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    • luvpenguins
    • By luvpenguins 29th Nov 17, 10:19 PM
    • 39Posts
    • 48Thanks
    luvpenguins
    Yikes! I'm making the call tomorrow
    • #1
    • 29th Nov 17, 10:19 PM
    Yikes! I'm making the call tomorrow 29th Nov 17 at 10:19 PM
    I am 55 in January, and I believe I will have access to 25% of my pension tax free then.

    A little background. I have been a single mum to two wonderful boys since 1996. The boys are now grown up and following good careers, we managed OK over the years with little to no input from their dad, but it was hard managing a very demanding full time job and two growing boys. Thank god for mums, I couldn't have managed without her help.

    Anyway. I have some debt, about £15,000 over 0% credit cards, and I also have £60,000 to pay on my mortgage. Currently, it is due to be paid when I am 67, so in 2029

    The house is worth about £180,000.

    I have worked ever since I was 16, and all my NI payments are up to date. I have worked for my current employer since 1993, starting with a final salary pension. It was changed to a defined benefits pension sometime in the mid 2000s, not sure when. I also paid some AVCs for a while.

    This is my plan. I ring HR pensions tomorrow and find out if I can withdraw £15,000 (tax free) in January so that I can pay off my debts. The money that I pay towards those debts I will pay towards my mortgage instead (I checked, I can overpay) and so bring that debt down more quickly. I'm hoping to double my current mortgage payment of £571.00 to about £1071.00.

    If it matters, I earn £3019 per month before tax, I have a company car though, so not sure whether benefits in kind will make any difference, and I have been paying into the company pension plan for yonks at a percentage of which I don't know right now, but I will check tomorrow.

    I know nothing about pensions, so my questions are:

    Is this going to be possible?

    Do you think I will have £15,000 available from my pension pot?

    Is this a stupid idea?

    Will I need to employ a financial adviser at huge cost to steer me through this?

    Sorry if I am waffling, I might be able to provide more figures tomorrow when I have made the phone call.

    Thanks for reading, at the least there might some other woman out there who hasn't a clue as to how to move forward but who wants a bit of a lifestyle change sooner rather than later

    xx
Page 2
    • ermine
    • By ermine 1st Dec 17, 12:09 AM
    • 624 Posts
    • 925 Thanks
    ermine
    I earn £3019 per month before tax
    Sounds to me like you are seriously heading in the wrong direction. I suspect you have a spending problem, not so much a debt problem. And these are 0% CCs, so you have an irrational issue with low-cost debt that you are thinking of hazarding your future self's welfare in retirement.

    Your CC debts are less than half your annual earnings. IMO you shouldn't even think of screwing with your pensions for that debt.

    OK so you are paying 3% on £60k = £1800 on the mortgage in interest and £6k to the CCs. If they are really 0% and can stay 0% then that 6k is going towards the debt on the CCs not the interest.

    You have a net income of ~28k and you are allocating £7800 to servicing debt, and if you have no spare you are spending £20k on the rest of life. In your ideal retirement you will have no mortgage and no CC debt. Your net pension therefore needs to cover your £20k of spending. You are not a very long distance away from reaching retirement age anyway, and £35k DC will give you an income of ~£1700 p.a. so your DB pension must give you the remaining £18k plus enough to pay your basic rate tax. Unless you will be retiring at state pension age, the DB pension then only needs to be ~ £12k (you will pay tax on the pension but no NI)

    If it's not that much you need to reduce your spending otherwise you will be short in retirement. I venture it is your spending, not your debts, that are at issue.

    Mortgage rates are low at the moment. It is insane to be paying down a mortgage when you could be increasing payments into a pension with the intention of paying the mortgage off with the pension PCLS, effectively paying off the mortgage from gross earnings rather than net.

    I was hung up on having a mortgage when work got crap and I wanted to retire early. Paying it off was a stupid move for me, I should have carried it, paid what I was paying down the capital with into my SIPP and pay off the mortgage with the PCLS. Sinking that capital into the mortgage while I was working constrained what I could do with retiring early. Yes having a mortgage free house feels good, but nowhere near as good as having a boss-free life and a good plan to pay the mortgage with the help of HMRC. I was more skint in the early years of retirement than necessary due to that tactical error. Don't pay off your mortgage early unless you are rolling in cash - washing that through your pension gives you a good lift when interest rates are low.
    Last edited by ermine; 01-12-2017 at 12:30 AM.
    • bugslet
    • By bugslet 1st Dec 17, 7:30 AM
    • 5,774 Posts
    • 28,291 Thanks
    bugslet
    I'd listen to Ermines advice. When does the 0% finish, and could you get another 0% deal when it finishes?

    Have you done a budget? Could you look at your spending* and/or see if you could sell something, cut some of your spending for a year and clear the debt that way? If you could, you'd benefit from more pension later.

    *honestly not being judgmental, it's amazing to keep a spending diary and see how money leaks!
    • dunroving
    • By dunroving 1st Dec 17, 9:35 AM
    • 600 Posts
    • 284 Thanks
    dunroving
    I think you should read about the classic Stanford marshmallow experiment, and leave your pension where it is.

    There's also a TED talk about it: https://ed.ted.com/featured/nvJHP79R
    • Spreadsheetman
    • By Spreadsheetman 1st Dec 17, 10:07 AM
    • 52 Posts
    • 43 Thanks
    Spreadsheetman
    Good advice from Ermine (as always).

    The big picture is that you need to work backwards from what it would cost you to live in retirement - and be realistic about one-off costs (there is always something that comes up). Then see how you can change your financial situation over the time up to retirement to make whatever income you end up with work.

    You've got to do all the groundwork first.
    • Anonymous101
    • By Anonymous101 1st Dec 17, 10:18 AM
    • 1,022 Posts
    • 384 Thanks
    Anonymous101
    Good advice from Ermine (as always).

    The big picture is that you need to work backwards from what it would cost you to live in retirement - and be realistic about one-off costs (there is always something that comes up). Then see how you can change your financial situation over the time up to retirement to make whatever income you end up with work.

    You've got to do all the groundwork first.
    Originally posted by Spreadsheetman
    Best piece of advice you'll get... far too many people have their heads in the sand about the cost of their lifestyles and how much they'll need in retirement.

    They save far too little and think they spend far less than they do. Then they don't understand how much income their pots will give them.
    Also some people have far more than they need but continue to work flat out because they don't know how much they need.
    • luvpenguins
    • By luvpenguins 2nd Dec 17, 8:16 PM
    • 39 Posts
    • 48 Thanks
    luvpenguins
    Thank you all for your great advice, I am having second thoughts now. I received my details from the other pension this morning. I can take a maximum lump sum of £24,000. If I leave it all there until retirement it would provide me with an income of about £9,000 pa. Add this to the other pension, I could take about £7500, or if I leave it I would get an income of about £3,000 pa so far.

    I have taken on board the comments about changing my spending habits, and I fully agree I could be better. My eldest son has been struggling financially for a while, he moved in with his gf 18 months or so ago, and a lot of my disposable income has gone on helping them set up in their rented house, plus he is always in his overdraft and never has any money. I would love to be able to help them with a deposit for a house as I begrudge that they are paying off someone else's mortgage.

    My tax has gone up tremendously over the last few months due to my petrol company car, that will go down in March, so I will have more in my pay packet than I do at the moment.

    I know what my problem is. I have never had any money of my own. I have never been able to have savings. When I first started work at 16 my dad left so I had to help my mum keep the roof over our heads. I lost contact with my father (although he stayed in contact with my older brother). He died three years ago, and I found out recently that he had left £250,000 in his will, a lot of which went to my brother. I got nothing.

    Since my ex husband left when my youngest was 3 months old I have worked all hours to support us, and I have worked my way up to have a decent job with a decent salary, but it's been hard. I've never gone into another relationship as I was too busy working and bringing up my kids, so I've never had any help with anything.

    I would love to have no debt, either credit cards or mortgage, and to have something in an Isa or whatever sounds so attractive to me, and to be able to have a proper savings account instead of paying off debt.

    I know I have to think really hard about this, and I appreciate that you are taking the time to advise me. Thank you.
    • atush
    • By atush 3rd Dec 17, 12:10 PM
    • 16,386 Posts
    • 10,139 Thanks
    atush
    My eldest son has been struggling financially for a while, he moved in with his gf 18 months or so ago, and a lot of my disposable income has gone on helping them set up in their rented house, plus he is always in his overdraft and never has any money. I would love to be able to help them with a deposit for a house as I begrudge that they are paying off someone else's mortgage.

    Your son isnt ready for a house, if he doenst have good finances now while renting. And he will never be ready if he doesnt stand on his own two feet.
    • ermine
    • By ermine 3rd Dec 17, 12:10 PM
    • 624 Posts
    • 925 Thanks
    ermine
    There are good and noble reasons there, but remember what they say in the aircraft cabin if pressure is lost - put on your own oxygen mask before helping others. Your son has the benefit of of a working life of human capital ahead, and you have less of that being close to retirement. You are in a reasonable position financially with a manageable amount of mortgage and CC debt which is at a low interest.

    a lot of my disposable income has gone on helping them set up in their rented house
    I'm sorry, but this sounds like consumerism by proxy to me, and that's absolutely fine if you or he can afford it, but you going £15k into CC debt implies that at least you are pushing the envelope a bit. It is a long time ago when I started in a rental place, but I bought stuff secondhand and over time, rather than a splurge on getting 'set up'. But in the end how you got to here doesn't matter, it's where you go from where you are that does.

    I would love to have no debt, either credit cards or mortgage, and to have something in an Isa or whatever sounds so attractive to me, and to be able to have a proper savings account instead of paying off debt.
    Your future self will not thank you for damaging your retirement savings for the notion of being debt free. These debts are cheap. Fight the nearest fire first. Focus on discharging the CC debts first from your income. This isn't because the CC debts are dear - at 0% plus arrangement fee they aren't, but because they are dangerous. You only need screw up once with the repayment strategy and you are then plonked on some disastrous high interest rate. Also focus on not spending any more on CCs, spend only what you earn and get 'em down to 0.

    Once you've done that it is perfectly reasonable for you to consider having savings as well as the mortgage, but because of your age and your 40% tax bracket you would be far, far better off using a SIPP to save/invest until you stop being in the 40% tax bracket. An ISA makes no sense for you IMO until you have got rid of those CC debts and until you are no longer a 40% taxpayer. Paying 40% tax and saving into an ISA is nuts compared to not paying the 40% tax and using a SIPP - you can mostly put the same kinds of assets into a SIPP as you can into an ISA.

    The mortgage can be strategically planned for using the TFLS from your retirement savings but at a later date. You are paying £1800 a year on that mortgage.All you have to do to beat that is save £1800 a year of 40% tax to break even - the taxman will pay your interest by saving into your pension for you. That is achieved by tossing an extra £4500 into your pension, which will cost you £2700 in net income foregone. It is true that you will probably pay 20% tax on that coming out, but that's still a saving of ~20%. At your age and with the modest mortgage you shouldn't even be thinking of paying 40% tax - that's what a SIPP is for, to soak up any pay > the higher rate threshold.

    You haven't said anything about if and when you do want to stop working. So far it sounds like if you don't take any lump sums you have a total pension income of £12,000. At SPA you will get another ~£8k. You will pay tax on an aggregate income of £20k, so you will have a net income of £18k, about £2k short on your current spending. If one is a DB pension you must qualify what effect taking £24,000 TFLS would have on that pension, because that could very seriously hurt your retirement income. You haven't quite got enough to match your current spending ,so you can't take much risk there unless you can realistically get your spending down.
    • Alexland
    • By Alexland 3rd Dec 17, 1:52 PM
    • 776 Posts
    • 473 Thanks
    Alexland
    Also try not to think about yourself being 'in debt' - you have assets in the majority of the property you own and in your pensions. You are in a net asset position. It's good to have a bit of leverage in your working life to maximise your position in retirement.

    I agree focus on paying back the credit card first (as it is dangerous) and then the house with your £500ish a month. You can afford to get these cleared without damaging your retirement income.

    Alex
    • dunroving
    • By dunroving 3rd Dec 17, 2:44 PM
    • 600 Posts
    • 284 Thanks
    dunroving
    Like a lot of financial questions, the underlying issues are quite different from the original question. At risk of sounding like a broken record, the whole "delayed gratification" message is pertinent here, except it seems to be compounded by facilitating your son's similar situation. It seems like at least some of your £15k CC debt is actually your son's debt, by proxy. He needs to learn to stand on his own two feet.

    We all have to live within our means. Pulling from future income (pension) to remove your current CC debt is little different than continuing to splurge on credit cards. Forcing yourself to pay it off the "normal" (painful) way will be a constant reminder that CC debt is bad, bad, bad. Using future pension to make it miraculously disappear in one big "puff" simply compounds the underlying issues.
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