Early Retirement planning (funding age 55-60)

tigerspill

I am not getting down to the details of my retirement and pension planning.

I am just 49. I have my company (BT) pension which I am planning to take when I reach 60.
I am paying into AVCs as well.

I am planning for us to stop work at 55 (6 years away).
I plan to take my AVC sum at 55 and put into a SIPP. Take the 25% tax free. Then draw as much as I can up to my tax limit. Basically I don't want to pay tax.

Assuming I have zero other income when I take the 25% tax free sum from the SIPP, Can I also draw down another £10,500 (approx) tax free up to the limit where Basic Rate Tax starts?

Second part. I plan to set a SIPP up for my wife and put enough in to allow us to take 25% tax free and five years of tax free income (again assuming no other income). So approx £67,000. Take £16,750 tax free and £10,000 per year tax free (staying belt Basic Rate Tax).

Will this work or have I missed anything important?

kidmugsy

tigerspill wrote: »

I am planning for us to stop work at 55 (6 years away).
I plan to take my AVC sum at 55 and put into a SIPP. Take the 25% tax free. Then draw as much as I can up to my tax limit.
Assuming I have zero other income when I take the 25% tax free sum from the SIPP, Can I also draw down another £10,500 (approx) tax free up to the limit where Basic Rate Tax starts?

Are you certain that you'll be allowed to transfer the AVC?

Is it the case that you could get 100% of the AVC out tax-free at 60, by giving up some of the BT lump sum (I'm assuming that there is one) in favour of taking a bigger monthly pension? If that is true, it might be pretty remunerative; stopping it happening would be a disadvantage of your otherwise attractive plan.

tigerspill wrote: »

Second part. I plan to set a SIPP up for my wife and put enough in to allow us to take 25% tax free and five years of tax free income (again assuming no other income). So approx £67,000. Take £16,750 tax free and £10,000 per year tax free.

As long as she has enough earnings to cover her (gross) SIPP contributions that will work

tigerspill wrote: »

Will this work or have I missed anything important?

State Retirement Pensions: are you each going to have enough years of contributions (35) to get the full new-style pension? if not, would you be happy to do a few years of light self-employed work, make the corresponding contributions, and thus earn full pension?

madeinireland_2

Hi,

I'm not sure which scheme you are on but assuming section b of the BTPS I think you are potentially planning a step which could cost you a fair amount of money.

The scheme has the benefit that if you take it with the pension you can consider the AVC fund as 25% of the overall pension value and therefore you can take it all out tax free. The plan you have I think would reduce your tax free amount to just 25% of your AVC.

Hope this helps but I suggest you check this out and your own circumstances.

There is a limit to the amount you can do this with for the AVC so if you reach this limit you could start a separate SIPP and use those funds from 55 but you would then lose NI benefits of putting direct into your pension.

tigerspill

kidmugsy wrote: »

Are you certain that you'll be allowed to transfer the AVC?

Yes - my scheme allows me take my AVC lump sum independently of the main pension. If it is under 25% of the whole pension (which it will be), then it is Tax free. BUT taking it early means I must but an annuity or put it in a SIPP.

kidmugsy wrote: »

Is it the case that you could get 100% of the AVC out tax-free at 60, by giving up some of the BT lump sum (I'm assuming that there is one) in favour of taking a bigger monthly pension? If that is true, it might be pretty remunerative; stopping it happening would be a disadvantage of your otherwise attractive plan.

I will look into this.

kidmugsy wrote: »

As long as she has enough earnings to cover her (gross) SIPP contributions that will work

Good point! I think it will be OK over three years but need to do the maths.

kidmugsy wrote: »

State Retirement Pensions: are you each going to have enough years of contributions (35) to get the full new-style pension? if not, would you be happy to do a few years of light self-employed work, make the corresponding contributions, and thus earn full pension?

We wont have the full 35 years but probably 33. We would both be happy I think to take on something less stressful. Does part time work found for adding years - or are there rules such as a minimum number or hours or NI contributions?


Thanks for your response.

Triumph13

The OP is already planning to get it all out tax free so leaving it with the BT scheme only has a tax benefit for anything in excess of his £67k target. Kidmugsy's point on whether or not he is able to transfer the AVC without taking the DB at the same time is an important one and the key question.

tigerspill

madeinireland wrote: »

Hi,

I'm not sure which scheme you are on but assuming section b of the BTPS I think you are potentially planning a step which could cost you a fair amount of money.

The scheme has the benefit that if you take it with the pension you can consider the AVC fund as 25% of the overall pension value and therefore you can take it all out tax free. The plan you have I think would reduce your tax free amount to just 25% of your AVC.

Hope this helps but I suggest you check this out and your own circumstances.

There is a limit to the amount you can do this with for the AVC so if you reach this limit you could start a separate SIPP and use those funds from 55 but you would then lose NI benefits of putting direct into your pension.

I am in Section C - but your point still applies.
The benefit of the AVC scheme is that I can do salary sacrifice. Because of this I am reluctant to go the SIPP route at this stage.

I can take it all tax free as cash if I do it at the same time of starting to collect my pension.
Maybe I need to do the sums of collecting at 55 with the actuarial reduction.
Good point. More thinking needed.

kidmugsy

tigerspill wrote: »

We wont have the full 35 years but probably 33. We would both be happy I think to take on something less stressful. Does part time work found for adding years - or are there rules such as a minimum number or hours or NI contributions?

AFAIK any self-employed work lets you make the self-employed contribution, which is dead cheap - a bit more than a couple of pounds a week. My wife used to do it on work that paid her erratically, something between a few hundred and a few thousand a year. People joke about walking dogs; I dare say a paper round might do.

Mr_Prudent

You say that you plan to take your pension at 60, but you have to bear in mind that under the new pension rules the NRA is now 65. Considering your age would not a large part of your pension be actuarially reduced by 5 years?

tigerspill

Mr_Prudent wrote: »

You say that you plan to take your pension at 60, but you have to bear in mind that under the new pension rules the NRA is now 65. Considering your age would not a large part of your pension be actuarially reduced by 5 years?

The BT pension scheme changed in April 2009.
The final salary part up to that point has a NRA of 60. The new career average part since 2009 has an NRA of 65.

Both must be taken together. So at 60, only the part since 2009 is actuarially reduced. Boy the scheme also changed from 1/60 to 1/80. So the actuarial reduction is on a much smaller part than the rest.

Mr_Prudent

So if I’m getting this right you already have 6 years under the new scheme (at age 49) and you have another 11 years to go under the new scheme before you hit sixty making a total of 17 years worth of pension whose NRA is 65.
Would that not mean a 26.4% reduction on those 17 years for taking that part of the pension early? This would be the case for section B, but maybe it’s different for section C? Maybe I’m getting confused between the B & C versions!