Early retirement pptions

okydoky

Briefly, aged 56, and recently made redundant, prospects for similar/any employment limited due to health issues prior to redundancy.
5 pensions, all dc, value around £235k with no gar/gmp's. only Standard Life one has transfer penalty, around £6k, if I move it before 65.
Savings/investments of around £220k, 45% s and s ISA's, 25% cash ISA's, and 30% cash(waiting to be invested, mostly just received from redundancy payment).
So quandary is - need around £8 or £9k pa to supplement household income over next 5 years when wife retires aged 60. At that point will need c£25k pa to live on until state pension arrives. Obviously wish for as high an income at age 66 to add to SP which will be insufficient on its own.
So - do I "drawdown" from savings/investments for a few years and leave pension alone or do I put pension into drawdown, take some tax free cash and generate income here? Either way I will continue to make pensions contributions of £2880pa and get tax uplift.
All thoughts welcome.

gadgetmind

A handy rule of thumb is that you can withdraw 4% to 5% from a sensible portfolio of bonds and equities for about 35 years.

You want to take out less than this for 5 years, then a little over it for 6 years, and after that you should be able to drop back to a sustainable level.

I haven't sat down and worked this with something like firecalc, but it should be doable.

I think the best approach is to start moving unwrapped money into S&S ISAs as quickly as you can, and also use this for living expenses. It seems odd to leave your existing ISAs along, but getting everything sheltered for when retired is usually best.

You also need to muse on taxation of your various income streams. Getting as much out of your pension as you can pre-SP will ensure you pay the least tax, and you should take this out of your pension tax free even if you don't then need it straight away.

For unwrapped assets, anything producing dividends will work better tax-wise than things that generate interest income as dividends don't attract any more tax for basic rate tax payers.

You also need to think carefully about how much to keep as cash. While S&S investments may carry risk, it's hard to take any income from cash without rapidly depleting it.

okydoky

Thanks Gadgetmind for your considered response.
Few good pointers, particularly the tax position on dividends.
Still pondering the drawdown scenario for max tax effectiveness so makes sense to keep any drawdown within personal allowance - assume all pensions need to be consolidated before you can start drawdown or can you do this for an individual pension and leave the others for another day??

gadgetmind

okydoky wrote: »

assume all pensions need to be consolidated before you can start drawdown or can you do this for an individual pension and leave the others for another day??

You can do it separately for different pots, and even have one part of a pot in drawdown and the rest "uncrystalised", however -

1) You'll have the confusion of different pots having different pension years, which is the period over which you're restricted to the GAD rate. This can make getting the max out to use your allowance quite tricky.
2) Drawdown can have large fixed fees, and they will multiply across different pots.

I'm going to be in a similar situation to you, though without a working wife, and my plan is to take max 25%, invest in wife's name for tax advantages (will be other way around for you), get unwrapped holdings into ISAs ASAP, and max out pension but with an eye to tax efficiency.

kidmugsy

1) In the current tax year, consider maximising the amount you contribute to pensions e.g. aiming to reduce your taxed income down to the level of the personal allowance against income tax. This would be one part of your strategy of getting money into tax shelters. (If you got redundancy pay, check that the first £30k was tax-free and that the rest is treated as taxable income.)

2) Fill your ISAs (and your wife's?).

3) Long term I expect governments to attack the Tax Free Lump Sum from pensions - that's why Gordon Brown renamed it the Pension Commencement Lump Sum. Consider how soon you want your lump sums out.

4) Follow gadget's advice: "Getting as much out of your pension as you can pre-SP will ensure you pay the least tax, and you should take this out of your pension tax free even if you don't then need it straight away."

5) In May, check to see whether ns&i have put an issue of their Index-Linked Savings Certificates on sale. These have usually provided an excellent tax shelter for the cautious part of an investment portfolio.

imark1

okydoky wrote: »

Briefly, aged 56, and recently made redundant, prospects for similar/any employment limited due to health issues prior to redundancy.
5 pensions, all dc, value around £235k with no gar/gmp's. only Standard Life one has transfer penalty, around £6k, if I move it before 65.
Savings/investments of around £220k, 45% s and s ISA's, 25% cash ISA's, and 30% cash(waiting to be invested, mostly just received from redundancy payment).
So quandary is - need around £8 or £9k pa to supplement household income over next 5 years when wife retires aged 60. At that point will need c£25k pa to live on until state pension arrives. Obviously wish for as high an income at age 66 to add to SP which will be insufficient on its own.
So - do I "drawdown" from savings/investments for a few years and leave pension alone or do I put pension into drawdown, take some tax free cash and generate income here? Either way I will continue to make pensions contributions of £2880pa and get tax uplift.
All thoughts welcome.

I'm in a similar situation at 58. I have Personal Pension and the money I have from opting out of serps since 1989. also a number if PEPS and ISAs dating back to 1992-93. He suggested transfering them l into a SIPP (with Fidelity for example) and then do income drawdown up to my Tax free limit. Supplementing my income with tax free money from my PEPS and ISAs

Tim

kidmugsy

How's your wife for retirement income? Is there a good opportunity for her to draw tax-free income from a pension before her OAP starts? If so perhaps you should be contributing to her pension while she has earnings enough to justify large sums going in. If the pair of you can each withdraw ca £10k p.a. tax-free from pensions, plus whatever tax-free income you want from ISA, there's your £25k.

okydoky

Wife has p/time job in local authority school, only earns around £12k, has been there for five years and intends to work for another five, taking her to 60. She will not take her pension until she is 66 probably, current projections show this will only be about 2.5k pa.
Had not considered this to be honest, should we be thinking of some sort of avc or private pension for her on top of this??

gadgetmind

That £2.5k pa might not sound like a lot, but it would take a pot of £50k to generate that from a private pension and the latter would have loads of risk attached. If you can find ways to boost the LA pension in a cost effective way, then I'd expect it to beat the pants off other options.

marlot

okydoky wrote: »

Wife has p/time job in local authority school, only earns around £12k, has been there for five years and intends to work for another five, taking her to 60. She will not take her pension until she is 66 probably, current projections show this will only be about 2.5k pa.
Had not considered this to be honest, should we be thinking of some sort of avc or private pension for her on top of this??

Rather than AVCs or private pension, she can buy up to £5k of additional pension on the local authority scheme.

jem16

marlot wrote: »

Rather than AVCs or private pension, she can buy up to £5k of additional pension on the local authority scheme.

The AVCs in the LGPS can also be quite useful as they allow you to take your 25% tax free cash from the AVC pot as opposed to taking it from the main pension.

This can mean that you get your whole AVC pot as a tax-free lump sum.