Case study - Pension millionaire aged 44

In January 2015, at the age of 35, one of Simon’s clients was expecting his first child. This life event prompted him to seriously consider his financial future.

Observing his mother draw her teachers’ final salary pension, he realised the unlikelihood of securing a similar pension for himself. Having worked in finance for more than 10 years, he was aware of the benefits of saving into a pension, but as we all know, having knowledge and applying that knowledge are very different. The situation had become a case of a cobbler and his shoes!

He decided to make a pension transfer of £37,482 from his former employer’s group personal pension (GPP) into a newly established self-invested personal pension (SIPP). Within just 10 years, he reached his goal of becoming a pension millionaire before age 45. So how did he do it?

Strategy and actions:

      1. 2014/15 tax year

• Carried forward unused annual allowances (AA) from the three previous tax years (£50,000 AA for 2011/12, 2012/13 and 2013/14) and fully used his £40,000 AA for 2014/15.
• Invested 100% of his bonus and several months’ salary into his pension.
• His employer contributed the national insurance (NI) contribution savings of 13.8% into his SIPP as part of his pension contributions.

• Considering the reduction in personal allowance by £1 for £2 of annual income over £100,000 since 6 April 2010 until it reduced to zero (£120,000 for the 2014/15 tax year) and a 2% employee NI contribution saving, he achieved 75.8% tax-relief for earnings between £100,000 and £120,000.

  
  2. 2015/16 tax year

• Utilised the interim pension input period from 6 April 2015 to 8 July 2015 (pre-alignment tax year). 

• Those who had used their £40,000 allowance before 8 July 2015 had another £40,000 allowance before 5 April 2016 (post-alignment tax year), subject to a total transitional annual allowance of £80,000.
   

  3. 2016/17 tax year until 2024/25 tax year

• Maximised the AA as much as his earnings allowed him.  
   

Financial growth over the years:

* Including £37,482 pension transfer received on 30 January 2015.

If you have any questions or would like to discuss your pension strategy, please get in touch with our team at [email protected] 

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