Should I take voluntary redundancy and retire early?

xylophone

Will your wife have savings/investment income in addition to the redundancy payment she will receive at the beginning of the new tax year? Will there be any earned income at all?

PeacefulWaters

Make sure as much as possible of the taxable redundancy money gets reinvested into a pension.

ewor1958

Thanks Jamesd, That's very interesting!

Being in a FS scheme for so long, I've not paid much attention to private pension rules. Redundancy wouldn't be until mid April, so could we pay our redundancy money into a personal pension and make regular withdrawals?
Would you advise consulting a professional?

ewor1958

xylophone wrote: »

Will your wife have savings/investment income in addition to the redundancy payment she will receive at the beginning of the new tax year? Will there be any earned income at all?

No, the only savings/Investment incomes are from cash ISA's which we both have, but that money is earmarked for house moving costs.

kangoora

If you are going to do it best done before 5th April. Take £30k each tax free lump sum for redundancy. Then put as much as possible into a private pension for each of you, subject to the £40k limit and what pension payment allowance you have left on that. If you have any left you can use previous years allowance, you won't get tax relief but you won't pay any tax on it either for this part. If you've calculated your £110k based on paying tax there could be a fair bit more than £110k using this route.

As you are both at or close to 55 from next year you can draw down £14k a year each, pay £800 tax, and have slightly over £26k net to spend (adjust figures if you need £26k gross).

ewor1958

P.S. Will your wife accumulate the 35 years of NICs required for the full new-style SRP? It's worth finding out, because if not she could look for some light self-employment in retirement, and pay the self-employed "stamp" which is cheap - a bit more than £2 per week.[/QUOTE]



Thanks Kidsmugsy, yes she will have the full 35 years.

jamesd

ewor1958 wrote: »

I've not paid much attention to private pension rules. Redundancy wouldn't be until mid April, so could we pay our redundancy money into a personal pension and make regular withdrawals?

Yes. Given that you know that redundancy won't be until mid April I suggest that you both open personal pensions as soon as possible and pay savings and even borrowed money into those pensions this tax year, so you get to use the whole of your maximum contribution limits - earned income or 40k plus any carryover from past three years if lower - for this year as well as next. I'm assuming that this will be your last big chance to get the tax relief benefits of a pension contribution and you're both going to gain at least 20% on the money due to having your personal allowances unused for years.

If you won't get advance notice of your applications being accepted you'll be able to get the money out of the pension anyway using the rules that apply from 6 April, so you won't lose out from doing this, in fact you'll make a small tax gain anyway. If you will get advance notice, you could just open the pension accounts with say £1,000 each now and top up after you get confirmation, or on 3 April, the last week day of this tax year.

ewor1958 wrote: »

Would you advise consulting a professional?

How familiar are you with investments? It's not particularly hard to come up with reasonable suggestions for things to do. Say combine Invesco Perpetual Monthly Income Plus and Artemis Income inside a pension pot with peer to peer lending for the 25% tax free lump sums and tax free redundancy pot outside it to generate income without more than perhaps a 10-15% drop potential but generating 5-8% combined income level from the money.

If either of you was contracted out the 35 year rule won't apply because there will be a reduction for being contracted out. Worth getting state pension statements after age 55 in this case, just to be sure of what the foundation amount will be. Easy enough to then wait for the flat rate state pension start date then become self employed as an ebay seller or something to pay the cheap self-employed NI rate and top things up.

atush

Personal pensions are a must in your case, to shelter your redundancy over 60K from tax. You can then save enough on tax while withdrawing, to leave some over for an emergency savings fund.

I would use as much of your current cash savings as you need to use up all your 40K annual allowance over your redundancy (if there is any left incl past years), esp your wife who is a higher rate tax payer.

Otherwise what I have to say is congrats, life is looking pretty sweet.

ewor1958

We have already paid 5k & 7k respectively into our pensions in this tax year, including AVC's - I assume this will come out of the 40k allowance?

Also, Income Tax will automatically be deducted from the redundancy money through PAYE - will I have to claim that back from the tax man?

jamesd

Yes, that'll come out of the allowance. You both probably have unused allowance from the last three years, though, so don't worry too much about that allowance limit, earned income is probably going to be the real practical limit.

The business can save NI by making the payment direct to a pension scheme, so ask them if they are willing to save themselves significant employer NI by doing that, perhaps splitting the employer NI saving 50:50.

Yes, you might have to reclaim from HMRC on the income tax side, though if the money is paid by you into a pension you'll get the tax relief for basic rate automatically.