Retirement planning - how to make the best of these assets?

itm2

I recently posted a message about my retirement planning and got some great advice from this forum. Since then I've made a couple of discoveries which make me think that I should maybe change my plans, so I'm posting a more open plea for ideas as I'm struggling to make sense of my options...

I'd like to retire when I'm 55 (in April 2015), but am trying to decide on the optimum use of my available assets. I'm married with no children. My wife is 47. She does a little spare time work for pocket money, and also rents out a flat for £825 per month. Our current outgoings are about £1800 per month. I am working, and putting money into both a SIPP and an occupational scheme

My anticipated assets at age 55:
- SIPP £140k
- Personal Pension 1 : £60k (transfer value). With-Profits scheme with Guaranteed Annuity Option. GAO of 9% at age 60, up to 15.8% at age 75. No contributions made for 10 years, but have just discovered that I can resume contributions, and that new contributions would be eligible for the GAO
- Personal Pension 2: £60k (transfer value), With-Profits scheme with Guaranteed Annuity Option. GAO of 9.3% at age 60, up to 16.4% at age 75. Paid up 10 years ago and no further contributions possible
- Other pensions: £80k - money purchase schemes.
- ISA Savings: £140k
- Other savings: £105k - managed funds, premium bonds, savings accounts
- Main property: £800k - no mortgage, and no desire to move
- 2nd property: £200k - no mortgage. In wife's name
- Wife's assets: £50k saving, £50k pensions
- Inheritance - £100k? - my parents are in their 80s, and may leave an inheritance of around £100k


I'd love to hear any ideas as to how to maximise these assets to enable me to retire in a couple of years' time.

somethingcorporate

With those kinds of figures you'd be a fool not to get some paid for advice.

A few £k spent on a good advisor could save you tens if not hundreds of thousands over the rest of your life.

atush

I agree, you have enough assets to do this. But I would not touch those pensions with the GAR and would resume contribs on the one you can.

Are your ISAs cash or S&S or both? you need some in equities. I would move some of the 105K into Isas either Cash or S&S as you have spare allowances. Make sure if you hae filled yours to fill your Wife's as well. If you are a HRT and she is BR or no tax, make sure any non ISA investments are in her name to pay lower (or no) tax.

itm2

I did look around for an IFA a few months ago but (a) didn't know which ones I could trust to offer really good advice and (b) couldn't find any that would quote a fixed price for offering advice - all quoted extremely high hourly rates with no real indication of how many hours' work I would require. I'd be happy to spend on advice but not to write a blank cheque to someone that may offer poor or unimaginative advice.

Mine and my wife's ISA allowances are both maxed out (mine in S&S and hers in cash).

kidmugsy

Do the GAR PPs give a widow's pension as part of the deal?

Will PP#1 accept transfers in e.g. of the SIPP or money purchase schemes?

How quickly could you transfer "other savings" into PP#1? (Effectively that asks how much you earn.)

Anyway, your big problem is perhaps what you are going to live on from 55 to 60 when you can crystallise your PPs. Are you prepared to borrow to do so by mortgaging one or both properties? (In your shoes I would be, but not everyone might be.) A repayment mortgage to run until you are 75 should be doable, such that you can intend to clear it when you receive your inheritance - or just to cope with it when your GAR pensions and later your State Pensions kick in.

If the PPS pay no widow's pension then you'd better give your wife's position some thought - what is she to live on if you pop your clogs early? Do you still have life insurance? Will you still have when you retire?

somethingcorporate

But you trust a forum full of random strangers with no guarantee they are who they say they are?

If I were you put your feelers out amongst friends or colleagues to see if you can get a personal recommendation.

Have you seen https://www.unbiased.co.uk?

I am sure if you look hard enough you will find what you need and my recommendation is not to take "advice" from a forum when it comes to dealing with over a million pounds worth of assets!

itm2

somethingcorporate wrote: »

But you trust a forum full of random strangers with no guarantee they are who they say they are?

If I were you put your feelers out amongst friends or colleagues to see if you can get a personal recommendation.

Have you seen https://www.unbiased.co.uk?

I am sure if you look hard enough you will find what you need and my recommendation is not to take "advice" from a forum when it comes to dealing with over a million pounds worth of assets!

Actually I have already got more useful ideas from this forum than I did from the last IFA that I used a few years ago (who ended up costing me alot of money in more ways than one). It seems that some IFAs are quite happy to trot out safe, obvious ideas while ignoring more creative options which would actually reap much higher rewards. This forum is a wonderful source of alternative thinking which I could bring to the table the next time I speak to an IFA (if I can actually find one that I can trust to add real value).

Thanks for the link to unbiased.co.uk - I'll check it out

dunstonh

It seems that some IFAs are quite happy to trot out safe, obvious ideas while ignoring more creative options which would actually reap much higher rewards.

FAs (tied or multi tied or restricted) are limited to their product range and areas they only transact in. IFAs should consider all areas. However, IFAs have to eliminate options they dont think are suitable for the individual. Research has found that over half the people seeing FAs actually think they are seeing an IFA. Many dont even realise there is a difference.

This forum does tend to present options which are classed as high risk as being suitable for all. Some of the things talked about here require risk levels not suited to most or require a higher level of knowledge and understanding and a requirement to monitor and follow through at different points. If an IFA feels you are not up to that risk level or level of understanding or wont follow through with required tasks then they should not recommend things of that level.

There is plenty on this forum that would be classed as mis-sale had it been done by an adviser. I am not knocking the information given here but just trying to give you an understanding of why you are likely to see differences.

jamesd

itm2 wrote: »

I'd like to retire when I'm 55 (in April 2015)... I'm married with no children. My wife is 47. She does a little spare time work for pocket money, and also rents out a flat for £825 per month. Our current outgoings are about £1800 per month. ...

- SIPP £140k
- Personal Pension 1 : £60k (transfer value). With-Profits scheme with Guaranteed Annuity Option. GAO of 9% at age 60, up to 15.8% at age 75. No contributions made for 10 years, but have just discovered that I can resume contributions, and that new contributions would be eligible for the GAO
- Personal Pension 2: £60k (transfer value), With-Profits scheme with Guaranteed Annuity Option. GAO of 9.3% at age 60, up to 16.4% at age 75. Paid up 10 years ago and no further contributions possible
- Other pensions: £80k - money purchase schemes.
- ISA Savings: £140k
- Other savings: £105k - managed funds, premium bonds, savings accounts
- Main property: £800k - no mortgage, and no desire to move
- 2nd property: £200k - no mortgage. In wife's name
- Wife's assets: £50k saving, £50k pensions
- Inheritance - £100k? - my parents are in their 80s, and may leave an inheritance of around £100k

It appears that at age 55 you will have available to produce income the SIPP at £140k, personal pension at £80k, ISA at £140k, other savings (not investments?) at £105k. Assuming you were to invest this and get 6% income you'd have £465k producing £27,900 a year in income, £2,325 before tax, the ISA portion tax free. The GAD limit may restrict you to taking less than 6% but that should be reasonably likely to be possible by the time it matters to you.

Later at 60 you'd have the 9.5% and 9.3% guaranteed annuity rate pensions available and it seems sensible to leave those until then because those guaranteed rates are way above current rates and provide guaranteed income. On the current numbers this would be around £10,980 a year at age 60.

Assuming that you get £140 a week of state pensions that adds another £7,280 at state pension age, taking your guaranteed annuity and defined benefit pension income to £18,260. That's close enough to the current £20,000 Flexible Drawdown minimum guaranteed income requirement for you to plan on qualifying for Flexible Drawdown to let you eventually draw an unlimited amount from your other pensions.

Adding more money to the 9.0% GAR pension seems like a good move. 9% guaranteed income at age 60 is a good deal.

A major missed opportunity maybe not fully using the ISA allowances of both of you to maximise tax free income. Be sure you're using the full S&S ISA limit for both of you to maximise that. It appears that you'd have time to get much of your other savings into the S&S ISA tax wrapper.

You appear to be able to fairly comfortably meet your income objective and more, with a potential income at age 60 around 50% higher than your currently required income even ignoring your wife's income.

Time to start to work out what income you'd like to spend. Holidays? What else? Then you can see if it's credible to manage that, by drawing down the capital in the non-pension savings until the GAR pensions start. Then at a lower rate until the state pensions start. A decent target is a level income from age 55 until the state pensions are paying out to you, just a case of deciding what that target should be and then what sort of safety margin you want.

Since much of your income may be investment based initially you should plan on having at least two years of your intended investment income, including non-annuity pension income, in a savings account to provide income smoothing.

Looking solely at guaranteed things, you appear to have probably £10,900 a year plus £7,280 of guaranteed (GAR or state) pension income at age 60. Assuming a £10k personal allowance that's £16,545 a year, £1,378 a month of guaranteed after tax income. That compares fairly well with your current outgoings of £1800 a month when I look at your wife's rental income also. So long term you don't seem to need much of your variable income to meet your current spending level needs. That means you can afford to do things like income drawdown and that you will be at modest risk if there are significant investment value drops because much of your required income is guaranteed. Increasing the money going into the pension with a 9% GAR can increase this security. Your wife's pension will also help to do that.

Overall it appears that from state pension age you can arrange to have guaranteed income to cover your current spending level, relying on drawdown for substantial discretionary spending.

I'm assuming that you will use income drawdown for the pensions that don't have a GAR.

itm2

Many thanks for your feedback jamesd. Yes I was planning on using drawdown for the non-GAR pensions, so will be constrained by the GAD rules. I think they're only permitting about £43 per £1,000 at the moment, so God knows what it'll be like in the next couple of years.

I think one of the main challenges will be maintaining anything like 6% income on the investments. Retirement fund investments would typically be biased towards a low-risk portfolio, and even 5-year bonds are only returning about 3.2% at the moment.

I also can't decide whether/how much to put into the pension with the GAR, as anything I deposit is probably going to see more or less zero growth. I'm guessing that the best thing would be to buy the GAR annuities as soon as they're available (at age 60 I believe), even at the "lower" rate of 9% but again that isn't a straightforward decision.

So many choices and decisions!

I've had a few initial conversations with prospective IFA's (from unbiased.co.uk) and it's rather like choosing a dentist. I've had everything from £500 to £2,400 quoted for preparing a retirement plan. Not knowing any of them from Adam it's difficult to know who to trust and how much to spend.

dunstonh

I've had a few initial conversations with prospective IFA's (from unbiased.co.uk) and it's rather like choosing a dentist. I've had everything from £500 to £2,400 quoted for preparing a retirement plan. Not knowing any of them from Adam it's difficult to know who to trust and how much to spend.

If it helps, IFAs account for 70% of retail financial transactions in the UK. Yet IFA complaints at the FOS are just 1% with most rejected and just in October the FOS congratulated IFAs for their complaint handling and put the low complaint rate and low overturn rate down to IFAs having better information and justification for what they were doing than others. Also, we have the Retail Distribution Review (RDR) which has increased qualification standards as well as moving the advice away from being product driven to being just advice. Adviser numbers are expected to fall from 29,000 to 20,000 (remember there was over 100,000 just 20 years ago). Those that are going are typically those that cannot make the standards or are too close to retirement to want to go through the hassle and cost just for another couple of years. So, you should be left with a leaner number working to a higher standard when there was just 1% of complaints on the old way.

It is important to get a good IFA but the odds of getting a bad one are very low.