How to retire early?

inthebubble

Thank you to the well-informed posters who helped me with my earlier query about actuarial reductions in LGPS.


As I've followed the sophisticated and expert discussions on this forum, I realise that I perhaps should have been asking for your collective wisdom on a more open question, taking into account all my personal circumstances.


So here goes: how can I best retire early from full-time work?


I'm a very fortunate position in many ways.


I'm 52 with a full-time job in local government, a salary of £68k and 17 years continuous service in LGPS. My pre-2008 service has a CRA of 60. I have an AVC pot of about £110k which I began in 1999 and which I'm currently paying half my salary into on the rationale that I'll get it out tax free, on current rules. Not sure if I should carry on with that though.


I earn another £2,500 PAYE in a part-time teaching job, which I've had for three years and which is earning a tiny bit of credit in the Teachers Pension Scheme, payable at SPA, I think.


I have two other DB pensions, deferred, linked to RPI, which pay out unreduced at age 60 - current estimate is £10k/year at today's money plus AVCs of about £10k of which I have to spend 75% of on annuity. It's not worth transferring - the figures came out badly.


At the moment, I'm also bringing in another
£6,000/year approx. in consultancy on a self-employed basis.


I have no mortgage on a property worth £700k. Savings of £50k in cash and S&S ISAs. No dependants. Some hefty ongoing health insurance and other medically-related bills though.


I need to clear about £2,200/month, net, to live on for the rest of my life.


I have a disability (but not enough to get ill-health retirement or benefits) and I'm knackered. I can't carry on like this. My employers wouldn't let me work part-time in my day job and I don't really want to do that anyway.


What I'd like to do is leave, fairly soon, hopefully in the next year and certainly no later than 55. Then develop the teaching and consultancy side so that I might bring in £10k or £15k/year for five or ten years. But I would rather know that I'm OK without that.


So my question is how can I best achieve that? My plan was to spend my savings until I am 55 then take my LGPS pension early, in part to access the AVC pot which I could use to top up my reduced LGPS pension until the other pensions and, eventually, state pension, kick in.

I might like to move out of the South East in a couple of years, and although that could be used to release some capital, it's also going to incur some spending, with stamp duty and other costs.


Sorry this is such a complex set of issues. Any thoughts and advice would be much appreciated.
Thanks

atush

Ok. so here is what you need to do to retire earlier (and god knows why didn't you ask us a couple year ago lol!).

Dont put more into your AVC if it already is 25% or more in value of your total pension. You do have the BEST AVC anywhere, as it can be used to pay your 25% TFLS, and no reduction to your DB pension. which is good, as you dont have a full accrual (ie 17 years now plus a few ongoing) so you want to maximise this. But you wont get as much advantage if you put in more than that.

What you need to do, is open a personal pension/Sipp/DC pension. You will get 40% tax relief, if your current pension does not bring you down to sub 42K. So every 100 into your pension costs you only 60. A total no brainer!! Any excess would be 100 for a cost of 80.

Then this money can grow for a few years (but you'll need to be conservative with such a short time even with the 20% boost) before you can take it. 25% tax free, then the rest taxed as income. which, of you dont have income that tax year as you have retired, you can draw another 10.5K in income tax free. Which should keep you, but even if it doesn't, then you only pay 20% tax on anything over that.

kidmugsy

I'm surprised that you can pay £34k p.a. into an AVC while accumulating pension rights in LGPS (and even TPS). How do you cope with the £40k p.a. contribution limit: are you carrying forward some allowance from the past?

atush

didnt catch that, good call

inthebubble

Yes, you're both right, I am using up past unused allowance which the Pru (as AVC provider) is monitoring. I know I won't be able to carry on paying in at this rate. I started this very high level of payments 12 months ago when my mortgage finished (I know, I know, I've just been reading some of your other posts today....but it was on a fixed rate, fixed term and it came to its end).


The AVC pot at the moment is something near £110k so it's not near 25% of the total value of my pensions (which I guess are notionally in the high hundreds of thousands).


I am very appreciative of your expertise and the time you are taking to think about this, so thank you.


(When we've got to the end of what I must do, I'll post separately about what my AVC and ISAs should be invested in, as I suspect that's not right either.)


All best wishes.

Marine_life

inthebubble wrote: »

I have no mortgage on a property worth £700k

I think you just answered your question.

Sell and move somewhere a lot less expensive.

jamesd

With the right assets you can retire now. You've mentioned some assets but not much seems to be outside of pensions and those aren't available until age 55 at least. "I have no mortgage on a property worth £700k. Savings of £50k in cash and S&S ISAs". Do you have anything else outside of pensions?

If not, you still can retire now but you would have to mortgage or sell the property to do it.

Is the LGPS AVC available at 55 without taking the main pension pot? That'd be how you'd live until you get the main defined benefit part. If it isn't accessible at 55 you should probably rethink which pension you're paying into and switch from AVCs to a personal pension that will be accessible at 55.

I think that you can retire today with your target income with not consultancy or part time work. Needs more certainty about your non-pension assets - that there's no more and whether you're willing to mortgage or sell now - to start thinking about a cash flow plan.

General objective starts out at not taking any of the defined benefit pensions until their normal retirement age because the actuarial reductions tend to be punitive.

You can increase safety margins a bit by waiting until you've used up most of your remaining unused annual pension contribution allowance. If you can stand that it's a good idea.

It's also desirable to know more about your medical situation if that would affect your life expectancy. One reason for that is that reduced life expectancy is one of the situations where it can be a good idea to transfer out of a defined benefit pension, depending on just how low the life expectancy is compared to the average for the scheme.

kidmugsy

Re AVCs - have a look at p13.
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/332714/pensions_response_online.pdf

Perhaps write to, or lobby, your MP to see whether changes that benefit you can be passed into law.

kidmugsy

If you are thinking of leaving the SE, why not go off for a trial period to somewhere you might like to live long term, and let your flat meantime? That'll bring in some income while you peer about elsewhere.

Teaandscones

Scrap paying in the AVC as although it is a good deal, you can't separate it from your main scheme benefits.

Pay instead to a DC scheme unrelated to the LGPS as you can then take this out at age 55. If for example you retire at age 55, it would be better to spend this DC scheme before taking your LGPS benefits with an actuarial reduction. If you move to a cheaper property, then that also frees up cash for early retirement; but if you don't move then consider taking out a mortgage to be repaid with your AVC fund instead of taking your LGPS early.

Best option, get to age 55 and get made redundant but chances are that powers that be won't sanction that.

PeacefulWaters

I'm very much with the "sell the house" option.

Move to a £249k property. Invest £501k for income. Collect pension later.