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  • FIRST POST
    • JWM
    • By JWM 3rd Dec 17, 3:57 PM
    • 283Posts
    • 434Thanks
    JWM
    Need Some Help
    • #1
    • 3rd Dec 17, 3:57 PM
    Need Some Help 3rd Dec 17 at 3:57 PM
    Good afternoon everyone.

    Well DH and I have been coasting along, he will be 60 in Feb 2020 and will retire then. He has one pension, not great as his job was never too well paid.

    I have the 'good' job. I'm 54 and have planned to retire at 60 (when the mortgage finishes). I know health, job etc can't be depended on but always been OK. The mortgage is big but all OK while I was working.

    I have a FS sceme which will pay a max lump sum of £75k+ £12k per annum pension. What with this and DH's pension this will be enough for both of us. I also have a small FSAVC and 3 smallish pensions (30K) which I and my employer paid into.

    However, the Company I have worked for 12 years are down sizing and I am now 'at risk of redundancy'.

    Panicing.

    So if it happens (and its still an if), I need to know my options. Obviously try to get another job but might not be able to get the same at my age. There's always Tesco's - I will do anything but of course the wages will be much lower.

    So the basics - at 55 can I take the FS lump sum (of course lower than at 60) if I am still working? I will have to take the income once I take the lump sum so tax to consider.

    Can I take the 25% lump sum of the other pensions (about £7,500) if I am still working? Can I also take the remaining balance (about £22,500) and pay tax on it?

    By the way, I know there are a ot of unanswered question about the future. I also know that it might not be the best thing to do - but right now I am working on the worst possible oucome so need to know what I can do, and will try to do the best thing when the dust has settled.

    Having worked all my life and chosen when to leave a job (because I had a better one), this has all come as a big shock.

    Many thanks for your help.
Page 1
    • ermine
    • By ermine 3rd Dec 17, 4:16 PM
    • 623 Posts
    • 924 Thanks
    ermine
    • #2
    • 3rd Dec 17, 4:16 PM
    • #2
    • 3rd Dec 17, 4:16 PM

    Panicing.

    So if it happens (and its still an if), I need to know my options. Obviously try to get another job but might not be able to get the same at my age. There's always Tesco's - I will do anything but of course the wages will be much lower.

    So the basics - at 55 can I take the FS lump sum (of course lower than at 60) if I am still working? I will have to take the income once I take the lump sum so tax to consider.

    Can I take the 25% lump sum of the other pensions (about £7,500) if I am still working? Can I also take the remaining balance (about £22,500) and pay tax on it?
    Originally posted by JWM
    Don't panic. In general the optimal strategy for you would be to leave your DB pension, deferred if necessary, to 60. Obviously if the axe falls you need something to live on
    You have the FSAVC and the 3 smaller pensions. If those are DC then you could move them into a SIPP and take the 25% TFLS once at the beginning and then the personal allowance tax-free each year, which is about £11.5k. This is enough for you and DH when he has his pension, you say. You will be able to start to draw from a SIPP by the time you get to 55 which is a year away.

    You can take the DC lump sum while you are still working, and you can elect to pay tax on the rest, but this is probably a bad move. Do NOT be in any hurry to pay off that damned mortgage. if you are on a fix perhaps consider remortgaging while you still both have a job, but interest rates are low at the moment. Stall for time on that mortgage - that's what your FS lump sum is for.

    So the question you have is how to fill the six years. Savings if any for the first year. Then your 30k plus will take about two to three years to run out at the personal allowance. Takes you to 57/58. You can then choose whether or not to draw the DB pension three years early and eat the ~15% actuarial reduction.

    Working somewhere else would push out the time you need to call on those pensions, sure. But if your 12k pension plus DH's pension is enough, then why is it not enough sooner - are the minimum mortgage repayments very high?
    Last edited by ermine; 03-12-2017 at 4:21 PM.
    • JWM
    • By JWM 3rd Dec 17, 4:32 PM
    • 283 Posts
    • 434 Thanks
    JWM
    • #3
    • 3rd Dec 17, 4:32 PM
    • #3
    • 3rd Dec 17, 4:32 PM
    Actually I hadn't considered extending the mortgage and using the Final Salary (which I assume is the DB scheme) to repay it.

    I suppose that lump sum was our safety buffer but how much do we really need.

    Thanks for giving me some perspective there.

    Hadn't thought about the being able to take the rest of the pension tax free - if I'm not actually paying tax!

    Thanks - feel less panicy when I can see in black and white that all is not lost.
    • ermine
    • By ermine 3rd Dec 17, 6:19 PM
    • 623 Posts
    • 924 Thanks
    ermine
    • #4
    • 3rd Dec 17, 6:19 PM
    • #4
    • 3rd Dec 17, 6:19 PM
    Actually I hadn't considered extending the mortgage and using the Final Salary (which I assume is the DB scheme) to repay it.
    Originally posted by JWM
    Back in the day that was the canonical use of a DB pension lump sum. and yes, DB = defined benefit and a final salary scheme is the best case of defined benefit. Your pension is defined as accrual rate * years worked but only at the scheme normal retirement age, presumably 60 in your case. It is normally disadvantageous to you to take it earlier. You would do well to inform yourself more about your DB pension scheme, including if there is a way to put any redundancy pay into it if you are likely to get > £30k RP - the first £30k of RP is tax free.

    A DC pension is defined contribution and in general you should take these as early as possible from 55 subject to minimising tax, if you don't need the money shove it in an ISA to protect against tax. Certainly in your case it's most likely the best option to run down your DC pensions and leave your DB pension deferred until normal retirement age for the scheme. Whether or not you should take the tax-free lump sum from a DB pension is also questionable - if you have no particular health issues then that lump sum is coming from reducing your future income for life and/or spouse advantages and needs qualifying at the time.

    If you will be finishing work earlier than planned you may as well make use of it to pay the least tax possible, and your mortgage is your friend there If you can tolerate the ~11.5k p.a. runout rate, don't pay tax on the pension, even if you end up carrying the mortgage a little longer. Better still, lob £2880 into your SIPP each year after you have stopped work, and collect a free gift of £720 from HMRC every year when they top it up to £3600, provided you can run out all your money at lower than the personal allowance avoiding paying tax. Since you are married, if your husband has a pension of < the personal allowance as sounds likely, then he can transfer some of his personal allowance to you which lets you sneak out an extra £1k p.a. tax-free, which may help.

    Your mortgage is a highly flexible low cost loan, far better than anything you will get on the open market or from a credit card. Use it to stall for time to allow yourself to use the tax system limits to your advantage, and definitely don't be in too much of a hurry to pay it off. I paid mine off before retiring early, I was more skint in the early years because I cocked that up.

    Make any changes to your mortgage while you still have a job - once you don't you are a pariah in the eyes of credit scoring systems, though you can carry an existing mortgage to term as long as you pay the repayments.
    • xylophone
    • By xylophone 3rd Dec 17, 11:05 PM
    • 23,615 Posts
    • 13,749 Thanks
    xylophone
    • #5
    • 3rd Dec 17, 11:05 PM
    • #5
    • 3rd Dec 17, 11:05 PM
    Have you both obtained new state pension forecasts?

    https://www.gov.uk/check-state-pension
    • jamesperrett
    • By jamesperrett 4th Dec 17, 12:17 AM
    • 697 Posts
    • 352 Thanks
    jamesperrett
    • #6
    • 4th Dec 17, 12:17 AM
    • #6
    • 4th Dec 17, 12:17 AM
    It is also worth looking at the commutation rates for taking a lower lump sum with a higher pension. The maximum lump sum isn't always the best choice.
    • JWM
    • By JWM 4th Dec 17, 7:59 AM
    • 283 Posts
    • 434 Thanks
    JWM
    • #7
    • 4th Dec 17, 7:59 AM
    • #7
    • 4th Dec 17, 7:59 AM
    Have you both obtained new state pension forecasts?

    https://www.gov.uk/check-state-pension
    Originally posted by xylophone
    Yes we have thanks.

    Depressing reading!
    • JWM
    • By JWM 4th Dec 17, 8:00 AM
    • 283 Posts
    • 434 Thanks
    JWM
    • #8
    • 4th Dec 17, 8:00 AM
    • #8
    • 4th Dec 17, 8:00 AM
    It is also worth looking at the commutation rates for taking a lower lump sum with a higher pension. The maximum lump sum isn't always the best choice.
    Originally posted by jamesperrett
    Thank you.

    Something else to think about when I know if/when the redundancy happens.
    • JWM
    • By JWM 4th Dec 17, 8:04 AM
    • 283 Posts
    • 434 Thanks
    JWM
    • #9
    • 4th Dec 17, 8:04 AM
    • #9
    • 4th Dec 17, 8:04 AM
    ermine - thank you so much for your detailed post.

    This is exactly what I need in black and white. In my head the mortgage MUST be paid off asap, but the reality is that it doesn't.

    Work have a pension Advisor who have spoken to before, but I have made an appt to see him to really look at the numbers. I feel better prepared now I have more knowledge.

    Much calmer now.

    Thank you everyone.
    • GibbsRule No3
    • By GibbsRule No3 4th Dec 17, 8:56 AM
    • 633 Posts
    • 369 Thanks
    GibbsRule No3
    Yes we have thanks.

    Depressing reading!
    Originally posted by JWM
    From both your ages I was wondering why you say “depressing reading”, Is it because of how small the State Pension is, or is it not showing you will receive the full amount because of lacking years or part contracted out? If either, I believe from other threads, you can make up the missing years by payments, especially at your ages now. SP for your DH won’t be until 2026 and you later. I am already over 60 but won’t have enough years to make up a full SP for my contracted out years but will gain £14.00> per week more. So factor payment in for that if you need to. Good luck and fingers crossed you manage to keep your current position. If you get another job, make sure you pay as much as possible into their pension scheme to get their highest input into it and negate as much tax payable as possible, while taking home enough pay to live on.
    Paddle No 21
    • cloudy-day
    • By cloudy-day 4th Dec 17, 11:09 AM
    • 233 Posts
    • 550 Thanks
    cloudy-day
    From both your ages I was wondering why you say “depressing reading”, Is it because of how small the State Pension is, or is it not showing you will receive the full amount because of lacking years or part contracted out? If either, I believe from other threads, you can make up the missing years by payments, especially at your ages now. SP for your DH won’t be until 2026 and you later. I am already over 60 but won’t have enough years to make up a full SP for my contracted out years but will gain £14.00> per week more. So factor payment in for that if you need to. Good luck and fingers crossed you manage to keep your current position. If you get another job, make sure you pay as much as possible into their pension scheme to get their highest input into it and negate as much tax payable as possible, while taking home enough pay to live on.
    Originally posted by GibbsRule No3
    I suspect the OP meant the age its paid.

    My Mum got hers at 60, I am due to get mine at 67 and that may go further out as there's good few years to go.

    I do wonder when (or if) today's generation will receive it.
    Last edited by cloudy-day; 04-12-2017 at 11:13 AM.
    • Happier Me
    • By Happier Me 4th Dec 17, 1:04 PM
    • 390 Posts
    • 835 Thanks
    Happier Me
    Some defined benefit schemes pay out unreduced on redundancy from the age of 55. Is this case for your scheme and when do you turn 55? Are you likely to be able to access your pension without actuarial reduction immediately?
    • JWM
    • By JWM 4th Dec 17, 8:23 PM
    • 283 Posts
    • 434 Thanks
    JWM
    Some defined benefit schemes pay out unreduced on redundancy from the age of 55. Is this case for your scheme and when do you turn 55? Are you likely to be able to access your pension without actuarial reduction immediately?
    Originally posted by Happier Me
    I'll look into it thanks.
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