Retiring Dec 2015 what should I be doing?

Middle_Sister

I retire at the end of this year. I am in a company pension scheme. Should I be piling in as much money as I can?

Linton

Not much help to you but may be to others - you should have been asking this question 10 years ago.

As to what you should do now......

Whatever you do will be pretty marginal. The extra money you could acquire would be very small compared with what is already in place and certainly wont be life-changing. Any extra you put into a DC pension will give you a 5% net gain (20% of 25%) assuming you are and will be a standard rate tax payer. Nice to have but no more than that.

Perhaps more usefully you can work out how to take the pension if you havent yet done so. If its DB (Final Salary) you may have various lump sum options. If its DC you will have to decide whether to buy an annuity or take drawdown. Making these decisions will require some financial planning. Also if you are eligible for an immediate state pension it may be worthwhile thinking about whether you want to defer it.

saver861

Not going to make much difference to your overall pension pot now - other than any tax advantages of banging in more to an AVC.

I would be reviewing all your pots and reducing them into risk free funds where relevant. You certainly don't have time to make up any significant drops if they happen this year.

Middle_Sister

I was in a final salary scheme till about 5 years ago and am now in a different scheme which is not as good I believe. I can take 25% tax free (£250,000) which I think I will take as a bird in the hand is worth two in the bush. If I don't take the £250k I will get £50k a year or if I take it this drops to £30k. Plus I will have the State pension which I may defer for a year but wonder if it's worthwhile as it's nearly 9 years before I get any benefit.

What I meant was - can I put in as much money as I can spare in the final year or is it not worth doing.

atush

Ok, first of all, is 250K your TFLS from the old FS pension? Which will cost you 20K per annum? It could be worth taking enough TF to bring yu down to BRT taking into acct the DC pot income as well.

What is the total of your DC pot today?

Linton

Middle_Sister wrote: »

I was in a final salary scheme till about 5 years ago and am now in a different scheme which is not as good I believe. I can take 25% tax free (£250,000) which I think I will take as a bird in the hand is worth two in the bush. If I don't take the £250k I will get £50k a year or if I take it this drops to £30k. Plus I will have the State pension which I may defer for a year but wonder if it's worthwhile as it's nearly 9 years before I get any benefit.

What I meant was - can I put in as much money as I can spare in the final year or is it not worth doing.

Taking a £250K lump sum but losing £20K/year is a very poor deal in crude financial terms. To put this, and your comment on deferring the state pension into context:
Assuming:
- you are female (your name!)
- you are around 63
- you are currently in good health

On average you are expected to live until you are around 90, some 27 years away.

On the final question - what you can put into a pension each year and get tax relief is limited to a maximum of £40K including employers contribution, your gross salary, and by £1.25M value of the total pension pot. So you cant put away a massive amount.

atush

But if 8K of that 50K is going to be taxed at 40% and every penny of the DC pot above the TFLS? Could be worth commuting some of it?

thats why I wanted to know the amt of the DC pot?

Otherwise for this person, i'd max mine and any spouse's S&S isas, and look at VCTs or something?

jamesd

Middle_Sister wrote: »

I retire at the end of this year. I am in a company pension scheme. Should I be piling in as much money as I can?

How old will you be when you retire? Will you be retiring at the normal retirement age of the pension or earlier?

When do you reach state pension age?

What are your total amounts of savings? Investments? What is your income requirement? What are your overall financial objectives? Do you prefer to maximise inheritance or your own income? Do you have a spouse, if so what is their situation?

Assuming you're 55 or older it tends to be a good idea to put the maximum permitted amount into a personal pension because you can take out 25% tax free and from 6 April 2015 take out the rest as fast as desired. Using savings to do this works well.

Middle_Sister wrote: »

I can take 25% tax free (£250,000) which I think I will take as a bird in the hand is worth two in the bush. If I don't take the £250k I will get £50k a year or if I take it this drops to £30k.

That's a commutation rate of about 12.5:1 which is only a hair better than the awful civil Service commutation rate. Such poor commutation rates strongly favour taking the higher income because the break even period is short compared to normal life expectancies. If you wanted a lump sum it would be far cheaper to take out a mortgage or use equity release and use some of the higher income to repay that.

Middle_Sister wrote: »

Plus I will have the State pension which I may defer for a year but wonder if it's worthwhile as it's nearly 9 years before I get any benefit.

Cohort life expectancy for 65 year old women goes to about age 90 so you're likely to be substantially better off by deferring provided you reach sate pension age before the flat rate comes in and reduces the gain for those reaching state pension age after that point.

While you will be paying higher rate income tax on the higher incomes and not on lump sums that isn't sufficient to make taking the higher incomes the less good choice.

If your income is ample you could also consider deferring some, using VCT investing to get 30% income tax relief, capped at the amount of income tax you pay each year. Then after at least the legal minimum of five years you could sell, though eight or so years is more likely to be a good selling time. VCTs also pay tax free dividends and that's useful in your situation. In effect what this does is defer some of your income for five to eight years and give you some tax free income in the meantime.

Middle_Sister

I will ask how much is in the 2nd fund. If I don't take the £250k and I die my spouse only receives half my pension. Some of the initials used above are confusing for me. I do have some AVCs but last time I looked they were earning next to nothing. That's another reason to take the £250k and reduced the amount but I think I will still be a higher rate tax payer if I claim the state pension.

xylophone

Do you become eligible to draw your state pension at the end of this year?

Have you requested a state pension statement?


https://www.gov.uk/government/publications/tax-and-tax-credit-rates-and-thresholds-for-2015-16/tax-and-tax-credit-rates-and-thresholds-for-2015-16

Middle_Sister

xylophone wrote: »

Do you become eligible to draw your state pension at the end of this year?

Have you requested a state pension statement?


https://www.gov.uk/government/publications/tax-and-tax-credit-rates-and-thresholds-for-2015-16/tax-and-tax-credit-rates-and-thresholds-for-2015-16

Yes I get the state pension as well but may defer it