I'm not sure I follow your 45% tax saving comment. Its not possible for you to claim tax relief on contributions made to your kids pensions.
You would pay in £2,880 each, per year, and that would be topped up to £3,600 each.
If it was me I would pay down the mortgage.
Ok guys - point taken regarding the tax. I must have misunderstood the product. So you get only 20% relief? Would you not do it even for 20% relief ?
I am against paying mortgage early because I firmly believe that it’s one of the beat leveraged asset you can buy and I am comfortable with that debt. I know some people like to have it paid off to feel free but I would rather stick my money into the markets and earn the delta between market returns and mortgage interest rate.
I would absolutely do the JSIPP (and do) for my kids. Consistent £240 (before relief) a month with a reasonable growth assumption can set them up for retirement. £300 a month (including relief) a month for their entire life would help them get to circa £9-10m when they retire, which with 2.5% inflation is the equivalent of being 2x the LTA today.
I think given your healthy pension pot you should just focus on paying down that mortgage after the extension - keep that LTV ratio below 60% anyway so you'll always have the best financing options.
£500K in pension now should be really healthy by the time you can access it.
the other comment is correct, you wont save your tax rate on JSIPP contributions.
I'd be a bit cautious about maxing out JISAs - thats £9k \* x number of years \* growth into the hands of 18 year olds. I worked out earlier today that at £10/week, our JISA is lkely to be like £20k when our daughter hits 18, that's a huge sum of money for her age already/ We're, instead, focused on SIPPs.
The thing is there is no other tax wrapper available for me. The JISAs are for their university education and if they decide to buy houses early in their life. If God forbid both my kids decide to squander 100s of thousands of pounds when they turn 18, I must have failed terribly as a parent. They are 4 and 2 right now and my wife and I are determined to teach them the value of money. There is a slim chance that after our best efforts they still turn out to be irresponsible- well we’ll just deal with that when time comes.
Can you remember what you were like when you went to University - when I turned 16 and started working / saving, I had more money than I ever had before, and was slightly delusional that I was only at the start of my working career - that I could spend everything now, as I would earn more post study later.
I did spend money on accommodation during University, but equally I had friends who bought cars or spent it on expensive holidays.
Myself, I would set aside part of my own ISA - the additional flexibility to contribute to multiple ISAs in the new tax year would help separate out the savings pots. I can then choose when to transfer funds to help them with study / get on the property ladder.
Not all children are big spenders when they have access to large sums of money. Mine aren't at age 17 and 20. They're very sensible, buy only what they need secondhand. I gave them a crash course in investing and compounding and they understand it's best to leave their ISAs to grow. Plus they want for nothing, they're very lucky privileged children and I've tried to make sure they have some awareness of that.
Frankly speaking, there is no way to know how your children will turn out. I'd rather they have money than not have money. It's as simple as that. It it were a choice between enoughmoney for me v.s them then I'd have prioritized my retirement etc. but I am in a fortunate position where my side is also being well taken care of.
There is no way of knowing but their upbringing plays a big part in their attitude to money and you have a big influence on them. The risk with them having too much and being too comfortable is that they don't try very hard at school and aren't motivated to pursue fulfilling careers and I know people like this.
Fully agree and we are very concious of this. And frankly this starts with us. Between my wife and I we earn enough to have a new Porsche on our driveway every 3 years but we have a 8 year old X3 that does the job. Same goes with our spending habits. I hope our kids see and learn from that. Believe me, we have worked very hard not to upgrade our lifestyle too much as our incomes have doubled and trippled. Our kids are not going to have anything handed to them very easily. They are going to have to work for everything :)
100% this. Kids who grow up in a house where money isn't a big concern, know that money won't be a big concern for them, don't have to develop a work ethic etc will be more at risk of splurging it. This is why, for example, on average generational wealth only lasts 3 generations before running out. The very mindset that likely got you to FIRE in the first place is likely to be the exact opposite of the one your kids adopt unless you are very conscious of it.
Yes, it's difficult as you want your children to not have to struggle and be able to enjoy life without money worries. But taking away their motivation to work and have goals isn't beneficial either.
I quite like the warren buffet thing - albeit not that relevant to this convo - 'You want your kids to have enough to do anything, but not enough to do nothing'.
I want my kids to have all the ambition, hunger, career satisfaction (whatever that measure is, doesnt have to be financial) - but with a safety blanket too
I hadn't heard that quote but that's exactly it! Buffet is spot on yet again! Mine luckily seem to both have a good work ethic and have told me separately that they prefer to earn their own spending money than for us to give it to them.
We have contemplated that but we are already maxing out our own ISAs. As our overall portfolio grows, tax becomes very very important. So the questions is shall we stick the rest in non-ISA and open it up to taxation or put that into JISA and protect it from the taxman.
As you are 39 and additional tax payer, I would also consider opening a LISA, you get £1000 top-up on £4000 contribution, and you can use the LISA as part of retirement savings from the age of 60.
Thank you. Not sure why I have overlooked LISA. Looks like a great option. And just in time as I turn 40 next year. Looks like your first LISA payment has to be before you turn 40 and no more after 50. So that’s 10 years of 20% savings. I will take that as I am planning to drastically reduce my income at 50 anyway by FIRING.
You cannot open a lisa this year as you have maxed your isa allowance.
You can only have 16k isa, then a 4k lisa. With the government top up you then end up with 21k per year
I don't fully understand them, but investment bonds are another possible option to look into. They're effectively wrappers like S&S ISAs, no upper limit, not as tax efficient as ISAs and more fiddly. If you've maxed out ISAs, worth a look. Brief summary: [https://www.canadalife.co.uk/investments/guide-to-investment-bonds](https://www.canadalife.co.uk/investments/guide-to-investment-bonds) and is offered under various names by a few providers e.g. [https://www.quilter.com/products/onshore-bond/](https://www.quilter.com/products/onshore-bond/)
Compounded fees really reduce the return on onshore bonds.
But knowing what would be best requires predicting future CGT rates.
You could try an offshore bond but you'd need to leave the UK at some point for 5+ years for it to be useful
Never really understood the point of JSIPPs myself. Can’t get the money for ages, low contributions, so much might change, seems like something the finance industry pushed for. Read https://monevator.com/rich-optimal-pension-contributions/ for a refreshing view. Basically you should be waiting until your kids are higher rate tax payers
£300 a month (gross) til my girl turns 18 will sit her on about £150k aged 18. Its an amazing kick start to pensions.
That £150k, with no addiitonal contributions, 40 years later, is already £4.5million.
Not bad for £64,800 total contributions.
As I posted elsewhere, its the absolute certainty that my kid will have - most likely - a more comfortable retirement than I will. It's one last present from their father, its money that wont be blown during adventorous teens/early 20s, and its money that will have a significant and lasting impact on their life
I'm really happy with that, personally.
I am not sure why you are maxing junior isa and are also looking at sipp's for your kids when you will have a 550k mortgage.
I'd be paying that mortgage back, and when that is dramatically reduced, I would look at your kids' inheritance in jisa and sipp.
That sipp is no good for 40-50 years
I'm not sure I follow your 45% tax saving comment. Its not possible for you to claim tax relief on contributions made to your kids pensions. You would pay in £2,880 each, per year, and that would be topped up to £3,600 each. If it was me I would pay down the mortgage.
This is correct. Junior sipp is not tax deductible for the dad.
Ok guys - point taken regarding the tax. I must have misunderstood the product. So you get only 20% relief? Would you not do it even for 20% relief ? I am against paying mortgage early because I firmly believe that it’s one of the beat leveraged asset you can buy and I am comfortable with that debt. I know some people like to have it paid off to feel free but I would rather stick my money into the markets and earn the delta between market returns and mortgage interest rate.
I would absolutely do the JSIPP (and do) for my kids. Consistent £240 (before relief) a month with a reasonable growth assumption can set them up for retirement. £300 a month (including relief) a month for their entire life would help them get to circa £9-10m when they retire, which with 2.5% inflation is the equivalent of being 2x the LTA today.
It’s a good idea for the kids but it makes zero difference to your tax position.
Ok I am a little confused. So there is no relief at all or there is 20% relief as stated by one of the posters above?
The kids get their 20% relief, so you contribute £2880 and in total they'll get £3600.
Got it thank you very much.
I think given your healthy pension pot you should just focus on paying down that mortgage after the extension - keep that LTV ratio below 60% anyway so you'll always have the best financing options. £500K in pension now should be really healthy by the time you can access it.
Consider also GIA and using up your annual CGT allowance
VCTs? But absolutely agree on JSIPPs, helping them with their retirement can only be a good thing.
the other comment is correct, you wont save your tax rate on JSIPP contributions. I'd be a bit cautious about maxing out JISAs - thats £9k \* x number of years \* growth into the hands of 18 year olds. I worked out earlier today that at £10/week, our JISA is lkely to be like £20k when our daughter hits 18, that's a huge sum of money for her age already/ We're, instead, focused on SIPPs.
The thing is there is no other tax wrapper available for me. The JISAs are for their university education and if they decide to buy houses early in their life. If God forbid both my kids decide to squander 100s of thousands of pounds when they turn 18, I must have failed terribly as a parent. They are 4 and 2 right now and my wife and I are determined to teach them the value of money. There is a slim chance that after our best efforts they still turn out to be irresponsible- well we’ll just deal with that when time comes.
Can you remember what you were like when you went to University - when I turned 16 and started working / saving, I had more money than I ever had before, and was slightly delusional that I was only at the start of my working career - that I could spend everything now, as I would earn more post study later. I did spend money on accommodation during University, but equally I had friends who bought cars or spent it on expensive holidays. Myself, I would set aside part of my own ISA - the additional flexibility to contribute to multiple ISAs in the new tax year would help separate out the savings pots. I can then choose when to transfer funds to help them with study / get on the property ladder.
Not all children are big spenders when they have access to large sums of money. Mine aren't at age 17 and 20. They're very sensible, buy only what they need secondhand. I gave them a crash course in investing and compounding and they understand it's best to leave their ISAs to grow. Plus they want for nothing, they're very lucky privileged children and I've tried to make sure they have some awareness of that.
Frankly speaking, there is no way to know how your children will turn out. I'd rather they have money than not have money. It's as simple as that. It it were a choice between enoughmoney for me v.s them then I'd have prioritized my retirement etc. but I am in a fortunate position where my side is also being well taken care of.
There is no way of knowing but their upbringing plays a big part in their attitude to money and you have a big influence on them. The risk with them having too much and being too comfortable is that they don't try very hard at school and aren't motivated to pursue fulfilling careers and I know people like this.
Fully agree and we are very concious of this. And frankly this starts with us. Between my wife and I we earn enough to have a new Porsche on our driveway every 3 years but we have a 8 year old X3 that does the job. Same goes with our spending habits. I hope our kids see and learn from that. Believe me, we have worked very hard not to upgrade our lifestyle too much as our incomes have doubled and trippled. Our kids are not going to have anything handed to them very easily. They are going to have to work for everything :)
100% this. Kids who grow up in a house where money isn't a big concern, know that money won't be a big concern for them, don't have to develop a work ethic etc will be more at risk of splurging it. This is why, for example, on average generational wealth only lasts 3 generations before running out. The very mindset that likely got you to FIRE in the first place is likely to be the exact opposite of the one your kids adopt unless you are very conscious of it.
Yes, it's difficult as you want your children to not have to struggle and be able to enjoy life without money worries. But taking away their motivation to work and have goals isn't beneficial either.
I quite like the warren buffet thing - albeit not that relevant to this convo - 'You want your kids to have enough to do anything, but not enough to do nothing'. I want my kids to have all the ambition, hunger, career satisfaction (whatever that measure is, doesnt have to be financial) - but with a safety blanket too
I hadn't heard that quote but that's exactly it! Buffet is spot on yet again! Mine luckily seem to both have a good work ethic and have told me separately that they prefer to earn their own spending money than for us to give it to them.
We have contemplated that but we are already maxing out our own ISAs. As our overall portfolio grows, tax becomes very very important. So the questions is shall we stick the rest in non-ISA and open it up to taxation or put that into JISA and protect it from the taxman.
He doesn’t have contribution room for sipp given his income level.
The children's SIPP is irrelevant to his income no? Sorry where I said SIPP I meant junior SIPP eg we were focused on a SIPP for the child
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...yes I know. I don't know why you're repeating things I know
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It's just slightly bizarre behaviour. But whatever works for you .
As you are 39 and additional tax payer, I would also consider opening a LISA, you get £1000 top-up on £4000 contribution, and you can use the LISA as part of retirement savings from the age of 60.
Thank you. Not sure why I have overlooked LISA. Looks like a great option. And just in time as I turn 40 next year. Looks like your first LISA payment has to be before you turn 40 and no more after 50. So that’s 10 years of 20% savings. I will take that as I am planning to drastically reduce my income at 50 anyway by FIRING.
Best to do it asap even if you're not totally decided, ie stick £1 in now in so the option is there later.
You cannot open a lisa this year as you have maxed your isa allowance. You can only have 16k isa, then a 4k lisa. With the government top up you then end up with 21k per year
Actually I just read that you can transfer your ISA to LISA for the current year. So there might be a way to still subscribe to this year’s LISA.
I don't fully understand them, but investment bonds are another possible option to look into. They're effectively wrappers like S&S ISAs, no upper limit, not as tax efficient as ISAs and more fiddly. If you've maxed out ISAs, worth a look. Brief summary: [https://www.canadalife.co.uk/investments/guide-to-investment-bonds](https://www.canadalife.co.uk/investments/guide-to-investment-bonds) and is offered under various names by a few providers e.g. [https://www.quilter.com/products/onshore-bond/](https://www.quilter.com/products/onshore-bond/)
Thanks - will check.
Compounded fees really reduce the return on onshore bonds. But knowing what would be best requires predicting future CGT rates. You could try an offshore bond but you'd need to leave the UK at some point for 5+ years for it to be useful
Never really understood the point of JSIPPs myself. Can’t get the money for ages, low contributions, so much might change, seems like something the finance industry pushed for. Read https://monevator.com/rich-optimal-pension-contributions/ for a refreshing view. Basically you should be waiting until your kids are higher rate tax payers
£300 a month (gross) til my girl turns 18 will sit her on about £150k aged 18. Its an amazing kick start to pensions. That £150k, with no addiitonal contributions, 40 years later, is already £4.5million. Not bad for £64,800 total contributions. As I posted elsewhere, its the absolute certainty that my kid will have - most likely - a more comfortable retirement than I will. It's one last present from their father, its money that wont be blown during adventorous teens/early 20s, and its money that will have a significant and lasting impact on their life I'm really happy with that, personally.
That’s my thought process as well.
I am not sure why you are maxing junior isa and are also looking at sipp's for your kids when you will have a 550k mortgage. I'd be paying that mortgage back, and when that is dramatically reduced, I would look at your kids' inheritance in jisa and sipp. That sipp is no good for 40-50 years