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Another plan to critique

So I have lurked and digested for a couple of years; I've read so much common sense and wisdom here, now it's time to put it into practice.
I will be leaving fulltime work in May 2014, a few weeks short of my 65th birthday. At 65 I will have:
- easy access savings (FD, 123, ISAs etc) 40k, wife - similar.
- 2 DB pensions totalling 17900 p.a.
- state + SERPS approx 6900 pa
- S32 policy with a g'teed rate giving 4000 p.a.
So a stable and increasing (mix of RPI & CPI) income of 28800 to cover standard living costs. (and a widow's income of 17300).
We own the house (450k?) and are mortgage-free.

In addition I have DC & stakeholder pots totallling 170k. I propose to take the 25% TFLS (potential assistance for offspring's house purchase)..
The remaining 127k I plan to take using flexible drawdown, taking the maximum each year that just keeps me below the 40% tax threshold thus depleting the pot in around 11 years. We will use this for big ticket items, travel, hobbies, holidays etc and whatever isn't spent can go into ISAs.
By empty-pot time I'll be 76 and slowing down a bit I expect so will need less to live on. A house downsize at around 70 will reduce outgoings too.
Any comments? Have I missed anything obvious?
The questions that get the best answers are the questions that give most detail....
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Comments

  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
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    edited 21 December 2013 am31 11:11AM
    If you have no objective reason to think you might die young, defer your state pension for two or three years (and compensate by taking more from the drawdown). Take your reward when you restart as a pension bigger by 10.4% (simple interest) for each year of deferral. It's equivalent to buying an index-linked annuity at better than twice the rate you could get commercially. (The deal is so good that the reward is going to be halved when the new style State Pension begins). (If your wife qualifies for the old-style pension, she could do the same - especially since her widow's provision isn't so good. Depending on her age, a somewhat longer deferral might be optimal.)
    https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/210220/DWP024.pdf
    For you to defer your pension all you have to do is refrain from claiming it.

    Keep your eyes peeled for the ability to buy extra S2P/SERPS promised for Autumn 2015-Spring 2016: maybe the terms will prove attractive.

    I'm a bit sceptical about house downsizes - I suspect that they liberate less capital than people hope, but I admit I have little evidence. It's just that the people we know seem to end up spending quite a lot getting the new place into a condition to please them.

    Like the rest of us, when it comes to medical expenses and "care" in old age you can probably only pray.
    Free the dunston one next time too.
  • jamesd
    jamesd Posts: 26,103 Forumite
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    kidmugsy is right about deferring the state pensions, it's one of the best deals around. Optimal is 1-3 years for men, 2-5 for women, if in good health. Those who can expect longer life expectancy like solicitors and other professionals and who are in good health that is consistent with that should consider the higher end. In your case this also helps you to take more income using flexible drawdown because you can claim the state pension first, qualify for flexible drawdown with £20k of income, then defer. One deferral after commencing is allowed in a whole lifetime. The reduced income while deferring will allow you to take more out of the pension pot before hitting higher rate income tax. Maybe you wouldn't need to take the state pension first, if the S32 is an annuity then that plus the DB would take you over £20k.

    It's probably better to use the S32 instead of the state pension claiming to get the 20k for flexible drawdown because that would let you mix deferring for lump sum and deferring for higher income, doing some of each in two time chunks. But we don't know what options the S32 provides, some are just like normal pension pots, others have substantial preserved benefits.

    If you don't want the higher income from deferring, your situation is also one where deferring the state pensions then taking a lump sum can pay. The lump sum is not added to your income and calculated at normal income tax rates, so it doesn't force you into higher rate income tax if you aren't there when you take it. So you can use flexible drawdown as much as possible, then in one year take the whole deferred state pension lump sum at basic rate tax, being sure that you are really not pushed into higher rate that year by something like savings account interest. Because you'll be taking the lump sum the usual general 103 or 2-5 years limit doesn't really apply so you could do this to take about £19,000 a year from the taxed £127k drawdown pot at basic rate. Completely drained within about seven years.

    You can also usefully check the rules for the DB schemes to see whether they offer any option to defer and what the cost/benefit of doing that is. Some will continue to increase the pension income for years when you don't take it and that could let you take out the whole flexible pot in less than five years.

    You haven't mentioned lump sums from the DB pensions. Are you planning not to take lump sums from them, not taking usually being the best choice for DB?

    For the DC you'd normally always take the maximum lump sum.

    So far as downsizing goes it tends to be best if practical to do that early so you get the cost savings as soon as possible and do the moving while as young as possible.

    Looking longer term, you'll need to be confident that you can live on the remaining pension income. One of the best ways to do that is to downsize early and ensure that you can by doing it in practice for a year or so.
  • chucknorris
    chucknorris Posts: 10,793 Forumite
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    edited 21 December 2013 am31 11:24AM
    Kidmugsy/Jamesd I am 56 in Jan, so still 10 years away from state pension age, although I will probably retire in 2.5 to 5 years anyway. I have plenty income and don't actually need my future pension income, I treat it as both a hedge against living longer than expected and also simply as an investment. Plenty of time to go but I was thinking about deferring both my teachers pension and the state pension. I am healthy and keep myself fit (cycle, run and walk my dog in the countryside). I am a professional (chartered surveyor/university lecturer), I don't smoke (drink sometimes more than a little though) so I think it makes sense for me to defer.


    EDIT: Looks like deferring isn't an option.
    Chuck Norris can kill two stones with one birdThe only time Chuck Norris was wrong was when he thought he had made a mistakeChuck Norris puts the "laughter" in "manslaughter".I've started running again, after several injuries had forced me to stop
  • jem16
    jem16 Posts: 19,494 Forumite
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    Plenty of time to go but I was thinking about deferring both my teachers pension and the state pension.

    You won't get anything extra from deferring the teachers' pension past it's normal retirement age. However if you mean not taking it early to avoid the actuarial reduction then that's different.
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
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    I am 56 in Jan, so still 10 years away from state pension age … I was thinking about deferring ... the state pension.

    The present deal on deferring won't apply to young things like you, though. The corollary of its being a super deal for pensioners is that it's excruciatingly expensive for taxpayers.
    Free the dunston one next time too.
  • chucknorris
    chucknorris Posts: 10,793 Forumite
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    edited 21 December 2013 am31 11:26AM
    jem16 wrote: »
    You won't get anything extra from deferring the teachers' pension past it's normal retirement age. However if you mean not taking it early to avoid the actuarial reduction then that's different.


    Thanks, you were correct in thinking that I thought that 'deferred' (in the TPS) meant that you could do the same as I (also incorrectly) thought that I could do with state pension, and actually defer it beyond NPA. Oh well at least that's less decisions to make then.
    Chuck Norris can kill two stones with one birdThe only time Chuck Norris was wrong was when he thought he had made a mistakeChuck Norris puts the "laughter" in "manslaughter".I've started running again, after several injuries had forced me to stop
  • kidmugsy wrote: »
    The present deal on deferring won't apply to young things like you, though. The corollary of its being a super deal for pensioners is that it's excruciatingly expensive for taxpayers.


    Bloody hell, that means I don't have to make any decisions about deferring pension then. Just as well I hadn't thought too much about, it, it was only a passing thought.
    Chuck Norris can kill two stones with one birdThe only time Chuck Norris was wrong was when he thought he had made a mistakeChuck Norris puts the "laughter" in "manslaughter".I've started running again, after several injuries had forced me to stop
  • mgdavid
    mgdavid Posts: 6,709 Forumite
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    kidmugsy wrote: »
    .....defer your state pension for two or three years (and compensate by taking more from the drawdown). ........

    Keep your eyes peeled for the ability to buy extra S2P/SERPS promised for Autumn 2015-Spring 2016: maybe the terms will prove attractive.
    .......

    Thanks; I'd looked at deferring SP but my IFA is against it (he is of the 'get your hands on it as soon as possible' mindset, I'm beginning to think he's not making a rational conclusion based purely on the numbers). I will reconsider.

    Had read about buying extra S2P, as long as I don't desert this forum I can't forget :-)
    The questions that get the best answers are the questions that give most detail....
  • mgdavid
    mgdavid Posts: 6,709 Forumite
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    jamesd wrote: »
    ........ Maybe you wouldn't need to take the state pension first, if the S32 is an annuity then that plus the DB would take you over £20k.........

    The S32 is a with-profits fund and last communication showed a g'teed 8.7% annuity rate so I will be over the 20k without SP.

    .........So you can use flexible drawdown as much as possible, then in one year take the whole deferred state pension lump sum at basic rate tax, being sure that you are really not pushed into higher rate that year by something like savings account interest. Because you'll be taking the lump sum the usual general 1-3 or 2-5 years limit doesn't really apply so you could do this to take about £19,000 a year from the taxed £127k drawdown pot at basic rate. Completely drained within about seven years.

    Useful scenario, thanks. My gut-feel is to go for the increased SP, to mitigate your final para.

    You can also usefully check the rules for the DB schemes to see whether they offer any option to defer .......

    Sorry, should have said the DB pensions have been in payment for a couple of years (no penalties over 60) and I've been ploughing most of it back into a lo-cost stakeholder pot. And no I didn't take any lumpsums.

    So far as downsizing goes it tends to be best if practical to do that early so you get the cost savings as soon as possible and do the moving while as young as possible.

    I'm a motor racer so need space for the cars, trailer and camper van. The right time seems to be when I reach the point that they won't renew my race licence, or am so slow I stop enjoying it, hopefully at least 5 years away.

    Looking longer term, you'll need to be confident that you can live on the remaining pension income. One of the best ways to do that is to downsize early and ensure that you can by doing it in practice for a year or so.

    All good points which help optimise the plan, thanks.
    The questions that get the best answers are the questions that give most detail....
  • jamesd
    jamesd Posts: 26,103 Forumite
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    mgdavid wrote: »
    Thanks; I'd looked at deferring SP but my IFA is against it (he is of the 'get your hands on it as soon as possible' mindset, I'm beginning to think he's not making a rational conclusion based purely on the numbers). I will reconsider.
    He's definitely not making a rational decision based on the numbers. You can't get an index-linked annuity that pays 10.4% to a person in good health in today's open annuity market and you can't get that from drawdown with such high confidence either. That is what you are buying when you defer the state pensions. The time ranges I gave are based on expected return calculations from an actuarial study of deferring, picking the ranges in the expected return graphs where the benefit is most significant.
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