Early retirement at 55...help please

smjxm09

He needs to get his earnings below £7956 to pay no national insurance and tax. This is done by monthly contributions only. Last March I paid a lump sum into my AVC and got a cheque for several thousand pounds but this only covered my tax bill and not national insurance. You will be told this on your seminar.

If he can start now, up his AVC to pay no NI but be aware of the 35 year rule to get a full state pension. It may be better to earn just above the limit so he pays just a little NI for the next financial year if he has not paid NI for 35 years. When I say the full state pension for us it will not be the full state pension as BT contracted us out for many years.

As for recycling this has more to do with where the money comes from that you use to pay a lump sum. If he used a lump sum from another pension and paid it into the BT pension this would be recycling as he will be trying to get tax relief twice. Apart from that I think you would be safe.

Even though my taxable earnings for the tax year to December 31st were just £4800 I paid a further £3750 into my AVC in December. This I will get back this month as part of my lump sum. This was done because I will start drawing a pension from January which is much higher than my taxable pay but more importantly for this financial year I have declared that I am not a tax payer so I don't pay any tax on my non ISA savings. As my earnings including interest from savings, shares and pay should now remain below £10,000 everything for this financial year only should be tax free.

I have to add that is my hope and plan.

I don't know how much pension the portal showed you but that is before tax. From April the pension will be tax free below £10600 and anything above that figure will be taxable. On the seminar it was mentioned to take out a bigger sum as possible as it is tax free but I am going for the standard plan as due to AVC's there is not much difference between some of the options.

Also just to add after retirement the seminar company will offer to manage some of your savings for a one off fee of 2% with an annual management fee of I think 0.5% but that last figure might be wrong. They have already told me that I have most of my savings in savings accounts with banks which in there eyes is bad. I am not sure what path to take with my savings as there should be enough money to last me a lifetime with no risk and I am also not paying fees to earn a higher rate on an investment that will have some risk. What is in the back of my mind is that if they managed my money for say 20 years they will have changed me 12%.

madeinireland_2

juju17 wrote: »

madeinireland wrote: »

Crikey its a bit silly to be resigning with BT handing out voluntary redundacy all over the place.

Just about everyone I know is leaving with a package - with his service he would get 9 months salary if he left now with upto £30k tax free.

Why doesn't he ask ?

Crazy I think but I suppose you may have some good reason..[/QUOTE]
Yes, indeed.....sharesave!

If you are talking about sharesave and leaving in sep then I presume you can really only be talking about the sharesave that matures this summer. If you take VR then you are allowed to continue to pay in and benefit for 6 months so you would be able to complete that sharesave even if you leave now.

madeinireland_2

smjxm09 wrote: »

I am 57 years old with a section B pension and took a leavers package of 9 months which is for me was a years pay as it is tax free. I think a B member gets 1/80th per years service plus a 3/80th's lump sum while section C gets 1/60th but no lump sum.

I have an AVC of £39,000 plus a lump sum of £38,000

I have asked for my pension to be taken now. The reasoning for me was simple. When I looked at my last yearly statement dated 31st March 2013 it give me a projected pension at the age of 65 if I had left BT on that date and deferred it. As I kept a record of what my pension would have been if I had taken it on that day the pension was only £3000 more per year deferring it than taking it straight away. By the time I have reached 65 I will have already taken close to £90,000 in pension payments. I would have to be in my 90's to get that money back by deferring it .

As a side note, as I had savings that I could live on I was paying so much AVC's per month into my pension that I was paying no tax or National insurance but I had a take home pay of only around £500 per month. I had to be a little careful and kept an eye on the 25% lump sum rule so what ever happened I was going to have to leave by July at the latest.

Yes I agree it's total madness to defer to 65 as your pre 2009 pension would then be in no mans land with regard to actuary reduction from 60 to 65 but I think you will find it makes good sense to defer to 60. I've done a lot of calculations to prove that for me anyway.
Also the 25% rule isn't so much of an issue if you can convert lump sum to more pension.
What I think you do need to be concerned about is the total pension contribution per year limit of 40000 - although you do have a 3 year carry forward if you have not used all of your previous years allowance. It's surprising how quick you can use this up given salary increases * 16 and bonus payments reduce it as well.
I've been paying into a SIPP more recently to give myself a pot to draw on before I take my deferred pension at 60. I realise I am giving up NI benefit rather than using AVCs but I perceive that to be worth it to have access from 55.
If you can reduce your salary through these means then you also get child benefit back on the agenda and university bursaries can be much greater.
Good luck all.

madeinireland_2

juju17 wrote: »

Kangoora, I realise that....but what I am saying, is that DH is tied into a sharesave scheme, so is waiting for that to mature before resigning. If at the time of maturity, there is a VR opportunity then obviously he could look into that....but that is a lot of 'if's'.
He can not do anything until maturity, as it would be foolish to not continue with the sharesave.
Our plan has always been for him to finish work at 55.....and that is what our aim is...life is short and we intend to enjoy life whilst we can

Absolutely wrong to say he can't do anything till maturity - you can take VR and still take your sharesave to maturity for a period of 6 months.

madeinireland_2

smjxm09 wrote: »

No, nor could I get a figure when I phoned India up so I just did a very rough figure of dividing the number of years by the sum.

What I do know for a fact for me is that my pension was increasing by just over a £1000 per year while I was paying in and say around £300 per year when I stopped. That it based on my length of service, age and grade.

You can calculate it but it's not an easy calculation. The pension team can send you a table showing the actuary reduction per year which you can use for that. They don't like to give you it for some reason and it does change from time to time. The benefit of deferment drops off a cliff after 60 as most of our pension is pre 2009 which has no actuary reduction from 60. Inflation comes into it as well of course.

madeinireland_2

juju17 wrote: »

I was considering suggesting to DH that he ups his avc to as much as possible, but then read something about this could be an issue with HMRC?...think it was called recycling?...especially if it is done very near to taking your pension?
Can anyone confirm this.....or am I losing the plot?
Thanks

Not likely to be recycling - maybe the annual limit is the problem but he would have a 3 year carry forward if he has not used his previous years allowance

madeinireland_2

smjxm09 wrote: »

He needs to get his earnings below £7956 to pay no national insurance and tax. This is done by monthly contributions only. Last March I paid a lump sum into my AVC and got a cheque for several thousand pounds but this only covered my tax bill and not national insurance. You will be told this on your seminar.

If he can start now, up his AVC to pay no NI but be aware of the 35 year rule to get a full state pension. It may be better to earn just above the limit so he pays just a little NI for the next financial year if he has not paid NI for 35 years. When I say the full state pension for us it will not be the full state pension as BT contracted us out for many years.

As for recycling this has more to do with where the money comes from that you use to pay a lump sum. If he used a lump sum from another pension and paid it into the BT pension this would be recycling as he will be trying to get tax relief twice. Apart from that I think you would be safe.

Even though my taxable earnings for the tax year to December 31st were just £4800 I paid a further £3750 into my AVC in December. This I will get back this month as part of my lump sum. This was done because I will start drawing a pension from January which is much higher than my taxable pay but more importantly for this financial year I have declared that I am not a tax payer so I don't pay any tax on my non ISA savings. As my earnings including interest from savings, shares and pay should now remain below £10,000 everything for this financial year only should be tax free.

I have to add that is my hope and plan.

I don't know how much pension the portal showed you but that is before tax. From April the pension will be tax free below £10600 and anything above that figure will be taxable. On the seminar it was mentioned to take out a bigger sum as possible as it is tax free but I am going for the standard plan as due to AVC's there is not much difference between some of the options.

Also just to add after retirement the seminar company will offer to manage some of your savings for a one off fee of 2% with an annual management fee of I think 0.5% but that last figure might be wrong. They have already told me that I have most of my savings in savings accounts with banks which in there eyes is bad. I am not sure what path to take with my savings as there should be enough money to last me a lifetime with no risk and I am also not paying fees to earn a higher rate on an investment that will have some risk. What is in the back of my mind is that if they managed my money for say 20 years they will have changed me 12%.

I wouldn't use them either as I think they are expensive. A couple of further points...
1. They do encourage you to take more lump sum but that is not the best thing for everyone - better to build up your AVC and take that as your lump sum - but you taking a bigger lump sum is almost always better for the company so I wonder why they give that advice.
2. If you have enough for your lifetime and you don't have anyone to pass money onto then you are quite correct - why take any further risks. Do be aware that inflation will reduce your funds if you keep it all in cash.

juju17

madeinireland wrote: »

Absolutely wrong to say he can't do anything till maturity - you can take VR and still take your sharesave to maturity for a period of 6 months.

Wow, madeinireland, I had no idea this was the case...thank you for the information

juju17

smjxm09 wrote: »

He needs to get his earnings below £7956 to pay no national insurance and tax. This is done by monthly contributions only. Last March I paid a lump sum into my AVC and got a cheque for several thousand pounds but this only covered my tax bill and not national insurance. You will be told this on your seminar.

If he can start now, up his AVC to pay no NI but be aware of the 35 year rule to get a full state pension. It may be better to earn just above the limit so he pays just a little NI for the next financial year if he has not paid NI for 35 years. When I say the full state pension for us it will not be the full state pension as BT contracted us out for many years.

As for recycling this has more to do with where the money comes from that you use to pay a lump sum. If he used a lump sum from another pension and paid it into the BT pension this would be recycling as he will be trying to get tax relief twice. Apart from that I think you would be safe.

Even though my taxable earnings for the tax year to December 31st were just £4800 I paid a further £3750 into my AVC in December. This I will get back this month as part of my lump sum. This was done because I will start drawing a pension from January which is much higher than my taxable pay but more importantly for this financial year I have declared that I am not a tax payer so I don't pay any tax on my non ISA savings. As my earnings including interest from savings, shares and pay should now remain below £10,000 everything for this financial year only should be tax free.

I have to add that is my hope and plan.

I don't know how much pension the portal showed you but that is before tax. From April the pension will be tax free below £10600 and anything above that figure will be taxable. On the seminar it was mentioned to take out a bigger sum as possible as it is tax free but I am going for the standard plan as due to AVC's there is not much difference between some of the options.

Also just to add after retirement the seminar company will offer to manage some of your savings for a one off fee of 2% with an annual management fee of I think 0.5% but that last figure might be wrong. They have already told me that I have most of my savings in savings accounts with banks which in there eyes is bad. I am not sure what path to take with my savings as there should be enough money to last me a lifetime with no risk and I am also not paying fees to earn a higher rate on an investment that will have some risk. What is in the back of my mind is that if they managed my money for say 20 years they will have changed me 12%.

Thanks for this.....very interesting and informative....I will look into this.

robin61

madeinireland wrote: »

You can calculate it but it's not an easy calculation. The pension team can send you a table showing the actuary reduction per year which you can use for that. They don't like to give you it for some reason and it does change from time to time. The benefit of deferment drops off a cliff after 60 as most of our pension is pre 2009 which has no actuary reduction from 60. Inflation comes into it as well of course.

Good to know. We really need to have this figure before making any decisions about whether to take the pension or defer. As you say for scheme B members the lions share of our pension is based on retirement at 60 so the deferred until 65 figure they give us on our annual statements now makes no sense as far as I'm concerned.