Investment question.

[tunnie]

Thanks.

To answer a few questions, MrsT is full UK passport/NI etc and British citizen.

I will contact IFA to understand best route forwards, but most beneficial way does appear to be contribute to her pension pot.

She did work for number of years for banks and consulting company, before coming a full time mum. I need to enquire if she paid into anything previously, I could then add into that pot.

You got me excited on this:

Tax is always personal. There is no option to do a joint tax return. The only thing you can do is transfer some of her unused personal allowance to you.
https://www.gov.uk/apply-marriage-allowance

But I'm not eligible, as my income exceeds the limit. 

[Migv6 le Frog Fan]

Whereabouts in Norn Irn is Mrs T from ?

[tunnie]

Whereabouts in Norn Irn is Mrs T from ?

Her parents hail from Galway, Ireland.

[Doctor Gollum]

Obviously LC0112G knows his onions re UK tax gubbins, but don't dismiss the links I posted, granted they're a bit American so some of the details don't quite fit over here, but the principles are sound

[LC0112G]

Not qualified in any way, but I do take a keen interest in tax/pensions. Usually get the chancellor to give me about £2K back every year :-) But the more you know the more you realise you don't know.

Tunnie, hopefully the thing that an IFA will try and drum into you is how tax efficient pension income is in retirement if it's spread equally between two of you, rather than all from one person. You both have a tax free allowance of £11850, and that will apply to pension income too. So take the following two scenarios...

1) You have a pension income in retirement of £23700, but the wife has nothing. You get the first £11850 tax free, but then pay 20% on the rest - so £2370 tax. That means your family income is £21330 p/a.

2) You have a pension income of £11850, and the wife has a pension income of £11850 as well. Neither of you pay any tax, so your family income is £23700 p/a.

Not difficult to see that given the choice, spreading the pension savings as equally as possible between the two of you is more efficient - up to £2370 more efficient - than all the pension being in your name, and none in the wifes. Enough for a 'new' Omega every 3-4 months.

You can both currently start to draw the pension down at 55 - though that may increase to 57/58/60. Your state pension (£8500 ish currently) will be at 67/68/70. So as an absolute minimum you should be thinking of ensuring that your wife has 35 years NI, and a separate pension pot large enough to bridge the gap from the SP to the PA (11850-8500 = £3350 ish) at SP age. That'll require a pension pot in excess of £110K. If she want's to retire before SP age, then she'll need more to cover the gap.

It's unlikely she'll be able to pay into any past pension pots if they were company pensions.

[Doctor Gollum]

Nothing to prevent her from moving all of them into a SIPP or similar, with the added benefit of being able to control the investments

Incidentally, is 15% of household income a reasonable pension contribution?

[aaronjb]

Incidentally, is 15% of household income a reasonable pension contribution?

Based on my projections .. if you're OK with about £1k pcm, sure...

[tunnie]

Incidentally, is 15% of household income a reasonable pension contribution?

Based on my projections .. if you're OK with about £1k pcm, sure...

15% of what though? Suspect big Jezza's of Sky, his 15% is a larger pile of cash than mine. 

[Migv6 le Frog Fan]

Whereabouts in Norn Irn is Mrs T from ?

Her parents hail from Galway, Ireland.

Ah, by your post above I thought you meant she was from Norn Irn and therefore British.
Galway is a lovely place btw. Ive seen the sun go down on Galway bay. Wtf is she doing moving to greater London ? - apart from the ability to make money and meet the man of her dreams. 

[TheBoy]

Wtf is she doing moving to greater London ?

She's clearly deranged.  I mean, she is a lovely lady and all that, but look what she married


Tunnie - you know you're batting above your abilities there

[Doctor Gollum]

Your household income, so if you take home £2k a month, that would be £300...

I believe that pension calculators under estimate the pot value/market performance, and make no allowance for any specific portfolio.

Using a compound calculator I get anything from £127-145k if it makes 7% and £549-714k  if it averages 14%...

Depending on retiring at 65 or 67 and me not adding to current pot.

Paying in £250 a month with a 3% annual increase sees that rise to £343-406k at 7% and £1.08m to £1.48m at 14%

Worst case, I do nothing more and run out of money aged 83 on £1k pm, paying £250 pm will see me to 90/92 at £1,750-2,100 pm at 7%.

14% growth will give me an income of £10k- 13.75kpm to 90/92.

The lower number assumes drawing on pot at 65 vs 67, and drawdown income is gross and assumes the same growth rate as the original investments. It also does not include state pension.

[LC0112G]

Nothing to prevent her from moving all of them into a SIPP or similar, with the added benefit of being able to control the investments

Incidentally, is 15% of household income a reasonable pension contribution?

You need to work backwards. Work out what you think you'll need to live on per year when you retire. At that point you need a big enough pot such that the income from the pot gives you your required income. Income from the pot is a bit finger in the air, but 3-4% above inflation is the kind of rates I plan on. So if you'll need (say) £20K income in retirement, £8500 comes from the SP, you need enough pot to supply the other £11500 p/a, which at 3% means you need a pot of about £383K at your SP age.

Between now and your SP age you need to accumulate (say) £400K to be safe. If you invest evenly between the ages of 27 and 67 (40 years), and if you achieve investment return rates similar to the long term average of 5% + inflation, then you need to be putting away about £260 per month. If you start saving later you'll have to put more away. If you don't start till you're 37 (so 30 years) then you'll need to be putting more like £480 per month. Start at 47 and it's £730 per month. You're 47 year old self will thank your 17 year old self if you started then - it'd only need £150 p/m.

If you want to retire earlier you'll have to put more away, or start earlier. If you want more income, you'll have to put more away, or retire later. If you never put anything away you'll be living your old age in abject poverty.

[Migv6 le Frog Fan]

Wtf is she doing moving to greater London ?

She's clearly deranged.  I mean, she is a lovely lady and all that, but look what she married


Tunnie - you know you're batting above your abilities there

Irishwomen do tend to be a bit crazy. Thats why I didn't marry one. 
On the other hand, Irish men tend to be even more crazy and my wife married one of them. 

[LC0112G]

Your household income, so if you take home £2k a month, that would be £300...

I believe that pension calculators under estimate the pot value/market performance, and make no allowance for any specific portfolio.

Using a compound calculator I get anything from £127-145k if it makes 7% and £549-714k  if it averages 14%...

Depending on retiring at 65 or 67 and me not adding to current pot.

Paying in £250 a month with a 3% annual increase sees that rise to £343-406k at 7% and £1.08m to £1.48m at 14%

Worst case, I do nothing more and run out of money aged 83 on £1k pm, paying £250 pm will see me to 90/92 at £1,750-2,100 pm at 7%.

14% growth will give me an income of £10k- 13.75kpm to 90/92.

The lower number assumes drawing on pot at 65 vs 67, and drawdown income is gross and assumes the same growth rate as the original investments. It also does not include state pension.

No-one would plan on 14% returns nowadays. Even 7% is considered aggressive.  An IFA has to work with rates prescribed by the regulator, and I think they're cautions = -1%, average = +1%, aggressive = +3%. I agree these are overly pessimistic, but whilst 14% may be possible you'd have to be very very lucky. Most would pick a year on year growth rate between 4% and 8%.

[Doctor Gollum]

Even 8% would see an income of £3800

It would be fair to say that my portfolio is very aggressive... Very little cash and no bonds, and only about 3% in greater europe.

BTW does a 3% annual deposit increase offset 3% annual inflation?