Early-retirement wannabe

Techno

Finally made the jump and will be early retired (me just over 58 and hubby 6 months short of 60) on the 15th of December (eek) so some questions for those of you in the 'know' if you don't mind.
We will live on savings until the new tax year and then begin to draw down our HL sipps. I have made the assumption that the £12500 personal allowance equates to 75% leaving £4000 ish to take tax free - is this correct?
Do we give HL our P45s to save going onto an emergency tax code?
once hubby starts drawing his teachers pension should he get his P45 back to give to the TPS and if he continues to draw down will he have to complete a dreaded tax return?
And finally a weird question - as we are not of retirement age but will no longer be working or looking for work, what do we put as employment status for all of our insurances. I assume not unemployed as that is classed as 'risky' so do we just say retired (and will that help Ron reduce our insurances?) Many thanks in advance for your help and advice.

ukdw

The 4000ish is the minimum you will get tax free when you crystallise the £12,500 ready for drawdown next tax year.  You could drawdown more tax free cash than this if you want, and can also receive the tax free cash this tax year too if that would help bridge the gap until next April.

Ive never been asked by HL for a P45 - so doubt that will be an issue.   Also if you do end up paying emergency extra tax in my experience it is fairly straightforward and quick to get it back via an online form.

Insurances may not always go down when you move from employed to retired - depends on current job and location etc - as your increased available time for driving or holidays for example could make you a higher risk On motoring or annual travel policies.  Also worth noting that some insurances charge you an admin fee for making the change in employment status too.

Another thing to consider is that it may be harder to get some financial products like bank accounts, credit cards etc once your employment status and level of income changes - so worth considering applying for any.new ones you may be considering before December.

Good luck with the retirement. 

DairyQueen

Insurers target their products at particular markets so shop around on your renewal dates. I have found that, generally, the retired receive cheaper house insurance - possibly because they are at home more - but car insurance is more a factor of mileage. My car insurance is much cheaper since I retired but it coincided with a big reduction in mileage.

Honesty is always important for insurers. Last thing you need if you need to claim is a small-print clause that invalidates your policy. Unless you are seeking work your employment status is 'retired'. I don't know whether 'unemployed' weighs better or worse in the premium calculation but unlikely to be worth any risk.

Some better informed poster may contradict me but my experience has been that P45s are not used by pension providers to calculate tax. Probably because pension income may be derived from several sources within any tax year. Providers use emergency tax code until informed of the correct code by HMRC. They then adjust any subsequent monthly payments (within the same tax year) to return overpaid tax. 

The system is designed around regular, monthly payments so, if you intend to drawdown via a single annual payment, or via ad hoc chunks, then overpayment of tax is inevitable. And the same thing will apply every tax year. Only way I know of avoiding it is to make an initial, small withdrawal early in the tax year. This will trigger a tax code to be issued by HMRC. Then make a second, withdrawal for the balance of the sum needed. 

Whether you follow the above, or reclaim the tax, it's a faff.

Re: TPS. Not sure about public sector but private sector DB schemes don't use P45s. Emergency tax will often be applied to the first payment but the tax code is issued reasonably quickly and within a month or two thereafter the tax overpayment will have been received via higher net payments.

Knowing this may happen allows you to budget cash flow as chances are you will receive less net pension than you are due when a DB is put into payment.

crv1963

When I retired and took my DB pension, I was also immediately re-employed (well the day after because I had to have a 24 hour break in service under the scheme rules) the tax office simply gave my pension provider and employer a tax code- it is split with the larger amount against the pension and I needed to do nothing.

Toni44

I will be 60 in a few months time, I would like to retire in the next 2-3 years time. However I feel as though i should have started planning earlier. I am reviewing my current expenditure as I need to save more if I want to fulfill retiring early. I am fortunate that I no longer have a mortgage.  Would welcome any useful suggestions. 

bigadaj

Toni44 said:

I will be 60 in a few months time, I would like to retire in the next 2-3 years time. However I feel as though i should have started planning earlier. I am reviewing my current expenditure as I need to save more if I want to fulfill retiring early. I am fortunate that I no longer have a mortgage.  Would welcome any useful suggestions. 

Retirement planning is typically a multi decade process, so limited what you can do in a couple of years. A useful technique that has been quote don this forum is to love for a while on your retirement budget and see how you get on, maybe excluding any current work related costs that you won't then have. That will give a good indication as to whether you can live comfortably or prefer working for longer and having more to live on.

cobson

bigadaj said:
...is to love for a while on your retirement budget ....

Hopefully you won't have to pay for it...

barnstar2077

Toni44 said:

I will be 60 in a few months time, I would like to retire in the next 2-3 years time. However I feel as though i should have started planning earlier. I am reviewing my current expenditure as I need to save more if I want to fulfill retiring early. I am fortunate that I no longer have a mortgage.  Would welcome any useful suggestions. 

Are you currently paying into a pension?  Pensions tend to be the best bang for your buck.

Techno

Thank you for your advice. Some food for thought.

bigadaj

cobson said:

bigadaj said:
...is to love for a while on your retirement budget ....

Hopefully you won't have to pay for it...

You never know it could be a moneyspinner!