Early Retirement

Triumph13

Converting some of that £32k lump sum into pension may well be a good idea, but there's more than one way to skin a cat and it will be worth looking carefully to see which methods get you the most bang for your buck.


The three key options to weigh up will probably be:

1. Taking a higher pension and smaller lump sum to begin with
2. Deferring your wife's state pension as Kidmugsy suggests
3. Paying an extra couple of years voluntary NI contributions yourself after April 2016 if your state pension is below the full single tier amount- although we don't know what this would cost yet.

Option 2 may well win for the simple reason that you could well end up apying tax once your state pension comes on line whilst your wife won't.

Jack_Itin

Here's a question, If I don't take ANY lump sum, my monthly pension would be £606, + wife's £300= £900 a month.....less £300 for bills,so back to £600......the general opinion is that most people opt for the LS.....but which is the BEST option, we have no debt at all.....taking the LS and using 12 k for bills, will leave 20k in the bank for when I hopefully, hit 65.......opinions please......Jack

xylophone

Is your scheme pension age 65? If so, is your pension being actuarially reduced for early payment?

Was your pension scheme contracted out? Do you have a GMP?

Is your wife's state pension already in payment?

Jack_Itin

Xylophone, Yes, wife already gets pension ,scheme age is 65, but can be taken from 55 onwards, contracted out ?.....GMP ?.....this is all new to me, so don't know, sorry to appear so vague........Jack

Triumph13

A couple of extra questions for you.

1. Have you got a state pension forecast for yourself yet? If not then I would suggest you do that asap; and
2. Have you thought about how each of you would cope financially if the other one dies first?

atush

If the normal age is 65 and you are thinking of taking the pension 2 years early, it may well be reduced (both any LS and the pension) by 10% or more.

I personally would not do it.

Then you say you have no debt, but need 12K of the lumps sum for 'bills'. What bills are these?

xylophone

Xylophone, Yes, wife already gets pension ,scheme age is 65, but can be taken from 55 onwards, contracted out ?.....GMP ?.....this is all new to me, so don't know, sorry to appear so vague........Jack

Do you have a scheme booklet?

Jack_Itin

Bills are usual utility ones.....gas,electric, water,council tax,...they come to about £300 a month....or £3,600 a year....I have rounded them off to 4k a year to allow for them going up, if I were to die first then wife gets a small pension, plus she still has 20k of lump sum after the 3 years..........Jack

atush

How much of your pension does she get if you die- 50%? Do you have any S2P for her to inherit? She may also get more state pension, enough to top her up to full as she gets less now.

moneyfoolish

kidmugsy wrote: »

If you are going to try the experiment of frugal living, consider the possibility of your wife suspending her State Pension for a year. (It's officially "Pension deferral".)
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/299286/dwp024-apr-14.pdf

The reward she'd get for a year's deferral is 10.4% extra on her pension - that's like buying an index-linked annuity that pays 10.4% p.a.; a remarkably good deal. (It's so good that the reward is going to be halved for the new-style State Pensions.)

Another thing you could consider once you have some spare cash, i.e. after April '15, is for your wife to make a pension contribution (up to £2880 per annum). The taxman makes the £2880 up to £3600 and then, shazzam, the intention is that she can draw it all out and, in her case, it'll be tax-free. (Strictly 25% will be tax-free, and the rest will be taxed but she can claim back that tax.) So if the new laws reflect the Chancellor of the Exchequer's intentions, this may be a very good stunt. It's worth keeping an eye on to see whether some regulations are introduced to obstruct it.

If you are already a pensioner but you defer your pension AFTER the new scheme starts will you still get the old 10.4 increase per year of deferral?