QA46 - Listener Questions, Episode 46

In this Meaningful Money Q&A episode (QA46), Pete Matthew and Roger Weeks answer six listener questions on the financial decisions many UK households are wrestling with right now. We cover bridging the gap to the State Pension with fixed-term annuities, strategies for staying under £100,000 adjusted net income (and avoiding the 60% tax trap), and how LGPS "CARE" pensions work including whether salary sacrifice can reduce student loan repayments. There's also practical guidance for self-employed listeners facing a tough year and needing to cut costs, plus how to think about funding private school fees without derailing long-term plans. Finally, we discuss how to decide whether to take the maximum tax-free lump sum from a defined benefit pension, including the trade-offs and how to model the impact.

Shownotes: https://meaningfulmoney.tv/QA46 

02:18  Question 1

Hi Pete & Roger,
I am a long-time fan of your podcasts, and I often sneak off during the day for some peaceful R&R and listen to your latest release or even go back on old shows.
My wife and I are in the fortunate position that we have both retired but still have a number of years before the state pension will commence (6 years / 2 years).

Our long-term plan was to build up our private pensions so that we would have a comfortable retirement but also be able to leave our two children a reasonable inheritance which has meant we have been reluctant to dip into our DC pensions too early.

With the proposed changes to IHT bringing in the unused pension pots on 2nd death into the estate and on current projection we have in excess of £1m in DC pensions which unfortunately are heavily weighted in my favour to 80/20 and we both have a DB scheme each (circa 5K) which have been activated.

My questions relate to fixed term annuity.
To bridge the gap between retirement and receiving the state pension for my wife circa 6 years, I was considering looking at one of these to cover sufficient income to take her up to the personal tax allowance limit bearing in mind the annual DB income.
My dilemma is where or how best to fund this.
Can we or do we use our personal savings?
Do we use my wife's DC pension in part?
Can I use my own DC pension, but any withdrawal would be subject to 20% tax rate so not a preference even if allowed?

As part of my look into these fixed term annuities, there also seems to be an option to have guaranteed cash return at the end of term. 
Is there any sense in considering this as it would require a bigger investment or withdrawal? 
Would this cash also be tax free or would it be income and added to your existing income stream?

It would seem to me that if I wanted to reduce the pension pot differential but ensuring the tax payable was only 20%, then I could either max my withdrawal requirement annually or consider the annuity route but this could be complicated with my state pension commencing 2027?

Should I be hung up on the pension pot differential values between us and does the IHT rule of the couple's tax-free limit being £650,000 nil rate ignore where the money originates. 
This pension pot differential must be quite common, do you have any other comment or suggestions that would be helpful.

I, like many of your listeners enjoy your banter and how you impart knowledge to the wider audience for their better good – a big thank you for this.
Best Regards
Brett.

Meaningful Academy Retirement Planning

11:04  Question 2

Hi Pete & Roger, I'm a big fan of the podcast — thanks for all the clear and practical advice you share each week.

My base salary is about £76k, but with shift allowance and a car allowance my total package is closer to £90k. On top of that, I can earn overtime (which is unpredictable) and I also get a discretionary bonus of up to 20% of base salary.

The challenge is that we don't find out the actual bonus figure until the end of March, but if we want to waive it into pension we have to decide in advance — so it's guesswork. Without any planning, the bonus can push my adjusted net income over £100k, which means I start to lose my personal allowance and fall into the so‑called "60% tax trap" between £100k and £125k.

At the moment, I already have several salary sacrifices in place: – Pension, Holiday purchase, Share Incentive Plan (SIP).
I'm now considering adding an electric vehicle through salary sacrifice, which would reduce my taxable pay by about £10.5k a year. That would keep my adjusted net income below £100k, but it obviously reduces my monthly take‑home.

I'm 29, so I don't mind putting a bit extra into my pension for the long term, but I don't want to over‑commit too early and lose too much cash flow now. In the next year or so, my wife and I are also planning to have children — which adds another layer, because if my income goes over £100k we'd also lose access to childcare perks.

I know there are worse problems to have, but I'd really like to maximise my take‑home pay without losing benefits and while staying as tax‑efficient as possible. So my question is: how should someone in my position — with variable overtime, an uncertain bonus, existing salary sacrifices, and family planning on the horizon — think about the £100k threshold, the 60% tax trap, and the personal allowance taper? And more broadly, how should PAYE employees balance lower monthly net pay against the tax efficiency, taper protection, and childcare benefit eligibility that salary sacrifice schemes can provide?

Many thanks. Lewis.

19:48  Question 3

Hi Pete and Rog

I'm 28 and my fiancé is 26 so we're at the early stages of building our empire. The knowledge and insight I've picked up from listening to you over the past 12 months has been a massive help, so thank you!

My financial situation is fairly run of the mill: a  Salary Sacrifice DB pension with a 6% employer match, early days Stocks & Shares ISA, emergency fund etc.

However my Fiancé works for our local council and has a DC pension titled "CARE". From what I can understand, this means every year she works, she builds up an amount, that yearly amount tracks inflation up to retirement, then at retirement all those revalued yearly amounts are added together to give her a guaranteed annual income for life.

To my question! Firstly, is my understanding correct, or is there anything I'm missing? And secondly, is there a way of playing with her percentage pension contribution to lower the amount of student loan she has to pay back?

Bonus question: I've just finished Q&A Ep31 and caught wind Pete had a beer - what's your tipple of choice?

Always thankful for each episode and video you provide!

Thanks, Tom

 

24:23 Question 4

Hi Pete and Rog

Long time Facebook group, podcast and you tube fan, asking a question that I haven't heard answered yet.

I am self employed, and have been for 12 years now. 2025 has been an unexpectedly difficult one in my industry with corporate customers cancelling projects and budget cuts, and individual clients feeling uncertainty.

How can I make hard decisions about cutting back on my business and personal expenses, whilst also staying as positive as possible about the future?

My turnover is down about 30%, with a knock on effect on my income. I've stopped investing in my pension as the business isn't making enough profit to do so, and am now looking at cutting back on business expenses like the subcontractors I book to work with me and marketing (which I've held off doing hoping income will recover).

Meanwhile I took on many personal expenses that feel very hard to cancel like private health cover for my family, income protection insurance, gym membership, kids sports clubs and their  orthodontist treatments - all totalling £6-800 pounds per month. I'm not sure where to start!

Thanks for considering my question.

Best Wishes, Lara

 

31:40 Question 5

Dear Pete and Roger,

Loving your podcast. I can honestly say listening to it has transformed my relationship with money and investing. My husband used to do all the money management alone and seems thrilled I've finally shown an interest...
Short version:
- She 39, he 44
- Her - late starter due to Uni and maternity - now profits of £60pa self emp
- He has £50k pa accrued in DB scheme plus AVCs - maxing contributions
- He sacrifices to stay below £100k
- ISAs - they don't say how much

As the children are approaching secondary age and with some SEND issues in the mix we are looking at all the options including fee-paying independent schools. Luckily with the age gaps we have we will only be paying for two kids at any one time and grandparents are stepping in for eldest. This is costly, but I think doable for us as we're quite frugal people anyway. I'm now working out how best to fund this. If we reduce our pension contributions we will lose huge amounts to tax and student loan deductions (in my case) - 62%/47% (him) and 51% (me) will be deducted and we'll lose the childcare funding for our toddler which will be a massive blow.

Would it be mad/bad to release some equity from the house, enjoy this money now and pay this off with a pension lump sum when we can access it?

I feel that it would be absolutely mad to retire with far more than we need, whilst our children missed out but also mad to miss out on the tax relief.

I'm really interested in your thoughts and if there are other ideas? We have just a few years to prepare and ideally I'd like some flex or contingency in any plan. Could an offset mortgage be useful here? I could go full time but I don't want to miss out on raising the kids so this would be the last resort. It just feels like a cash flow issue that needs some planning for. HELP!

Thank you for reading, fingers crossed I've got all the vernacular right and haven't caused any confusion.

Take care and best wishes, Annie

 

36:58  Question 6

Hi Nick…Roger…and the other guy! 
I'm an avid new listener having read and loved Pete's retirement book and binged on your podcasts. I'm loving what you do and how you do it, and have recommended you widely. 

My question relates to how I judge the amount of tax free lump sum to take from a DB scheme. It feels wrong to convert inflation-protected DB pension into a lump sum, but I'm thinking of taking the maximum and wonder if I'm being foolish.

I could take my £40k DB in 18 months or could reduce this to £26k for £190k lump sum with a commutation factor of 14.

The spouses pension is maintained at 50% of the unreduced pension (ie £20k) even if I take a lump sum. Nice!

My wife will also have a £6k DB at same retirement date. We will both receive max state pensions 2 years later. We also have SIPPS and some ISAs and I am confident that these non-DB funds will see us through to state pension age with good margin.

My budget shows we will need up to £60k PA spend for very comfortable retirement. £40k PA to cover basics. If I didn't take a lump sum then we have £40k (DB) + £6k (wife DB) + £24k (SP) = £70k income. This works.

But as I say, I actually think I should take a max £190k lump sum…

This would mean £26k (DB) + £6k (wife DB) + £24k (SP) = £56k total index linked, which works out at £49k after tax.  The additional £11k PA will be easy to provide from the  invested lump sum.

But the real reason to take the max lump sum is to manage the risk of me being first death. If/when that happens then my wife has £20k (spouse DB)+ £6k (her DB) + £12k (SP) = £38k index-linked income, or £33k after tax. I think she'll need to find £15-£20k PA from the invested lump sum to stay comfortable. This feels more borderline, especially as she has little natural affinity for investing and may be better buying an annuity. 

It seems to me that I would be wise to take the full lump sum to best provide for my wife should I die first (statistically the most likely). This matters a lot to me.

Is this reasonable thinking? Or is there a way of judging an in-between lump sum?

With kind regards, Tim