Advice on pension

kdrummo

I have £60,000 sitting in my bank account from the sale of a property. I am told to put it into a pension as this is the best option for me. I am 49 years old. I will have paid into a work pension for 23 years and I am able to retire aged 55 with a lump sum of approx £55k and £1300 per month. I am thinking of leaving my current job as I am unhappy there and I have been advised if I do my pension would be deferred until I am 60. Do you think it would be a good option to place the £60,000 into a pension so I can access it aged 55 and just wait for my work pension to be paid 5 yrs later?? I am confused about pensions and could do with some advice.

LHW99

Do you plan to work at another job when you leave the current one?
If so the new employer will / will soon probably have an autoenrollment scheme and you would build up additional pension there.

mgdavid

Is the "lump sum of approx £55k and £1300 per month." the projected pension if you stay where you are for the next 6 years?
What will the figures be if you leave next month, i.e. only 17 years service instead of 23? What other work do you plan to do? If you have normal health your life expectancy is around another 40 years, you need a *lot* of pension to cover that period.

jamesd

If you will be unemployed and claiming means tested benefits you will need the money because benefits means test will treat it as if you deliberately deprived yourself of capital if you put it into a pension just before claiming. Your benefits would probably be reduced by something like 5% of the £60,000 a year, split weekly, as if you still had it available.

If you simply wait until you have a new job, it is entirely possible that your new employer wil have a pension scheme that offers a better deal than one you could open now. Not certainly, but if they offer say salary sacrifice, you'd gain on the national insurance as well as the income tax on the money paid in and you might also gain some part of the employer NI saving. In such a scheme it'd make sense to sacrifice pay as much as you can and use the £60,000 for living costs until you've moved it all into the pension via the salary sacrifice setup.

You can probably get say 5% a year of investment income from the £60,000 plus draw on it as capital, say £3,000 a year initially. What do you need to live on? I'm trying to get some idea of whether you could retire now with sufficient income. To do that takes some knowledge of your income needs and also knowledge of your other savings and possible income sources, so it's possible to work out an achievable income level and compare that to what you need.

Is it possible to retire before 55 from the current work scheme with some reduction in the amount paid?

Linton

From the fact that you know what your works pension would be at 55 I assume that it is a Defined Benefits (Final Salary) one. Pls let us know if it isnt. It may well be the case that you would be better off not taking the work pension early but live off your savings instead. However it depends on the details.

You obviously dont need to put the £60K into a pension to live off it from the age of 55. But putting the money into a pension could give significant tax benefits. Do you have other savings/investments? What other income would you have from 55? If none and assuming you are a basic rate tax payer your £60K would get raised to £75K to rebate the original income tax and then you would be able to withdraw £15K/year for 5 years, of which 25% would be tax free, and the remainder would probably fit entirely within your then tax allowance. Can you live on £15K/year?

Note that you would have to put it into a pension over a number of years as there is a limit for all money paid annually into pensions of the lower of £40K/year and your earned income.

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kdrummo

Thank you for all your replies. I still intend on working if I leave my current job. The pension of £55,000 is a projected figure if I stay there for another 6yrs. I will find out what the figure will be if I leave now. I have normal health and I will possibly go into another job to do with investigation in the private sector but not quite sure yet as have a lot of thinking and number crunching to do. I have a mortgage and bills but as of next June will have a joint mortgage with my OH therefore reducing my outgoings considerably. We have discussed that I intend to be mortgage free by the age of 55 as that was always my plan to move back up north and downsize to be mortgage free. My OH will then take on any outstanding mortgage. I have quite a bit of equity in my property. I think I will be able to live off £15000 a year as my intention is to work as long as I can anyway but on a part time basis and in a job that I enjoy with less stress.

kdrummo

Hi. I've just read my last pension statement and if I were to leave now I would have accrued £39,000 tax free lump sum and £9,800 per year. I was thinking that if I also invest the £60,000 into a pension I would also have the benefit of the tax rebate. I am just in quandary as to what to do for the best as I am really unhappy in my current job.

xylophone

Look for a new job now before you leave your current employment.

atush

Always good advice to line up a new job before quitting an old one.

In your case with a DB pension it is a great idea to put 60K into a personal pension (or new work pension) to live off if you decide to retire at 55 so that you can wait to take the DB pension unreduced.

However, you won't be able to put it all in a pension at once as yu can only put in 40K pa. Or your income whichever is higher.

So it could take you a few years to get the money in.