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[aaronjb]

I only just read about the LTA thanks to this thread.

Now I'm depressed and considering a Guy Fawkes moment

So to depress me further .. annual limit?

[LC0112G]

I only just read about the LTA thanks to this thread.

Now I'm depressed and considering a Guy Fawkes moment

So to depress me further .. annual limit?

The maximum you are (currently) allowed to contribute to a pension plan in any one tax year (and receive tax relief) is limited to the lower of either £40K or your total income for the year. The Annual Allowance is also tapered down further by £1 for every £2 earned for those earning more than £150K p/a.

If you have no earnings, the most you can pay in is £3600. If you earn £10K, the most you can pay in is £10K. If you earn £20K, the most you can pay in is £20K. If you earn £30K, the most you can pay in is £30K. If you earn between £40K and £150K, the most you can pay in is £40K. If you earn £210K or more the most you can pay in is £10K.

The effect of all this is that (generally) as you get older and your seniority/salary rises you have more cash available to start thinking about retirement provision. However, unless you started paying into a pension plan early in your career it becomes difficult/impossible to pay in sufficiently large amounts to get anywhere near the LTA. As recently as 2011 it was possible to pay in up to £255K p/a, so you could reach the LTA in just 4 years. With the limit now at £40K (assuming you earn > 40K pa) it now takes 25 years (ignoring investment growth). If you're lucky enough to earn £210K p/a, then it'll take 100 years (again ignoring investment growth).

[LC0112G]

In contrast, I could see them getting away with £750k and still arguing "well it only affects x% of the richest retirees". Not to mention that bashing gold plated diamond encrusted Final Salary pensions is flavour of the month atm. Not to mention the ability of the gov't to apply a fiddle factor to FS pensions (lower multiple for certain groups etc).

IMV this govt is unlikely to "attack" the retired or about to retire - it's the Tory core vote and they'll need their votes in 4-5 years time.

The problem with bashing the "gold plated diamond encrusted Final Salary" pensions is that it give top ministers, judges, civil servants, doctors, police officers etc. the same rights as your low paid dinner lady or council worker. Any attempts to fudge the fiddle factors would either upset the unions if they applied equally to everyone, or end up being overturned in court if applied in a discriminatory way.

[aaronjb]

Thanks for the explanation! Much appreciated.

I'm some way off being able to put £40k p/a into my pension pot, so that won't affect me. The online calculator the pension plan provides predicts I will hit the LTA, however, assuming I:

Increase my contributions through my salary going up 3% YOY until retirement (possible, but unlikely)
The investment grows at 7% on average (possible, but unlikely!) until retirement
And I retire at 65 (possible, but I'll probably have corked it at 50 with my luck! )

Or retire at 57 on a considerably smaller annual income but just below the LTA. Which is appealing. Y'know, assuming all the other pie-in-the-sky requirements are met for the next 19 years.

[LC0112G]

Thanks for the explanation! Much appreciated.

I'm some way off being able to put £40k p/a into my pension pot, so that won't affect me. The online calculator the pension plan provides predicts I will hit the LTA, however, assuming I:

Increase my contributions through my salary going up 3% YOY until retirement (possible, but unlikely)
The investment grows at 7% on average (possible, but unlikely!) until retirement
And I retire at 65 (possible, but I'll probably have corked it at 50 with my luck! )

Or retire at 57 on a considerably smaller annual income but just below the LTA. Which is appealing. Y'know, assuming all the other pie-in-the-sky requirements are met for the next 19 years.

Good to hear you're well on your way. If only all other 30-40 year olds were as far sighted.

In order to put £40K into a Pension, you only have to contribute £32K (if you're a 20% tax payer) or £24K (if you're a 40% tax payer) The govt will make up the rest by refunding the tax you've already paid. In addition, the £40K is the total of all your and your companies payments into your plan. Presumably you've been auto-enrolled into your company scheme, and the company is paying in between 1%(legal minimum) and 5%-10% of your salary? If so, you need to subtract that amount from the £40K. 

And you'll be surprised how quickly investments can grow. I've been contributing £100 per month since 1989 into a bog standard Pru with profits plan and it currently stands at close to £400K. It's up by 8% since Feb. If I'd only started out by paying in £200 (instead of wasting money tinkering with clapped out old Vauxhalls) I'd be knocking on the door of the LTA already. The UK stock market has maintained an average of about 8% p/a growth (with dividends re-invested) over that time period. Just give it time you'll get there.

[aaronjb]

I certainly wish I'd started a private pension much sooner than I did - I started work at 16 (1996) but only started paying in when I was ~25; I'd be much further along, if I had.

Even considering employers contributions (they only match up to 5%, which seems standard for most IT companies - certainly US owned ones - I was envious of a friend working for BT where they would match 10%!) I'm a reasonable ways off hitting the annual limit. I'd love to get closer but always seem to be financially somewhat stretched; probably because I've had a habit of taking on the biggest mortgage I can manage each time I've moved house.

Still, it works out in the long run, and the house should also be a sizeable investment come retirement, along with the BTL property assuming the gov't haven't managed to tax that strategy into oblivion by then, of course! (They're doing their best, certainly..)


If I could tell my 16 year old self what I know now, I'd be a rich man retiring at 40. But hey, who among us would have listened to our older self when we were 16?

[Viral_Jim]

Even considering employers contributions (they only match up to 5%, which seems standard for most IT companies - certainly US owned ones - I was envious of a friend working for BT where they would match 10%!) I'm a reasonable ways off hitting the annual limit. I'd love to get closer but always seem to be financially somewhat stretched; probably because I've had a habit of taking on the biggest mortgage I can manage each time I've moved house.

Its funny how priorities change isn't it, even 5 years ago I didn't really consider the pension plan  when looking at a job, in this latest change it was the deciding factor between two (admittedly very close) roles. 5% matched in one vs 7% in the other rising to 10% after 5yrs service.

I'm a reasonable ways off hitting the annual limit. I'd love to get closer but always seem to be financially somewhat stretched; probably because I've had a habit of taking on the biggest mortgage I can manage each time I've moved house.

Yeah, but its no fun if you can afford it . That's what I keep telling myself anyway!

[tunnie]

Even considering employers contributions (they only match up to 5%, which seems standard for most IT companies - certainly US owned ones - I was envious of a friend working for BT where they would match 10%!) I'm a reasonable ways off hitting the annual limit. I'd love to get closer but always seem to be financially somewhat stretched; probably because I've had a habit of taking on the biggest mortgage I can manage each time I've moved house.

Its funny how priorities change isn't it, even 5 years ago I didn't really consider the pension plan  when looking at a job, in this latest change it was the deciding factor between two (admittedly very close) roles. 5% matched in one vs 7% in the other rising to 10% after 5yrs service.

I'm a reasonable ways off hitting the annual limit. I'd love to get closer but always seem to be financially somewhat stretched; probably because I've had a habit of taking on the biggest mortgage I can manage each time I've moved house.

Yeah, but its no fun if you can afford it . That's what I keep telling myself anyway!

That's a good deal, Sky dropped their's to 6%. But when I joined it was 8% 

[Viral_Jim]

Certainly is! I think its because the company (Travis Perkins) has a lot of employees on lower salaries than the head office staff but we're all on the same pension plan. Conversely where I was before, the "corporate centre" staff had a different pension to the rest of the business and seeing as no-one in the Head Office was on less than about £30k, offering large matched contributions would be expensive!

[LC0112G]

Still, it works out in the long run, and the house should also be a sizeable investment come retirement, along with the BTL property assuming the gov't haven't managed to tax that strategy into oblivion by then, of course! (They're doing their best, certainly..)

I'm always nervous when people seem to pile all their money into their house and treat it as their pension. You've got to live somewhere once you retire, so you can't liberate all the money invested in the house. People I know seem very reluctant to downsize in retirement - they've collected all sorts of junk that just won't fit in a smaller house, plus they know their current area and have lots of friends there. And buying a smaller house probably won't free up much money anyway unless you're moving from a mansion into a 1 bed ex council flat.

Also not a fan of BTL unless you run it as a proper company with at least 5-10 properties - far too risky for me with just one property. Lots of accidental landlords gonna get hit with huge CGT bills when they come to sell. But each to their own.

If I could tell my 16 year old self what I know now, I'd be a rich man retiring at 40. But hey, who among us would have listened to our older self when we were 16?

I know what I'd tell my 16 year old self. Go for it with miss Redmond :-)

[Doctor Gollum]

My previous matched upto 4%. Current has a crappy stakeholder scheme, but will do that (continuing the last one from when I worked here before if I can) and try to put 8-10% of my basic into my previous pot.

[aaronjb]

Certainly is! I think its because the company (Travis Perkins) has a lot of employees on lower salaries than the head office staff but we're all on the same pension plan. Conversely where I was before, the "corporate centre" staff had a different pension to the rest of the business and seeing as no-one in the Head Office was on less than about £30k, offering large matched contributions would be expensive!

Same place my other half works.. you'd be surprised how many people at head office earn less than £30k The directors do swan in in their company Maseratis, though..

[STEMO]

I think wifey's employers pay the equivalent of 13% of her annual salary into her pension. Teachers lower down the scale pay about 9% themselves and the employers contribution is a bout 16%.

[aaronjb]

I'm always nervous when people seem to pile all their money into their house and treat it as their pension. You've got to live somewhere once you retire, so you can't liberate all the money invested in the house. People I know seem very reluctant to downsize in retirement - they've collected all sorts of junk that just won't fit in a smaller house, plus they know their current area and have lots of friends there. And buying a smaller house probably won't free up much money anyway unless you're moving from a mansion into a 1 bed ex council flat.

That depends where you're moving, though.. Unless something crazy happens with property prices there are big differences between here (just about commutable to London) and, say, Yorkshire or deepest darkest Lincolnshire. Retirement is planned to be somewhere relatively remote, rural and near(ish) the coast, so should be a considerable drop in price.

This only works because I've (we've) got no kids, no plans for kids and almost certainly no other relatives left alive by the time we retire, of course.

Also not a fan of BTL unless you run it as a proper company with at least 5-10 properties - far too risky for me with just one property. Lots of accidental landlords gonna get hit with huge CGT bills when they come to sell. But each to their own.

CGT is (currently) limited to the rise in value since purchase, so I can't see how it will come as a shock should I sell - although I can see how it could come as a shock to some people (who assume it works just like any other house sale) I am one of those accidental landlords, though - I kept the house in Bracknell when I moved to Northampton, partly as a fall-back in case the job situation changes radically and I need to be back where the tech giants are.

As an investment alone, I agree, it's a terrible idea - the tax rules are now skewed so heavily toward "large scale landlords" operating it as a business that it makes very little sense for someone like me.

I can't imagine trying to run 10 rentals, though, unless it was a full time job.. people are so difficult to deal with (and I mean that mostly in terms of the managing agents & trades, the tenants have been wonderful!)

I know what I'd tell my 16 year old self. Go for it with miss Redmond :-)

Yeah, my advice would probably start with something like that, too Then I'd tell myself to buy fewer cars!

[LC0112G]

I think wifey's employers pay the equivalent of 13% of her annual salary into her pension. Teachers lower down the scale pay about 9% themselves and the employers contribution is a bout 16%.

Apples and Pears though.

The TPS is an unfunded final/average salary scheme which she now pays 9.6% of salary to be a member of, and she receives a benefit equivalent to about 20% of salary. I suppose it's fair to think of that as being up to 10% matched contributions. The employers contribution is actually entirely notional though  - no money actually changes hands and there is no 'pot' being built up to pay teachers pensions in the future - it's all going to have to come out of future taxes paid at that time. There is no real risk to her pension - stock market crashes can wipe 50%+ off private pensions, but the TPS pension is govt backed so a safe as it's possible to be.

Public sector pensions are some of the most generous going. Equivalent private sector schemes have mostly been closed as they are just too expensive.