Early retirement - managing the gap between quitting and claiming pension

spongebobbrownpants

Hi, been viewing this forum for a while now, seems to be a lot of knowledgeable folks :T

About time I started looking at my plans for quitting, currently hope to finish around 53 to 55 (about 8 years time). I'm fortunate to have a NHS 1995 Final salary pension which will have about 33 years if I finish as planned and I appreciate how good this is compared to the private pensions available now.

The advice on here seems to be to delay taking the NHS pension as long as possible (current scheme age is 60 for the 1995 section) so I'll be looking to fill the gap between say 55 onwards.

At the moment I'm filling some of the current accounts available and have about 10,000 spread around, also paying about 150 a month into the vanguard life strategy (80%), only up to about 1,000 in here though. Also have a NHS AVC worth about 15,000 that I'm not contributing to currently. I'll be able to put away in the region of 500-800 a month hopefully if I can persuade the missus to stop spending !

Looking for ideas really in-case I've missed something, options as I see it are to add more to the vanguard (happy to take some risk), or look at other options such as buying additional NHS years ? Appreciate any advice you may have ? :beer:

kidmugsy

spongebobbrownpants wrote: »

knowledgeable folks

Careful now; Obleedin'bama calls terrorists "folks".

spongebobbrownpants wrote: »

I'm fortunate to have a NHS 1995 Final salary pension ... I appreciate how good this is compared to the private pensions available now.

My dear fellow, there is really no need to apologise for the fact that a large part of your pay-packet came in the form of pension rights. It may be a foolish and extravagant way to have paid you, from the point of view of the taxpayer, but that's hardly your fault.

spongebobbrownpants wrote: »

The advice on here seems to be to delay taking the NHS pension as long as possible (current scheme age is 60 for the 1995 section) so I'll be looking to fill the gap between say 55 onwards.

At the moment I'm filling some of the current accounts available and have about 10,000 spread around, also paying about 150 a month into the vanguard life strategy (80%), only up to about 1,000 in here though. Also have a NHS AVC worth about 15,000 that I'm not contributing to currently. I'll be able to put away in the region of 500-800 a month hopefully if I can persuade the missus to stop spending !

If you can put away about £10k p.a. for eight years (into ISAs, say), that means that in rough terms you can draw out again about £16k p.a. for five years. Would that be enough? Then your AVC would help see you through until your State Pension begins presumably. However, consider using pension contributions instead, to a Personal Pension of some kind. There a contribution of £10k gets grossed up to £12500. When you withdraw that at age 55 you'd get 25% as a tax-free lump sum (£3125) and £9375 exposed to income tax. But that latter would be below your personal allowance so, bingo!, it's tax-free too. (Unless you've used your PA against some other source of income.) I've ignored growth/shrinkage in your investment, and inflation. In fact you'd probably have a bit of personal allowance unused so you could usefully withdraw a bit more. If we multiply by 8/5 (eight years: five years) we get £3k tax-free and £15k mostly tax-free: suppose the last £3k of the latter is taxed at 20%, leaving you with £17.4k p.a. Is that enough?

Subtleties: (i) You'd have to calculate more carefully for your first year of retirement if you stop work part way through the tax year, and for the year when you are sixty and the NHS pension sets on. (ii) I have no idea whether you'll be able to take your AVC tax-efficiently at 55; follow the news as parliament considers this topic. (iii) You'd need to check that you have capacity to contribute £12500 gross p.a. to a Personal Pension; there's a £40k p.a. personal limit for pension contributions, of which the growth in your NHS pension consumes a bit. On the other hand you are allowed in some circs to carry forward from earlier years any unused part of the £40k. (iv) To keep open the option of going at 53 you'd want to put some of the cash to ISAs to use 53 to 55, and the balance to pensions to use from 55 onwards. (v) If I were you I'd not be looking to plunge the bulk of the money into equities when you're saving for expenditures in just a few years time. (vi) Keep up to date on what, if anything, you should do to maximise your eventual State Pension. A little bit of self-employed work, and the making of self-employed NI contributions might be a cheap way to make it up if you would otherwise fall below the target of 35 years of contributions. (vii) There's a lifetime allowance limit on how much you're allowed to contribute to pensions in total, including the value of your NHS contributions and your employer's; are you pension-rich enough for it to apply? (£1.25M I think.)

jem16

spongebobbrownpants wrote: »

Hi, been viewing this forum for a while now, seems to be a lot of knowledgeable folks :T

About time I started looking at my plans for quitting, currently hope to finish around 53 to 55 (about 8 years time). I'm fortunate to have a NHS 1995 Final salary pension which will have about 33 years if I finish as planned and I appreciate how good this is compared to the private pensions available now.

The advice on here seems to be to delay taking the NHS pension as long as possible (current scheme age is 60 for the 1995 section) so I'll be looking to fill the gap between say 55 onwards.

I'm assuming you are age 45/47 at the moment - can you clarify?

As you hopefully know from April 2015 you will switch over to the CARE pension scheme so it will mean at least 7 of those 8 years will be subject to your state retirement age as opposed to age 60 which means an actuarial reduction on those years.

What is not clear at the moment is whether you would be able to take the 26 years of your 1995 section pension and not take the other 7 years till state retirement age.

jimi_man

jem16 wrote: »

I'm assuming you are age 45/47 at the moment - can you clarify?

As you hopefully know from April 2015 you will switch over to the CARE pension scheme so it will mean at least 7 of those 8 years will be subject to your state retirement age as opposed to age 60 which means an actuarial reduction on those years.

What is not clear at the moment is whether you would be able to take the 26 years of your 1995 section pension and not take the other 7 years till state retirement age.

If he is 47 then he'd have less than 10 years till retirement wouldn't he? So he'd be protected I would have thought.

jem16

jimi_man wrote: »

If he is 47 then he'd have less than 10 years till retirement wouldn't he? So he'd be protected I would have thought.

47 plus 10 is 57 which is less than 60 so no protection. It's the scheme retirement age which counts not when someone chooses to retire.

jamesd

If you are willing to wait until age 55 you can make contributions into a personal pension. The new rules due from April 2015 will let you draw on this as fast as you need to to cover your living expenses before you reach normal retirement age for the NHS pension.

To cover years before age 55 your first choice should be investing within a stocks and shares ISA.

Aim to accumulate at least 50% more than you think you'll need to give you a safety margin.

spongebobbrownpants

Thanks all, some useful comments, didn't consider an additional SIPP. Currently 46 so not protected under the new NHS scheme changes and I appreciate that from 2015 part of that allowance is subject to the new rules.