Pay less into your pension to retire early!

I’ve recently had a look at our family finances and I’ve become increasingly concerned with the high level of family spending and high levels of retirement saving – including workplace pensions & the LISA.

With the cost of childcare, we are actually spending more than we get in “take home pay”.  Luckily, we have strong cashflow from a plethora of sources including: P2P lending, Dividends from shares, Dividends from ISAs, Saving account interest, VCT dividends, Co-operative investments.  These investments are all accessible now and not subject to pension rules and we’d be living off them in case of FIRE.

With my job, I can “salary sacrifice” into my pension and this has the effect of saving me both 100% of my NI Contributions and 50% of the employer contributions.  Effectively, for a basic rate tax (and NI) payer, instead of receiving 68p on the pound (after 20% Tax, 12% NI) I can get £1.069 (£1 + 6.9p employers NI).  That alone is an uplift of 57%.  However, that money is 1) not accessible until I’m 58 2) Is taxed on the way out meaning the uplift is only 34% (after assumed 20% tax and 25% TFLS).

By comparison the LISA gives you a 25% uplift and non Salary Sacrifice pension contributions for lower rate tax payers give you a 6.25% uplift- making it hardly worth it.

And up until I’ve been maximising my pension and we’ve been cashflow negative when it comes to income/outgoings.  We can handle that because we have strong cashflow from elsewhere, but it is a drag to be robbing Peter to pay Paul’s pension.

The way things are now anyway, with a combination of my old-final salary pension, SIPPs and (not that I’m counting on it) state pensions – we should be fine in retirement.  It’s the 20-25 years before then that I am concerned about.

So what have I done different?

After thinking deeply about my Ready, Aim, Fire and FIRE vs. Pension posts and how I’ll fund FIRE whilst still having money for the things we find fun, I have decided to significantly scale back my workplace pension contributions and take the tax hit on the income.  At the same time, a lot of my VCTs are coming up to the end of their 5 year holding period and I’m able to sell – and in this case reinvest.  VCTs are an interesting investment and definitely not for everyone but I’ve found them useful for me in the past and the 30% tax rebate allows me to get an uplift similar to salary sacrifice but with access to the money sooner.

Image result for freedom braveheart png

The end result should be more an extra over £10,000 in FIRE funds (assuming a May FIRE date) and that’s before the tax relief is applied.  That £10,000 is equivalent to £400 a year with a SWR of 4% and goes someway to providing security now.

So that’s it, I’ve deliberately chosen to pay less into my pension to retire earlier!  Counter intuitive maybe, but so much in life is like that.

This change in trajectory funnels more money into my FIRE funds and it won’t cost me much – plus what price can you put in Freedom?

Thanks, GFF


  1. It’s great that you did the math to prove it out. I also find it funny how convoluted tax laws can be that end up making things so complicated in the first place!


    1. Thanks. I think that doing the math(s) is very important – tax can be difficult and things change over time depending on the government. Some reasons against saving in a pension in the uk are around that theme of “government moving the goalposts”.

      Liked by 2 people

  2. I’m doing very similar. I suspect my earnings aren’t as high as you but I’ve always paid alot into my pension and have 215k at age 39. I’m in that grey High middle earner but sub 100k where its quite difficult to max my pension and save into an isa and still live comfortably!

    I stopped upping my pension and have built 6 figures in an Isa.

    I’ve now upped the pension for now again to about 24 k a year including employers contribution. I’m going to wait till im at about 300k and do the same as you’re doing and max out my partners isa and mine

    Aiming in five years time to have about 200k in an isa 300k in a pension. I’ll then re commence paying off my mortgage which I’ve put interest only for a short while using the yield from my isa to chip away at this

    I could fill my pension but wouldn’t allow me to save much on my isa and I’ve seen the need for some decent liquidity as I’ve been quite cash poor in that area


    1. You are in the same position as me it seems – with kids too.
      It’s a bit of a balancing act between cash today vs. Taxes, salary sacrifice, mortgage approval for pensions and even loss of child benefit!


    2. Interesting looking back at this post. Just over a year on I’vealmost hit my target for 5 years. I hadn’t quite appreciated how much the pandemic drop had super charged things

      Liked by 1 person

      1. The pandemic isn’t over yet! We need a real market crash, a few more panics like for petrol, turkeys and a few black swans (like negative oil prices followed by a energy crisis).
        At least we don’t have to really worry.


      2. I am now contract / LTD so the terrain is a bit different.
        Certainly I regret now having more in my ISAs (£200k) and our pensions look very healthy – and we are still earning today.
        The question is… Can we jump the bridge? I reckon that we won’t jump but could if we wanted to.


  3. Youre so cool! I dont suppose Ive learn anything like this before. So nice to seek out any person with some original ideas on this subject. realy thank you for starting this up. this website is something that is wanted on the web, somebody with just a little originality. helpful job for bringing one thing new to the internet!


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s