How Much Pension Do You Really Need?

atush

Yes, the new regs mean you can take all pension after April next year.

But anything beyond the 25% TFLS will be treated as income, and with the amts you have, could be subject to crippling rate of tax.

Thrugelmir

BeatTheSystem wrote: »

The reality of what we will need is somewhere in between 25K and 60K. We like to run two cars as that gives us independence. My gut feeling is that we need 40K net income to have a decent stress free financial retirement, however that wont be super luxurious so aiming higher. I am starting to build decent sums up now but I am disappointed with the level of income being generated, in my experience investments tend to do less well then expected even with proper planning from professionals so my advice anyone reading is save twice has hard as you think you need to.

People have an over expectation on the return of investments. What's more important is the amount that one saves and ensuring that this increases in line with inflation\wage increases etc.

As in reality a moving target is being chased. You require £40k net. With a 2% inflation rate next years that becomes £40,800. After 10 years you'll require nearer £50k.

jamesd

sabelu wrote: »

I currently have a 250k fund including savings, second property and the above. This has been gained through sensible investment and tenacity as well as a tax efficient approach. Just got 20k tax relief as a higher rate tax payer due to last years pensions contributions. We also have my wife's pension and of course the state pension, we are mid 50's, to look forward to.

It appears that you may have an occupational defined benefit pension, like final salary. Are you aware that the annual contribution limit just fell this April from £50,000 to £40,000 and that the increase in value of an occupational pension counts towards this? You'll also need to check the Pension Input period of the occupational pension so you can work out how much of it fell in each tax year. There's a carry forward of allowances from the past three years allowed so you probably didn't actually go over the limit.

sabelu wrote: »

Am I at my limit re pension we should get plus of 20k p.a. Pension expectation plus the state contribution?

If the £20,000 is a defined benefit occupational pension it is valued for lifetime allowance purposes at 20 times the income produced plus the lump sum. So its lifetime allowance value is £400,000 at the moment, assuming that includes the lump sum.

I'm unclear about the nature of your pensions. It appears that you may have both a personal pension and a defined benefit pension but is that correct?

sabelu wrote: »

We currently earn 90k pa between us. Should I slow up to be tax efficient in retirement?

No because you can efficiently remove the money from the pension pot and the higher rate tax relief is worth more than the alternative options. If the contributions are by salary sacrifice to a work personal or group personal pension the basic rate saving of employee NI adds another 12% to the gain in the basic rate band or 2% in the higher rate band.

sabelu wrote: »

Is my pension pot build becoming an obsession? We have everything we want financially in life, what will be our needs in retirement.

It's a lot of money with care being taken over it, not an obsession. The income need in retirement is what this discussion is about.

sabelu wrote: »

As for my Occ Pension as i approach 55 I can take the lump sum and reinvest, my question would be, can I close my company pension, move the fund to my SIPP where I have greater investment opportunity? Then reopen so as not to lose the company contribution within the realms of the new legislation.

If the occupational pension is defined benefit you can't normally move it unless you have been diagnosed with a medical condition that dramatically shortens your life expectancy. A move in that case is normally easy. If it is defined benefit you should not take it earlier than the normal retirement date unless you have retired and you need the income, there are reductions for taking such a pension early and they are usually more than the gain from doing so.

If it is a group personal pension you can normally move it, sometimes with a bit of hassle, sometimes just easily. A move may well be a good idea in this case. You can usefully take both lump sum and income drawdown from this type of pension at age 55 because you can recycle the pension income into more pension contributions and get tax relief again, accumulating another 25% tax free lump sum. You can also recycle the lump sum subject to some limits that you should ask about here if this interests you. This isn't actually withdrawing overall because you just reinvest the money again. The lump sum can be usefully moved into ISA investments over time as the annual allowance permits, changing that part of the pension pot from taxable to untaxed future income.

sabelu wrote: »

As for my SIPP the projection put together four years ago before new proposals starts low and gives me more as I get older, this to me seems the wrong way round I.e. If I could have greater income now at 55 when I need it I could semi retire now, will new proposals change this in my favour giving me more income prior to state entitlement?

There has already been an increase in capped income drawdown's income limit from 120% of the GAD value to 150% that will help significantly with drawing at a higher rate now. Your projection will have assumed that you bought a lifetime annuity that increases with inflation. That is not what you would want to do when taking an income at age 55-60 with the idea of drawing a high income until other pensions start. For that situation you would use capped income drawdown. Yes, the revised proposals have already allowed you to take more income and the planned access to the whole sum from next year will further increase that flexibility.

sabelu wrote: »

I have seen flexible drawdown mentioned how does this differ from normal drawdown? What are the benefits? Will this only be subject to future drawdowns starting?

Flexible drawdown under current rules offers the ability to take the whole pension pot after the 25% tax free lump sum as taxable income whenever desired. To do this it was necessary until the Budget to have an income already in payment of £20,000 from work defined benefit pensions, annuities and the state pension combined. The Budget reduced that income requirement to £12,000. The proposed change to allow the whole pot to be available with no income requirement will make this redundant unless it's done by modifying this rule to remove the income limit. If flexible drawdown is used it is prohibited to make any more pension contributions in and after the tax year in which you start it. This includes workplace pensions and payments by other people, including employers. For this reason and the income requirement it's usually better to use capped drawdown at the sort of ages you're at now and considering. Flexible drawdown is of more use at the moment for those who have actually retired and who are already receiving all or most of their eventual state and workplace defined benefit incomes and who are unlikely to want to recycle much pension income or lump sum into new pension contributions.

sabelu wrote: »

I also saw advice saying keep 1k in an open SIPP, drawdown the rest what would be the benefit of this?

There's no major reason to do that. You only accumulate annual allowance for pension contributions to use if you are a member of a pension scheme in the year so this may help with that. It's also been possible to force triggering an income limit recalculation for capped income drawdown by converting more of an unconverted pension pot from no lump sum or income taken (uncrystallised) to crystallised, moving it into the drawdown pot.

At the moment the exact nature of your pensions is unclear. The differences between defined benefit occupational pensions and group personal pensions or personal pensions including SIPPs are substantial in what the correct course of action is and which rules apply. I've assumed that you have one of each because that fits your description best but you cold just have been using words without knowing what they implied about the type of pension, that's quite common. Exact information about the nature of the pensions would be useful.

It's entirely possible that you may have enough set aside to retire now. However there's sufficient ambiguity about the nature of your pensions and their values that I can't be sure. It would also depend on your desired after tax income level and that is for you to work out and specify.

atush

I agree, we cant read minds so cant say. Esp as with a 250K 'fund' that contains a property with no specified yield and could be 20-80% of the fund?

You need to pay someone to work it out for you if you can't be bothered to give details. Or work it out yourself with tat we said above re %.

Gatser

Good question....


Have you calculated your NUMBER?


I was asking this question in my NUMBER posting, have you seen it?


Good luck... interested to hear what you feel is a comfortable figure to retire on?

sabelu

I think 24k would be ok for lifestyle to be maintained with 5-6 european breaks per year.

sabelu

atush wrote: »

I agree, we cant read minds so cant say. Esp as with a 250K 'fund' that contains a property with no specified yield and could be 20-80% of the fund?

You need to pay someone to work it out for you if you can't be bothered to give details. Or work it out yourself with tat we said above re %.

Ok so 250k that includes 55k of property.

atush

so you have less than 200K. What is the yield, after costs, on the property?

Daniel54

Also,what and how much is the occupational pension you refer to ? is that also included in the less than 200k ?