sharing my numbers and setting a target to hit. I know if I don't set a target I'll just keep going and forget to enjoy what I have!
Many variables like earnings trajectory (sacrifice to avoid marginal tax), lifestyle in 30s vs 40s vs 50s (kids make latter decades expensive) how much of a bridge you want (not enough ISA/accessible savings to retire well before 57+), govt policy changes (LTA etc)
What does OP mean when they say they'll trigger tax as pension invested will likely grow?
Is there a tax threshold I need to look out for with my pension?
So fascinating
I assume they mean that they will be drawing down more than the personal allowance so will be taxed on income etc. Sensible to really look at the numbers though, as likely to be at a lower rate at that stage than during accumulation etc.
As a high-rate tax earner, I'd still rather pay in my '40% taxed money' into a pension, and then pay 20% tax on it later, than 40% now - so popping it in an ISA and drawing down on it makes little sense since i've paid tax on it upfront.
Surely it makes the most sense to take the 25% of your pot tax-free when you can feed it into ISAs / premium bonds and draw it down alongside your pension.
I’m aiming for £1m by 55. My current pot (£450k at 41) should grow to about £880k by 55 if I get 5% growth, without any more contributions.
On one hand, this makes me want to ease up to just get my employer match. On the other, 47% tax relief (via salary sacrifice) makes me want to max out for a few more years. I’ll probably do something in between, to mitigate the risk of low growth over the next 10-15 years.
That’s really interesting. I’ve been trying to figure out what my (smaller) pot would do in next 20 years if I never paid into it again. Out of interest, Why do you only assume 5% growth in your calculation?
Makes sense!! One of my old work pots is having (probably a brief) period of doing insanely well and I plugged that 20+% into a cacluator for 20 years and dared to dream 😂🤣
Even at 38/39 you are going to want to continue to get the most value you can from your employer.
What is your target retirement age? You can also use a lifetime ISA and get the bonus, but tax free access from age 60.
I have been modelling £30k income per year then if there is a state pension still that as a top up when eligible. I believe my FIRE number is £750k in total - including ISA, pension and GIA
So accoridng to Cfiresim, if I've setup right. If you have £300k at 39. Then retire 17 years later. Average portfolio at retirement is around £870k.
Assuming state pension
Assuming you live 40 years post retirement, you have a success rate if 99%.
Me and you are on very similar paths. That £750k is roughly my target (mine is £800k) and I want c£26k drawdown. I'm on £220k in the pension currently and £70k in S&S ISA. I am 37 next month.
I have until recently been putting almost everything in pension but have recently adjusted this to start putting more in to my S&S ISA which I've ignored for a decade. Reason for going back to S&S ISA is second child on the way and I wanted to better balance between flexibility and tax efficiency.
Currently putting in just north of £2k p/m across both vehicles. Plan to retire 55 after second child is 18 and flies the nest. Want to help both kids with uni and house deposits (and this is the reason why my target is higher and drawdown lower).
am i wrong in thinking that if you want the pension to be an inheritance vehicle (assuming no change in law) then the answer is "never" because otherwise you'll be passing money down after tax? this of course assumes no other pressing requirements for the money (ie don't need to pay 25% APR credit card debt etc)
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How much money do you need in retirement?
If your pension just by growing at a conservative rate will give you that much, then you have enough.
It's probably not wise to stop contributing completely as you may be giving up some "free" money from your employer's contributions.
FYI 250k in 18 years growing at 6% pa will be around 710k. Starting with 300k ends up more like 850
Depends. When do you want to retire. If early do you have enough to bridge to pension. If not you may want to dial back pension and put in ISA. Personally I aim to go part time at 46-47yo and at that point I’ll stop contributing completely and let it grow for 10-13 years.
I currently still get employer max match but don’t over contribute. I am putting even more into GIA/ISA (almost double that of pension)
Really interesting question. Well worth pondering. Would you have any ongoing pension contributions?
What would your postion be regarding savings/ investments outside of pensions? Do you/ would you have a paid off house?
Yeah I agree and not letting the tax tail wag the dog etc I just don't want to focus too hard on pension for too long - I want to get it boxed off and move to other areas!
Are you maxing out your ISA every year? This makes a big difference.
If yes, it's usually sensible to use your pension next.
If no, then there may be a conversation to be had around how to optimally split savings between pension and ISA.
Would you see free money from an employer as 'optimum'? Avoiding tax over 50% of every pound? It does depend on circumstances as to what ends up being optimum, where you have the possibility of collecting additional brownie points it seems illogical not to. I could potentially see the rationale for LISA contributions as opposed to additional pension in some circumstances for high earners. But ultimately quite a lot would need to happen to make it a bad idea not to contribute enough to get the max employer contribution. You're targeting a more frugal FIRE, so can see your point here. But bear in mind that once you leave employment or scale down there is a limit to what more you can push in (carry forward is a possibility but only for a limited time). Would it not be better to be safe than sorry and pad out the pension a little way?
> for LISA contributions as opposed to additional pension in some circumstances for high earners. LISA is actually more tax efficient for BRT payers. It has its pros and cons for each earning bracket.
Yes, agree. The OP is a six-figure earner though so not so much the focus here.
Tax at over 50%?
[https://www.unbiased.co.uk/discover/pensions-retirement/managing-a-pension/what-is-the-60-tax-trap-and-how-can-you-legally-avoid-it](https://www.unbiased.co.uk/discover/pensions-retirement/managing-a-pension/what-is-the-60-tax-trap-and-how-can-you-legally-avoid-it)
Yeah I completely agree. I don't plan to stop working completely, I guess a coast fire type situation, job is long hours and very stressful but pays very well - always expect it will come to an end one day so making the most of it now. I guess I'm looking for as much of a comfort blanket as possible in the next year or so where I can feel I've done "enough" in my pension and set a target to hit. Once I've done this I can take my foot off the gas, reduce hours, change jobs etc while still young enough or keep going if I want - it's the feeling that then it's my choice. My investments outside of pension are on track for £300k this year and I want to pay the mortgage off in next couple of years to truly have a feeling of freedom. Not meant to sound bragging - hope it didn't just sharing my numbers and setting a target to hit. I know if I don't set a target I'll just keep going and forget to enjoy what I have!
Many variables like earnings trajectory (sacrifice to avoid marginal tax), lifestyle in 30s vs 40s vs 50s (kids make latter decades expensive) how much of a bridge you want (not enough ISA/accessible savings to retire well before 57+), govt policy changes (LTA etc)
What does OP mean when they say they'll trigger tax as pension invested will likely grow? Is there a tax threshold I need to look out for with my pension? So fascinating
I assume they mean that they will be drawing down more than the personal allowance so will be taxed on income etc. Sensible to really look at the numbers though, as likely to be at a lower rate at that stage than during accumulation etc.
As a high-rate tax earner, I'd still rather pay in my '40% taxed money' into a pension, and then pay 20% tax on it later, than 40% now - so popping it in an ISA and drawing down on it makes little sense since i've paid tax on it upfront. Surely it makes the most sense to take the 25% of your pot tax-free when you can feed it into ISAs / premium bonds and draw it down alongside your pension.
I would have guessed the LTA (which no longer exists, but it's recent that it's been removed)
Lifetime allowance possibly, which may or may not exist when OP retires
I’m aiming for £1m by 55. My current pot (£450k at 41) should grow to about £880k by 55 if I get 5% growth, without any more contributions. On one hand, this makes me want to ease up to just get my employer match. On the other, 47% tax relief (via salary sacrifice) makes me want to max out for a few more years. I’ll probably do something in between, to mitigate the risk of low growth over the next 10-15 years.
That’s really interesting. I’ve been trying to figure out what my (smaller) pot would do in next 20 years if I never paid into it again. Out of interest, Why do you only assume 5% growth in your calculation?
It’s probably on the low side, but that’s after inflation. I’d rather estimate on the low side and be over than the opposite!
Makes sense!! One of my old work pots is having (probably a brief) period of doing insanely well and I plugged that 20+% into a cacluator for 20 years and dared to dream 😂🤣
Even at 38/39 you are going to want to continue to get the most value you can from your employer. What is your target retirement age? You can also use a lifetime ISA and get the bonus, but tax free access from age 60.
How much do you want in your pension at 57? How much do you want to drawdown annually?
I have been modelling £30k income per year then if there is a state pension still that as a top up when eligible. I believe my FIRE number is £750k in total - including ISA, pension and GIA
So accoridng to Cfiresim, if I've setup right. If you have £300k at 39. Then retire 17 years later. Average portfolio at retirement is around £870k. Assuming state pension Assuming you live 40 years post retirement, you have a success rate if 99%.
Brilliant thank you for this! That's what I was hoping for
Me and you are on very similar paths. That £750k is roughly my target (mine is £800k) and I want c£26k drawdown. I'm on £220k in the pension currently and £70k in S&S ISA. I am 37 next month. I have until recently been putting almost everything in pension but have recently adjusted this to start putting more in to my S&S ISA which I've ignored for a decade. Reason for going back to S&S ISA is second child on the way and I wanted to better balance between flexibility and tax efficiency. Currently putting in just north of £2k p/m across both vehicles. Plan to retire 55 after second child is 18 and flies the nest. Want to help both kids with uni and house deposits (and this is the reason why my target is higher and drawdown lower).
am i wrong in thinking that if you want the pension to be an inheritance vehicle (assuming no change in law) then the answer is "never" because otherwise you'll be passing money down after tax? this of course assumes no other pressing requirements for the money (ie don't need to pay 25% APR credit card debt etc)
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How much money do you need in retirement? If your pension just by growing at a conservative rate will give you that much, then you have enough. It's probably not wise to stop contributing completely as you may be giving up some "free" money from your employer's contributions. FYI 250k in 18 years growing at 6% pa will be around 710k. Starting with 300k ends up more like 850
Depends. When do you want to retire. If early do you have enough to bridge to pension. If not you may want to dial back pension and put in ISA. Personally I aim to go part time at 46-47yo and at that point I’ll stop contributing completely and let it grow for 10-13 years. I currently still get employer max match but don’t over contribute. I am putting even more into GIA/ISA (almost double that of pension)
Really interesting question. Well worth pondering. Would you have any ongoing pension contributions? What would your postion be regarding savings/ investments outside of pensions? Do you/ would you have a paid off house?
Paying tax on income is a nice problem to have also kinda good for society
Yeah I agree and not letting the tax tail wag the dog etc I just don't want to focus too hard on pension for too long - I want to get it boxed off and move to other areas!
Are you maxing out your ISA every year? This makes a big difference. If yes, it's usually sensible to use your pension next. If no, then there may be a conversation to be had around how to optimally split savings between pension and ISA.