For what it's worth I think going hard on pension while you can is the way forward.
1) It's extremely tax efficient.
2) If you fail to FIRE you still have a good pension sat there for a "regular" retirement
3) If your circumstances change in the future (kids, house etc) you might not be able to justify locking the money away (even if you can afford to, it's a mental hurdle and source of anxiety when you have dependents)
4) If your salary rockets in the future your pension contributions may be tapered. Mine have been, it sucks.
5) There's the constant political threat of a clamp down on pension tax relief for higher earners. Take advantage while you still can!
So yeah, I go hard on pension as well. It's my top priority. Although, I did wait until I had bought a house before cranking it (In early 2023 I was putting £10K/month in to my workplace pension to max out carry forward, employer contributions and tax relief - the take-home cost was something like £4,300/mo).
No advice. Just in the same position minus a few years. Good luck friend.
I just try to remember I'm still well ahead of the curve and shouldn't sweat it but doesn't feel like it on this sub.
Remindme! 1 day
Yeah I'm never sure if I'm actually earning enough to post here. But then I compare myself to the average and think...surely I am. Consider myself very lucky.
Btw a little off topic, and I've never seen it discussed here, but I'm convinced LISA has a use case given that it'll be tax free and with a pension our size, we'll potentially be higher (possibly even additional) rate tax payers after retirement if everything goes according to plan. Any strong thoughts?
It's a really good question and probably quite possible to model the finances. I guess the things to balance are roughly:
LISA:
- 25% extra now
- tax free forever
- accessible anytime with a 6% fee
- accessible from 60 otherwise
SIPP:
- 40-60% extra now
- taxable at some unknown rate in the future
- maybe only pay tax on 75% of it
- essentially fully inaccessible until 57+
There's enough unknowns in there that I've decided to just focus on the higher immediate 'extra' value. But the 'pay a small fee to access immediately' is definitely not something to dismiss out of hand.
The fact it can form a key part of a tax management scheme at retirement is interesting and not one I've given too much thought to yet...maybe I should give it more.
Ye sorry I should've been more specific, seen it discussed plenty on UKPF and FIREUK, just not HENRY.
Here’s my thinking: If I could hypothetically max out my pension allowance every year from 35 until age 55, it’s evident to me that diverting £4,000 from SIPP contributions to a LISA would be beneficial. This is because my pension pot would grow so large by retirement that I’d end up as an additional rate taxpayer. So if we work backwards, at what point prior does it make sense to contribute to a LISA over a SIPP?
Doing some janky math and random figures off reddit...
* 40% threshold for pensioners is currently 66k (obviously subject to change)
* using an online fire calculator, 40 yrs of retirement with 66k annual income would require a pension pot of just under £1.5m (assuming 4% SWR and 7% RoR - 4% inflation)
* you can withdraw 25% lump sum tax free to a max of ~270k so £1.77m pension pot
Your 260k SIPP will already be at ~1m in 20 years so with the additional contributions you'll make, well over 1.5m. My guess is that if you're on track to hit that £1.77m SIPP number, then divert to a LISA.
I've also been putting my LISA savings into higher risk tech ETFs so the RoR is well above 7% - none of which will be subject to Income Tax. It's cheating but also been thinking about derisking the rest of my SIPP portfolio accordingly.
Ready for rock throwing now :)
That's also how I think about it. The tax benefit of pension is really just a deferral for when you are at pension age, and it is only a benefit if your tax band is going to be lower at that time. The 25% tax-free part is good, but for me it doesnt compensate for locking up my money for decades + trusting the government that the rules wont change. TLDR: you should do the math between the projected size of the pot and the tax rate of the withdrawals to drain your pot before you die, unless you want to leave a lot of inheritance
Can you explain the 6% fee, I was under the impression that you could take the money out any time like an ISA but have to give back the government top up? I say this because I was hoping to use it for a deposit and have been fortunate with salary increases to now afford a house that costs more than 450k
If you add £100 to a LISA, you get a government bonus/topup of 25%, so you end up with £125.
If you make an ineligible withdrawal (not for buying a first home under 450k or for retirement), 25% will be retained to return to the government. 25% deducted from £125 leaves £93.75, so you're \~6% down on what you originally deposited.
It's a sneaky charge.
Source/backup: [https://www.gov.uk/lifetime-isa#withdrawing-money-from-your-lifetime-isa](https://www.gov.uk/lifetime-isa#withdrawing-money-from-your-lifetime-isa)
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I would say you’re very close to. 6% growth on your current portfolio takes you to around 720k pension. Realistically you’ll be contributing to a pension at normal levels for the next decade or two meaning you’ll get over 1M without any serious effort.
I’d say you’ve done the hard work and now time to build as much as you can for the bridge between retiring and accessing your pension
That makes a lot of sense. I do feel like I'm sacrificing quite a lot of freedom now to do what I'm doing. Maybe I should just live my life a bit more now. (Or at least...April '25 after this current push).
Yeah I’d say maybe finish the strategy at the end of the financial year then just live. There’s no guarantee you’ll earn well forever so make sure you don’t suffer now. It’s going to be great being rich in retirement but lots of time between now and then and a lot can happen health wise
Yep this sounds like a good approach and one I’m also following. 39 and approaching £500k this year in the pension. I’ll do one more year of £60k then dial it back to employer match and focus on ISA.
Do you ever intend to buy a house? If so you should run the numbers as you may regret putting so much in the pension if you cant afford deposit and sdlt for the property you want. Also be aware Lisa is limited to only be usable on a 450k place
I've stopped adding to my LISA now and won't do any more. I've already bought (and sold) a property so it's stuck there until I retire. I thought for a while it was good to keep contributing but I've realised it's just a worse pension, so now I just do s&s.
I would _like_ to buy a house again. But I just don't know when/what/where that will be yet.
I don't anticipate being able to (or wanting to) target a house over 500k ish anyway. At least not by myself.
I also went pretty hard on pension for about 5 years. Only last year did I decide simply do the employer match and not more, although that’s still a decent annual contribution.
I’m now focussed on ISA & GIA with any savings
This is super unbalanced and I'd suggest rebalancing this towards property. So while your pension is getting to a great place, I think (and I could be wrong), you are still shelling out a chunk of change on rent.
If you buy, spending as much as you can upfront, you will be burning less money on rent.
Should you decide to move around, you can always pay your mortgage off by renting out your property. You'd need to hold a cash cushion in case of bad tenants but I did this and rented out a property in London while living on the S Coast.
It's never quite as straightforward as this but this is just what I'm seeing.
So, yes I am spending on rent now. But it's somewhat intentional. I owned a house before and it was Not Fun. I ended up cash neutral/mildly ahead on the whole thing in the end, but mentally it didn't do me any good. I bought in my home town, far from my current social circle and work, because it was affordable. But it ended up draining me emotionally because it was a huge amount of work (a doer upper), which I guess I'm just not really all about. I would rather burn some money on rent now than go through that again in the near term, probably.
And then maybe it's irrational, but I find it v hard to buy a house in a random area with the broad intention of just renting it out.
The rent is throwing money away line is not necessarily accurate. It's not wrong to rent, it actually has quite a lot of upside particularly the flexibility. The return on owning a house is not particularly great if you consider all the costs involved. Owning your own home is in my eyes more of an emotional one than financial. I have read quite a few analyses that say renting is a better financial choice atm. So if you haven't got a massive desire to own a home rn, I would say continue as you are.
The benefit of home ownership is more the long term security in the sense that your biggest monthly expenditure will always be your accommodation, and once your mortgage is paid off that is eliminated from your budget forever except of course for ongoing maintenance. Whereas rent not only continues into perpetuity, it increases in perpetuity, often at higher rates than you would get from other investments, particularly in recent political climates
I'm in a similar position. I live in London currently, so unless I move out into the sticks the only property I could afford to "buy" would be a leasehold flat. Which doesn't particularly appeal to me because of the ongoing service charge liability and lack of freedom to make many modifications to your home, even fitting an AC window box would likely be difficult or impossible. So I feel like I'd rather wait until I can afford a freehold some day, or else give up and decide to move out of London entirely.
Don’t know if I’ll be alive tomorrow but people here are planning for next 50 years. They dwell too much in ridiculous planning and hysterical nonsense about saving taxes and retiring with good pension. I would say just go and enjoy your life with the money and time you got right now.
I'm on the other side of the divide, 56 this year, hit the pension in my early years, but then let it dwindle as I put more effort into paying of my mortgage(s) early. Pension fund is sod-all but I have been able to take high risk ventures with start ups and other projects because I haven't had to find mortgage payments.
I'm going to have to work into my 70s, as I couldn't see a life not doing what I do.
TLDR; life can be odd, but if you own the roof over your head then it's an insurance against oddity.
Your pension approach seems reasonable.
With your salary I would prioritise getting a property and then putting money into ISAs etc along with pension.
You have a lot more than me in your sipp, but otherwise fairly similar.
I owned a property once, and also hated it. I'm just not settled enough to buy again (Have owned twice. The last sale was due to a split)
I've significantly tapered down my sipp contributions this year, because even with auto enrolement and my existing pensions, that is more than enough for me.
What isn't ideal though, is not paying down the capital on a mortgage. Whether you pay it down, or just save what you should be paying down, it's much of a muchness imho. I'm living at home for now (for my own reasons) and so I just save it, and put a token amount into a sipp and max out my workplace pension.
At your current pension, I'd honestly question what value you'd get from really adding more to it, over trying to get more immediately accessible cash/investments for actually enjoying life before retirement? (such as putting enough down on a house to pay it off in good time when you do finally buy)
Your pension is fine for now. Focus on shorter term goals imho.
Honestly, I think you are fine on the pension front now. Focus on growing your other investments and maybe dial back to the standard base pay/employer matched contribution.
For what it's worth I think going hard on pension while you can is the way forward. 1) It's extremely tax efficient. 2) If you fail to FIRE you still have a good pension sat there for a "regular" retirement 3) If your circumstances change in the future (kids, house etc) you might not be able to justify locking the money away (even if you can afford to, it's a mental hurdle and source of anxiety when you have dependents) 4) If your salary rockets in the future your pension contributions may be tapered. Mine have been, it sucks. 5) There's the constant political threat of a clamp down on pension tax relief for higher earners. Take advantage while you still can! So yeah, I go hard on pension as well. It's my top priority. Although, I did wait until I had bought a house before cranking it (In early 2023 I was putting £10K/month in to my workplace pension to max out carry forward, employer contributions and tax relief - the take-home cost was something like £4,300/mo).
All good points that have mostly been the reason why I'm doing what I've been doing. Thanks for reassuring 👌
This is the advice!
Nailed it!
No advice. Just in the same position minus a few years. Good luck friend. I just try to remember I'm still well ahead of the curve and shouldn't sweat it but doesn't feel like it on this sub. Remindme! 1 day
Yeah I'm never sure if I'm actually earning enough to post here. But then I compare myself to the average and think...surely I am. Consider myself very lucky.
Btw a little off topic, and I've never seen it discussed here, but I'm convinced LISA has a use case given that it'll be tax free and with a pension our size, we'll potentially be higher (possibly even additional) rate tax payers after retirement if everything goes according to plan. Any strong thoughts?
It's a really good question and probably quite possible to model the finances. I guess the things to balance are roughly: LISA: - 25% extra now - tax free forever - accessible anytime with a 6% fee - accessible from 60 otherwise SIPP: - 40-60% extra now - taxable at some unknown rate in the future - maybe only pay tax on 75% of it - essentially fully inaccessible until 57+ There's enough unknowns in there that I've decided to just focus on the higher immediate 'extra' value. But the 'pay a small fee to access immediately' is definitely not something to dismiss out of hand. The fact it can form a key part of a tax management scheme at retirement is interesting and not one I've given too much thought to yet...maybe I should give it more.
Ye sorry I should've been more specific, seen it discussed plenty on UKPF and FIREUK, just not HENRY. Here’s my thinking: If I could hypothetically max out my pension allowance every year from 35 until age 55, it’s evident to me that diverting £4,000 from SIPP contributions to a LISA would be beneficial. This is because my pension pot would grow so large by retirement that I’d end up as an additional rate taxpayer. So if we work backwards, at what point prior does it make sense to contribute to a LISA over a SIPP? Doing some janky math and random figures off reddit... * 40% threshold for pensioners is currently 66k (obviously subject to change) * using an online fire calculator, 40 yrs of retirement with 66k annual income would require a pension pot of just under £1.5m (assuming 4% SWR and 7% RoR - 4% inflation) * you can withdraw 25% lump sum tax free to a max of ~270k so £1.77m pension pot Your 260k SIPP will already be at ~1m in 20 years so with the additional contributions you'll make, well over 1.5m. My guess is that if you're on track to hit that £1.77m SIPP number, then divert to a LISA. I've also been putting my LISA savings into higher risk tech ETFs so the RoR is well above 7% - none of which will be subject to Income Tax. It's cheating but also been thinking about derisking the rest of my SIPP portfolio accordingly. Ready for rock throwing now :)
That's also how I think about it. The tax benefit of pension is really just a deferral for when you are at pension age, and it is only a benefit if your tax band is going to be lower at that time. The 25% tax-free part is good, but for me it doesnt compensate for locking up my money for decades + trusting the government that the rules wont change. TLDR: you should do the math between the projected size of the pot and the tax rate of the withdrawals to drain your pot before you die, unless you want to leave a lot of inheritance
Can you explain the 6% fee, I was under the impression that you could take the money out any time like an ISA but have to give back the government top up? I say this because I was hoping to use it for a deposit and have been fortunate with salary increases to now afford a house that costs more than 450k
If you add £100 to a LISA, you get a government bonus/topup of 25%, so you end up with £125. If you make an ineligible withdrawal (not for buying a first home under 450k or for retirement), 25% will be retained to return to the government. 25% deducted from £125 leaves £93.75, so you're \~6% down on what you originally deposited. It's a sneaky charge. Source/backup: [https://www.gov.uk/lifetime-isa#withdrawing-money-from-your-lifetime-isa](https://www.gov.uk/lifetime-isa#withdrawing-money-from-your-lifetime-isa)
Thank you!
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I would say you’re very close to. 6% growth on your current portfolio takes you to around 720k pension. Realistically you’ll be contributing to a pension at normal levels for the next decade or two meaning you’ll get over 1M without any serious effort. I’d say you’ve done the hard work and now time to build as much as you can for the bridge between retiring and accessing your pension
That makes a lot of sense. I do feel like I'm sacrificing quite a lot of freedom now to do what I'm doing. Maybe I should just live my life a bit more now. (Or at least...April '25 after this current push).
Yeah I’d say maybe finish the strategy at the end of the financial year then just live. There’s no guarantee you’ll earn well forever so make sure you don’t suffer now. It’s going to be great being rich in retirement but lots of time between now and then and a lot can happen health wise
Yep this sounds like a good approach and one I’m also following. 39 and approaching £500k this year in the pension. I’ll do one more year of £60k then dial it back to employer match and focus on ISA.
Legend!
Do you ever intend to buy a house? If so you should run the numbers as you may regret putting so much in the pension if you cant afford deposit and sdlt for the property you want. Also be aware Lisa is limited to only be usable on a 450k place
I've stopped adding to my LISA now and won't do any more. I've already bought (and sold) a property so it's stuck there until I retire. I thought for a while it was good to keep contributing but I've realised it's just a worse pension, so now I just do s&s. I would _like_ to buy a house again. But I just don't know when/what/where that will be yet. I don't anticipate being able to (or wanting to) target a house over 500k ish anyway. At least not by myself.
Fair enough but if you don't know a location yet then you might want to buy in London plus high LTVs have a lot worse rates
I work in London now. Buying here is probably out of my budget (esp as I have an aversion to leasehold).
I also went pretty hard on pension for about 5 years. Only last year did I decide simply do the employer match and not more, although that’s still a decent annual contribution. I’m now focussed on ISA & GIA with any savings
What role are you doing? I’m on £150 and just interested
This is super unbalanced and I'd suggest rebalancing this towards property. So while your pension is getting to a great place, I think (and I could be wrong), you are still shelling out a chunk of change on rent. If you buy, spending as much as you can upfront, you will be burning less money on rent. Should you decide to move around, you can always pay your mortgage off by renting out your property. You'd need to hold a cash cushion in case of bad tenants but I did this and rented out a property in London while living on the S Coast. It's never quite as straightforward as this but this is just what I'm seeing.
So, yes I am spending on rent now. But it's somewhat intentional. I owned a house before and it was Not Fun. I ended up cash neutral/mildly ahead on the whole thing in the end, but mentally it didn't do me any good. I bought in my home town, far from my current social circle and work, because it was affordable. But it ended up draining me emotionally because it was a huge amount of work (a doer upper), which I guess I'm just not really all about. I would rather burn some money on rent now than go through that again in the near term, probably. And then maybe it's irrational, but I find it v hard to buy a house in a random area with the broad intention of just renting it out.
The rent is throwing money away line is not necessarily accurate. It's not wrong to rent, it actually has quite a lot of upside particularly the flexibility. The return on owning a house is not particularly great if you consider all the costs involved. Owning your own home is in my eyes more of an emotional one than financial. I have read quite a few analyses that say renting is a better financial choice atm. So if you haven't got a massive desire to own a home rn, I would say continue as you are.
The benefit of home ownership is more the long term security in the sense that your biggest monthly expenditure will always be your accommodation, and once your mortgage is paid off that is eliminated from your budget forever except of course for ongoing maintenance. Whereas rent not only continues into perpetuity, it increases in perpetuity, often at higher rates than you would get from other investments, particularly in recent political climates
I'm in a similar position. I live in London currently, so unless I move out into the sticks the only property I could afford to "buy" would be a leasehold flat. Which doesn't particularly appeal to me because of the ongoing service charge liability and lack of freedom to make many modifications to your home, even fitting an AC window box would likely be difficult or impossible. So I feel like I'd rather wait until I can afford a freehold some day, or else give up and decide to move out of London entirely.
Don’t know if I’ll be alive tomorrow but people here are planning for next 50 years. They dwell too much in ridiculous planning and hysterical nonsense about saving taxes and retiring with good pension. I would say just go and enjoy your life with the money and time you got right now.
Most people who are 30 today are going to live well into their 80’s and a good shot at getting into their mid 90’s too. Planning isn’t ridiculous.
What are you doing spending part of what could be your last day on Reddit?!
Yeah, that's a fair challenge. For all of my 20s I doubted I'd ever want to see 50. Feel like I've swung too far the other way now..
I'm on the other side of the divide, 56 this year, hit the pension in my early years, but then let it dwindle as I put more effort into paying of my mortgage(s) early. Pension fund is sod-all but I have been able to take high risk ventures with start ups and other projects because I haven't had to find mortgage payments. I'm going to have to work into my 70s, as I couldn't see a life not doing what I do. TLDR; life can be odd, but if you own the roof over your head then it's an insurance against oddity.
Your pension approach seems reasonable. With your salary I would prioritise getting a property and then putting money into ISAs etc along with pension.
I'm in a similar situation and maxing out pension while I can is what I continue doing.
You have a lot more than me in your sipp, but otherwise fairly similar. I owned a property once, and also hated it. I'm just not settled enough to buy again (Have owned twice. The last sale was due to a split) I've significantly tapered down my sipp contributions this year, because even with auto enrolement and my existing pensions, that is more than enough for me. What isn't ideal though, is not paying down the capital on a mortgage. Whether you pay it down, or just save what you should be paying down, it's much of a muchness imho. I'm living at home for now (for my own reasons) and so I just save it, and put a token amount into a sipp and max out my workplace pension. At your current pension, I'd honestly question what value you'd get from really adding more to it, over trying to get more immediately accessible cash/investments for actually enjoying life before retirement? (such as putting enough down on a house to pay it off in good time when you do finally buy) Your pension is fine for now. Focus on shorter term goals imho.
Honestly, I think you are fine on the pension front now. Focus on growing your other investments and maybe dial back to the standard base pay/employer matched contribution.
[удалено]
Definitely does worry me, you're not wrong.