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    • Rodders2409
    • By Rodders2409 7th Sep 17, 5:19 PM
    • 25Posts
    • 6Thanks
    Rodders2409
    Life's swerve ball - need to plan differently!
    • #1
    • 7th Sep 17, 5:19 PM
    Life's swerve ball - need to plan differently! 7th Sep 17 at 5:19 PM
    Hello All,

    I've not posted before but need to get some basic advice ahead of probably enlisting an IFA in the coming months.

    To cut a long story short my better half is going to face some medical / life challenges in the coming years (PD) and we need to plan accordingly, so this is a first stab!....any and all advice very welcome.

    Really want to know if I'm way out in thinking I can retire at 60, with the following parameters...

    Me
    50 yrs / M / Born 1966
    Employed

    Her
    57 / F / 1960
    Housewife...oldskool ..
    Zero income

    We have zero mortgage and no other borrowings

    My pensions
    Aegon - current company pension £169,341...only active one.
    Friends Life 1 £66,998
    Friends Life 2 £4,529
    Friends Life Managed fund £14,341
    Total pension pot (to date) £255K

    Missus' pension
    Prudential - £27,573...no contributions for >15 yrs

    I have recently increased my personal contributions, in anticipation, to £1167 p/m excluding tax relief, and the company pay £205 pm into the same scheme.

    I have a property which I rent out and get £7000 p/a net of all costs...and am looking to get this put into my other half's name if it's tax beneficial. This would form quite a big part of our pension plans I guess.

    We aren't big spenders and have worked out, based on 2 years of trawling through statements etc, that we could fairly comfortably live on £28K pa.

    Question is ...is that possible if I retire at 60?

    Thanks to all who read this!
Page 3
    • Rodders2409
    • By Rodders2409 9th Sep 17, 9:09 AM
    • 25 Posts
    • 6 Thanks
    Rodders2409
    Thanks FA...
    I guess it comes down to risk and return (I'm starting to sound like I know what I'm talking about...weird & wrong!)
    Because I know the area well, have lived in the property so know that too, and am quite handy so can manage costs, the only other aspect to consider are dead periods which we've never had over many years renting. And because there's no mortgage on the property I'm not going to worry about losing the place, only a period without income which wouldn't be the end of the world for a short time because I have other incomes available and I can always trim expenditure for a while.

    Well that's my assessment and it could be wrong.

    Anyone able to advise on this...
    I'm still concerned about giving up some tax relief to the tax man as I can see my pension statement only showing basic 25% but I'm a 40% payer....how do I easily find out if I've got my full entitlement?...and if I haven't is it back dateable?
    • AnotherJoe
    • By AnotherJoe 9th Sep 17, 9:20 AM
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    AnotherJoe
    If you are paying your pension through your employer the 40% tax relief happens automatically by dint of you not paying 40% tax on that portion of your salary that goes into your pension directly. There are many calculators online which will tell you how much tax you should pay taking into account your income and pension payments. Compare that with your P60.
    • Rodders2409
    • By Rodders2409 9th Sep 17, 2:45 PM
    • 25 Posts
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    Rodders2409
    Thanks AnotherJoe...

    I looked at the calculator on this site and it allows you to add info in 'advanced' section so I entered the info only to notice that when came to the monthly pension contribution field, and checked the '?' button to read the comment...it says that it wont be accurate if my payments are Sal Sacrifice payments.

    I looked at my payslip and the deduction has 'Sal/SacPens' as the description against it....is that OK or do i need to do something special?

    Also a really dumb question, and I'm still pondering to ask it..!

    If I do get my £450K+ sitting in the pension companies and then decide at 60 to start drawing down on the monies, does the money actually stay with those companies, hopefully growing at more than my% drawdown meaning I don;t touch the capital. And then when I depart this mortal world, the capital can be left to my darling children....or am I way off in this?

    I understand that, if I invest in an Pension Annuity, I'm buying an insurance product of sorts and I shouldn't expect to have anything left afterwards to pass on....is that correct?

    Sorry if I've made anyone bang their heads repeatedly on the desk :-)
    • ermine
    • By ermine 9th Sep 17, 10:18 PM
    • 604 Posts
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    ermine
    the only other aspect to consider are dead periods which we've never had over many years renting. And because there's no mortgage on the property I'm not going to worry about losing the place, only a period without income which wouldn't be the end of the world for a short time because I have other incomes available and I can always trim expenditure for a while.
    Originally posted by Rodders2409
    You are ignoring what you could do otherwise with the capital - a void is not just a drop in income, it is the opportunity cost of the return you could get on that capital in either another asset class or on a more diversified res property portfolio.

    But then property is religion in the UK. It always goes up. You purchased this house in 1994, at an excellent time to purchase property, so of course it always goes up in your experience.

    I was stupid enough to buy a house early in 1989. In the same way as Mark Twain said of carrying a cat by the tail I learned a great truth about housing in selling a house for 50% of the purchase price in real terms 10 years, after seeing both neighbours repossessed. Thankfully I could only stretch myself to a crappy 2 up 2 down rather than a semi, so at least I could save my way out of that youthful foolishness. Housing is a cyclical market, where the cycles are long compared to the business cycle, and I had been unlucky enough to be a twenty-something at the wrong time , compounded with being stupid enough to believe the stories of previous generations who hadn't lost on houses because inflation nuked the real value of their mortgages.

    But that'll never happen again, of course. Because it's all different now. And thankfully all the newspaper headlines about 3 million people in negative equity are from before 1994, and the WWW only started in 1994, so the records aren't publicly accessible.

    FWIW one of the opportunity costs for you is putting the money into your pension, even if you keep in in cash, not having the 40% tax stolen from you means every £60 net you do without and shift to your pension is worth £100 in the pension or worth £80 if you area 20% taxpayer as a pensioner, a 33% ROI on riskless cash. There's a strong case for you to take out a mortgage on your primary residence so you can pump money into your pension to bring your net income down to the BRT threshold.

    But of course, forget the 33%. Safe as houses, everyone needs somewhere to live, all the other tropes. Just because you can touch an asset class and understand the job it does still doesn't mean it can't burn you.
    • Rodders2409
    • By Rodders2409 10th Sep 17, 9:23 AM
    • 25 Posts
    • 6 Thanks
    Rodders2409
    Thanks Ermine,

    I can't really argue with the fact that I've been lucky with being born when I was and buying my first place when I did. That said, the same goes for my father in the UK, and all of my relatives of my generation and the generation before in France and Spain...it's luck and nothing more, and a situation probably not to be repeated with such a level of gain, within my lifetime.

    That said, habits die hard!

    Until now I hadn't considered my property rental activities to be riskier and potentially less beneficial as putting the capital worth into pension investments, so that's new and interesting.

    I certainly feel I can manage this investment hands on because it's in my domain of influence, being 10 minutes away and me managing ALL maint costs etc...and choosing the tenant etc (current 9yr) . And this feels like a good balance against the things i feel I'm not experienced in and have little influence over.

    It's a comfort thing I guess...but I'll need to mull it over.

    For anyonne who's even slightly interested in this thread, an dis hanging in there for me...
    Any feedback on my question at 'post 43 @ 1.45pm'...would be very welcome. However I'll understand if I've run out of time on this thread and I'll open a new one on this specific subject.
    • Apodemus
    • By Apodemus 10th Sep 17, 9:29 AM
    • 950 Posts
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    Apodemus
    ...ignoring all the drama about what could go wrong with your rental property, there is the certainty that as one gets older there is a need to simplify finances and reduce both risk and workload. At some point it will be sensible to sell the rental and convert its value to cash. Doing so now allows that to be done with the pension payment tax advantage. But only you know whether now is the best time for you to take this step.
    • greatkingrat
    • By greatkingrat 10th Sep 17, 10:49 AM
    • 66 Posts
    • 72 Thanks
    greatkingrat
    Also a really dumb question, and I'm still pondering to ask it..!

    If I do get my £450K+ sitting in the pension companies and then decide at 60 to start drawing down on the monies, does the money actually stay with those companies, hopefully growing at more than my% drawdown meaning I don;t touch the capital. And then when I depart this mortal world, the capital can be left to my darling children....or am I way off in this?

    I understand that, if I invest in an Pension Annuity, I'm buying an insurance product of sorts and I shouldn't expect to have anything left afterwards to pass on....is that correct?

    Sorry if I've made anyone bang their heads repeatedly on the desk :-)
    Originally posted by Rodders2409
    Yes, the money will remain invested in whatever funds you have chosen and will continue to rise and fall in line with the performance of the underlying investments. So if they are doing well, it is quite possible that at the end of a year you will have more than you started with even after taking the drawdown amount.

    Anything left when you die can be passed on to your chosen beneficiaries.

    With an annuity, there won't be anything left to pass on, but the advantage is your income will be secure, you don't have to worry about the possibility of a stock market crash forcing you to reduce the amount you are drawing down each year.
    • atush
    • By atush 10th Sep 17, 11:08 AM
    • 16,333 Posts
    • 10,081 Thanks
    atush
    Have you told HMRC about your pension contributions at 40%? With rental income do you fill out self assessment?

    Those are two ways to make sure you are getting your 40% TR
    • AnotherJoe
    • By AnotherJoe 10th Sep 17, 5:21 PM
    • 7,559 Posts
    • 8,161 Thanks
    AnotherJoe
    Yes, the money will remain invested in whatever funds you have chosen and will continue to rise and fall in line with the performance of the underlying investments. So if they are doing well, it is quite possible that at the end of a year you will have more than you started with even after taking the drawdown amount.

    Anything left when you die can be passed on to your chosen beneficiaries.

    With an annuity, there won't be anything left to pass on, but the advantage is your income will be secure, you don't have to worry about the possibility of a stock market crash forcing you to reduce the amount you are drawing down each year.
    Originally posted by greatkingrat
    yep, greatkingrat got there ahead of me.
    ]
    As a practical example, my SIPP grew by £40k last month, I withdrew £3.5k. I'm sure there will be periods it loses £40k
    • Rodders2409
    • By Rodders2409 10th Sep 17, 6:51 PM
    • 25 Posts
    • 6 Thanks
    Rodders2409
    Thanks ...Atush..Greatkingrat ...AnotherJoe

    Until this thread I'd only ever heard about annuities as being the way to retire...this has changed my understanding completely, so thanks.

    As I said I'm going to be seeing an IFA in the next 2 weeks, and knowing a a little more beforehand is really helpful. Out of interest is a drawdown approach 'normal' in as, do the vast majority buy annuities only or do people normally do a combination?

    Is an IFA more likely to advise annuities because its safer and they get a commission somehow?

    Yes, I do complete a self-assessment form because I rent the property, but I do it myself (probably a mistake in hind-sight) and don't complicate it with anything to do with my pension etc...

    I think I'll see our personnel department and ask how my Company Pension accounts for the 40% relief...does that sound OK?

    Also, is the deduction on mine as 'Sal ScrPens' normal...are there other ways of it being done that are better?

    Thanks
    • ermine
    • By ermine 10th Sep 17, 7:33 PM
    • 604 Posts
    • 881 Thanks
    ermine

    As I said I'm going to be seeing an IFA in the next 2 weeks, and knowing a a little more beforehand is really helpful. Out of interest is a drawdown approach 'normal' in as, do the vast majority buy annuities only or do people normally do a combination?
    Originally posted by Rodders2409
    Drawdown is popular, but then annuity rates are at historic lows. You don't have to take your entire pot as an annuity, you can stagger drawdown with part annuities over the years then switch to annuities if you so wish. An IFA would explain the pros and cons of the various approaches. Your desire to featherbed your children will push you more in the direction of drawdown, you get to eat more risk of being destitute because of that.


    Is an IFA more likely to advise annuities because its safer and they get a commission somehow?
    Originally posted by Rodders2409
    You have to ask the IFA about his fee structure and how much commission he gets, it is less of an issue now than it used to be.

    I think I'll see our personnel department and ask how my Company Pension accounts for the 40% relief...does that sound OK?

    Also, is the deduction on mine as 'Sal ScrPens' normal...are there other ways of it being done that are better?

    Thanks
    Originally posted by Rodders2409
    You jammy so and so, if you are getting your pension contributions via salary sacrifice if that is what the SalScr acronym means then a) tax is not a problem, if for the sake of argument you sal sac £40k out of £80k gross you are out of the HRT band because you salary is only 40k, you sacrificed the other 40k into your pension.

    What is even better is you save on NI, doesn't matter much over £45k but between ~£11.5k and ~£45k you are not only not having 20% tax stolen from you, but you are also not having 12% NI (ISTR) stolen from you, so you are enjoying a 32% win. With a mortgage on your res prop funding your living costs you could drive your salary down to national minimum wage (you aren't allowed to push it lower, at any rate I wasn't) which is about 15k for a full time wage I think. Saving a hit of 32% of (~45k-15k) which is about 10k p.a going to your pension and not HMRC. You don't pay NI on a pension on the way out. However, there is a limit of ~40k on annual pension savings, though you may be able to carry forward unused allowance from the previous three years.

    Salary sacrifice rocks and means you are even better off with pension savings than many others Hit it, it's rude not to. And would give you a better return on the capital tied up in your property portfolio and with a mortgage you can keep your property religion too, what's not to like?
    • Rodders2409
    • By Rodders2409 10th Sep 17, 7:52 PM
    • 25 Posts
    • 6 Thanks
    Rodders2409
    Thanks Irmine...

    I need to tell you I'm sitting here looking at your response and laughing to myself because I can't understand what your saying...not because it's not written well or meaningful, but because it's...:-)

    I'm going to re-read several times and try to get my head to work in another dimension!...I'll be back!
    • dunstonh
    • By dunstonh 10th Sep 17, 8:42 PM
    • 89,513 Posts
    • 55,948 Thanks
    dunstonh
    You have to ask the IFA about his fee structure and how much commission he gets, it is less of an issue now than it used to be.
    There is no commission.


    Is an IFA more likely to advise annuities because its safer and they get a commission somehow?
    There is no commission
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • ermine
    • By ermine 11th Sep 17, 12:06 AM
    • 604 Posts
    • 881 Thanks
    ermine
    I need to tell you I'm sitting here looking at your response and laughing to myself because I can't understand what your saying...not because it's not written well or meaningful, but because it's...:-)

    I'm going to re-read several times and try to get my head to work in another dimension!...I'll be back!
    Originally posted by Rodders2409
    This is why you hire an IFA, to explain the issues more clearly and in terms, metaphors and symbolism you can understand. From dunstonh's post above, there is no commission these days - you pay the guy for his time nowadays.

    It is likely that you can take the resources you have and deploy them to give you more cash for your lifestyle than a fully paid off res property and a fully paid off BTL. I have a fully paid off house, and came to the conclusion that in some ways that was an irrational decision for someone who retired early pre 55. But I also hit my pension very very hard in the years leading up to my early retirement. I've seen pension savings and salary sacrifice work for me firsthand. I would have done better to have not paid down the mortgage, but I was fearful and believed I had a weaker hand than I actually had.

    Getting 20% of the personal finance scene right does 80% of the heavy lifting, redeeming my mortgage was a mistake I could afford.

    You have a great set of cards in your hand. You can play them better, but you don't have to. I would suggest a good financial adviser could help you understand that, what the issues were and live larger and/or leave more to your heirs. If it concerns you, an annuity and drawdown is not an either/or decision, you can mix and match as your risk profile changes as you age.

    Inform yourself before you go see him. Establish if your works pension savings are salary sacrifice, and what type of works pension you are saving into (defined contribution or - unlikely - defined benefit). All these things will help you both qualify what your risks and opportunities are. Collect payslips and your last P60. If you can determine what your outgoings are that is also good and helps build a picture. Collect information about your wife's pensions and resources, an IFA can help you maximise your combined income.

    The average Brit retires with a DC pension capital of £90k. You are a long way ahead of that...
    • AnotherJoe
    • By AnotherJoe 11th Sep 17, 12:13 AM
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    • 8,161 Thanks
    AnotherJoe

    Is an IFA more likely to advise annuities because its safer and they get a commission somehow?
    Originally posted by Rodders2409
    Very much the opposite if you were that cynical. Once you've bought an annuity thats it, nothing more for the FA to do.If you go with drawdown then you have funds that need management and a potential job for them to do.

    You may do that yourself or you may ask (pay ) an FA to do that.

    However since an IFA will have to explain their reasoning for their recommendations that would in any case be a tough thing to do, eg convince you you should take an annuity (that most likely paid put 1/2 or less what drawdown would.) unless you yourself were so risk averse that you would take that trade-off. (this is outside the 'outlier' reasons such as limited life expectancy)

    As said anyway, it doesn't have to be one or the other. You could start with drawdown, move to an annuity when much older, or have part annuity part drawdown.
    • Apodemus
    • By Apodemus 11th Sep 17, 7:06 AM
    • 950 Posts
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    Apodemus
    The average Brit retires with a DC pension capital of £90k. You are a long way ahead of that...
    Originally posted by ermine
    ...the average Brit who buys an annuity through one particular provider! The article doesn't appear to give actual average figures for all retirees in U.K.
    • Rodders2409
    • By Rodders2409 11th Sep 17, 9:54 AM
    • 25 Posts
    • 6 Thanks
    Rodders2409
    Again, many thanks to all....it's just great to be able to gain this kind of information.

    I'm sure that the pension contributions are Salary Sacrifice, but will check.

    So, if I've understood correctly.
    I could Sal' Sac' as much as I want to into my pension, to bring it down below HRT (just realised what that acronym was!), and then I'd be paying less tax on my general income but surely I would'nt be eligible for 40% tax relief on the pension ?....

    I'm not actually sure I'm getting the 40% relief anyway...how best to check?

    What is the difference between Salary Sacrifice and pension payments?
    "I've seen pension savings and salary sacrifice work for me firsthand"

    Understand that I can choose to mix and match on annuities and drawdown.

    Again, thanks.
    • Triumph13
    • By Triumph13 11th Sep 17, 10:10 AM
    • 1,097 Posts
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    Triumph13
    Also, is the deduction on mine as 'Sal ScrPens' normal...are there other ways of it being done that are better?
    Originally posted by Rodders2409
    As has been said, Salary Sacrifice is by far the best way to be making your pension contributions, but it makes me question the original assumptions on the amount you are actually putting in each month. If the £1167 per month you say you are contributing is the amount that is shown on your payslip as 'Sal ScrPens' then that is the amount of your PRE-TAX pay that you are contributing and so there will be no tax relief due as no tax has been paid.
    That changes the overall calculations a bit, but they still look very healthy indeed even before the other good suggestions people have given you.
    If we assume that there is indeed no further tax relief due on that £1,167 then 4% pa average real return would get your pot to approx. £580k at age 60. Take 25% of that as tax free cash and put the rest into drawdown at 4% pa. You'll need about £46k of that tax free cash to replace your state pension for the 7 years until you get it at age 67, but that leaves you nearly £100k spare which can either be invested for more income, or give you a nice little fund for any big one-off expenses such as holidays-of-a-lifetime. The drawdown on the rest plus 2 state pensions and £7k pa from the rental property gives you a post tax income of about £37k pa, dropping to about £30k for the surviving spouse after the first death.
    Bottom line is you are well set for a very comfortable retirement at 60. If you don't want a big cash buffer and are happy with a smaller income, then using all your 25% lump sum, plus your wife's pension fund (which I ignored in the age 60 model) to cover the years until state pensions are in place would support spending of about £33k pa if you retired at 55 instead.
    • Rodders2409
    • By Rodders2409 11th Sep 17, 11:45 AM
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    • 6 Thanks
    Rodders2409
    Thanks for chipping in Triumph.
    Yes, there is a total of £1201 against 'Sal Sac EE Pen'...(sorry - not £1167 as previously thought) and this is in 'Payments' section which I understand as before any tax is applied.

    And when I look at the Deduction section, it shows as 'zero' against EE Pen.

    So does this mean, as you suggest, that my tax relief (40%) is automatically being applied to my pension because tax is not being deducted on the EE pen?

    I know there were some deductions on EE Pen some time ago because I can see an entry of £907 in Cumulatives on a payslip dated March 2017. So something must have changed

    Where you say.."You'll need about £46k of that tax free cash to replace your state pension for the 7 years until you get it at age 67"...

    That would provide approx £6500/pa...plus the rental income £7000...plus my better half's pension £7500...giving me approx £21K, which is a bit behind what we thought for the period 60-67...unless I'm missing something pretty obvious, which wouldn't shock me!
    • k6chris
    • By k6chris 11th Sep 17, 12:00 PM
    • 137 Posts
    • 221 Thanks
    k6chris
    That would provide approx £6500/pa...plus the rental income £7000...plus my better half's pension £7500...giving me approx £21K, which is a bit behind what we thought for the period 60-67...unless I'm missing something pretty obvious, which wouldn't shock me!
    Originally posted by Rodders2409
    yes, the 4% drawdown on the remaining of your DC pension, which adds about £17k pa before tax
    EatingSoup
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