Am I getting overly nervous ?

PuzzledDave

My retirement plans seem to be going well enough, dump ever increasing amounts into my DC pensions, then in about 5 years (age 42) drop into paying into ISA wrapped investment funds - then when I have enough (hopefully 50), stop work - live off the ISAs until I can draw on my DC pensions - which should then be bolstered by state pension in the future.

However, I'm now getting serious jitters. Whilst am sure my investments will do OK (my estimates are very cautious on growth) - the government seems now to be the biggest risk. Not just the current one but many comments from Labour seem to suggest they won't let me access to my money when the time comes for me to start drawing from my DC pensions - the 'access year' will be pushed ever further later. By the time Labour get into office (maybe for the 2025 election if Corbyn gets in) it will be far too late for me to change plans.

I'm loathed to drop straight into investment ISAs now and give up the tax benefits as well as the security of if I lose my job, the DWP won't expect me to eat my savings as they are in a pension. (I run my own limited company, so there is no employer matching bonus to be lost).

Obviously no one has a crystal ball - just curious if anyone else has been thinking the same ? That the risk from the government changing the rules against me is starting to become intolerable ?

dunstonh

Political risk is something that always exists. However, the minimum retirement age for pensions is already increasing to 57 in 2028. It is set to 10 years prior to state pension age. So, it would be difficult to see what would be gained by increasing it further.

What is a mess at the moment is the lifetime allowance and annual allowance. I wouldnt be surprised to see changes there. A radical change could be a combined pension/ISA wrapper to replace both. Some think tanks have suggested that. However, most likely change is a removal of higher rate relief.

You cant really see the freedoms given being taken away. I know its Labour's DNA to take away freedom from the individual but it would be a vote loser and Labour cant afford that. Its not as if they can have any justifiable reason to do it. They cant blame a banker or say it costs too much in tax (it actually generates tax).

bigfreddiel

First, why do you think you want to stop working at 50? What are you going to do for 7+ years till you are 57? Do you think 8 years of ISA investments will keep you going in the same lifestyle for those 7+ years?

I would seriously think of keeping on working for longer, or just working part time, I currently do that and do a three day week- I find that is so much easier than a five day week, and it suits me just fine right now. Think about it. Cheers fj

PuzzledDave

Thank you dunstonh, some insightful comments.

bigfreddiel wrote: »

First, why do you think you want to
stop working at 50? What are you going to do for 7+ years till you are 57?

Many reasons, though possibly working part-time is something I have certainly considered. My industry has huge risk of jobs off-shoring (in fact, it's already happened to me once). Whilst at the moment my working conditions are as ideal as I could hope for - you never know when that will change. Hence the planned escape route.

As to what I will do, there are many hobbies I wish I had more time for now (carpentry, metalwork, exploring, photography, learning more things that I now find fun but ignored too much at school e.g. physics, history). The 40 hour work week and time I invest into parenting make them very hard to find enough time for now. When I hit 50 my youngest will hopefully be heading to university.

With luck maybe I could turn these hobbies into some additional beer money.

Do you think 8 years of ISA investments will keep you going in the same lifestyle for those 7+ years?

Yes, we are currently saving a bit over 50% of all of our (modest) income (2 children are already here and mortgage paid off). So 8 years of saving £x is pessimistic as it only needs to cover 7 years of spending the same £x.

Thank you for your thoughts bigfreddiel.

atush

Basically, you are JUST 42. Which was old back in the 60's, even 70's. And s now young. AS people your age will live to 90 and beyond.

So expecting to be happy and idle for 40 years plus (my MIL was 95 when she went) is quite frankly Naive.

Do you have a spouse? When will they retire? Do you have children? When will they graduate University? I had twins late and they set back retirement 8 years.

kidmugsy

PuzzledDave wrote: »

The 40 hour work week ....

I never experienced that.

hugheskevi

live off the ISAs until I can draw on my DC pensions - which should then be bolstered by state pension in the future.

It sounds like you don't have any Defined Benefit pensions. That could make deferring State Pension attractive, if you would like more 'guaranteed' (acknowledging political risk...) income instead of DC pension. But that is a long time ahead.

the government seems now to be the biggest risk. Not just the current one but many comments from Labour seem to suggest they won't let me access to my money when the time comes for me to start drawing from my DC pensions - the 'access year' will be pushed ever further later. By the time Labour get into office (maybe for the 2025 election if Corbyn gets in) it will be far too late for me to change plans.

I wouldn't be concerned by a future Labour government - even if they were to be elected to office in 2020 many things will have changed by then. Their current statements are to express concern about the pension flexibilities, and it is normal in politics to suggest the other party's policies are flawed. It would be difficult for a future administration to undo the changes given their popularity - most likely would be protection of existing rights, with future contributions under a new system.

Obviously no one has a crystal ball - just curious if anyone else has been thinking the same ? That the risk from the government changing the rules against me is starting to become intolerable ?

Political risk is a huge drawback to pension saving. However, tax relief is a huge incentive. I wouldn't save into a pension if all I was getting was basic rate relief and I expected to be a basic rate taxpayer. But higher rate relief is enough to offset the political risk for me, although it isn't clear-cut.

mortgage paid off

If age of access is put back, you would probably be in a position to borrow money temporarily.

Obviously no one has a crystal ball - just curious if anyone else has been thinking the same

I see three broad types of political risk for DC pensions. First is that compulsory annuitisation or some other form of restriction is introduced. This seems very unlikely - although in the unlikely event it happened there may well be some form of reversion to unlimited withdrawal with a guaranteed income, which it sounds like you do not have. Still, I wouldn't let that shape my decisions.

Second, the intention to set minimum pension age at 10 years below State Pension age could change. It has not yet been legislated for, it was announced by the coalition Govt. which is no longer in power, and part of the consultation was setting the age at State Pension age less 5 years. However, changing the limit will push back tax receipts, and there is no current suggestion of such a change so it seems unlikely. But things can change - and if evidence emerged of widespread pension contributions to avoid tax by those aged between 55 and State Pension age, a response may be to push up minimum pension age.

Third, and the biggest concern, would be the intended link between minimum pension age and State Pension age (SPA). The date when SPA moves to age 68 is already expected to be brought forward. State Pension is a huge expenditure, and now public service pensions are linked to SPA as well, so the next time there is unexpected pressure on public finances an increase to SPA will be high on the list of options to consider, regardless of which party is in power. Even so, there has to be notice (the latest increase had notice of 6 years which was considered to be very short notice) so increases in tax revenues is not immediate. I expect SPA to be 68, and wouldn't be surprised for it to reach 70 in a relatively short period.

In your position, I would be considering what you would do if age of access if increased to between 58 and 60, with age 63-65 as an extreme scenario.

EdSwippet

PuzzledDave wrote: »

... just curious if anyone else has been thinking the same ? That the risk from the government changing the rules against me is starting to become intolerable ?

Since you ask the question this way: yes, I have.

I am 55, which makes it possible for me to just opt out now. I plan to exit both pension saving and the workforce entirely within the year. I am tired of replanning my pension not just once but now twice or even three times annually, at the autumn statement and then again at each budget.

PuzzledDave

atush wrote: »

Basically, you are JUST 42. Which was old back in the 60's, even 70's. And s now young. AS people your age will live to 90 and beyond.

Slight correction, I am 37 - my thoughts are around government future changes to DC pensions and if I should swap to ISAs now rather than continue to invest via pension wrappers for the next 5 years (when I plan to switch to ISAs anyway).

Also, my health is not the best, it would be surprising if the OH or I make it to 75. My back of an envelope go to 80 for one of us, 90 for the other - we would still have a small sum left and of course full state pension.

So expecting to be happy and idle for 40 years plus (my MIL was 95 when she went) is quite frankly Naive.

This comment is something I have seen many times before - but it always comes from people still at work. However every single retired person I know says they find there are still not enough hours in the day to do everything they want.

Do you have a spouse? When will they retire? Do you have children? When will they graduate University? I had twins late and they set back retirement 8 years.

Dependants are certainly a consideration, the OH stopped work a couple of years before children came along, is a SAHM now. My youngest will be starting uni when I plan to leave work - but they will have a good number of thousand to keep them going from their child trust fund/Junior Isa.

hugheskevi wrote: »

If age of access is put back, you would probably be in a position to borrow money temporarily.

That's a great point - thanks ! I guess if the worst comes to the worst, I could always get another job :eek:

My own parents underestimated their wealth and stayed on working into their mid to late 60's. By this time their health meant they cannot enjoy quite as much as they hoped - I'm determined for this not to happen to me.

In your position, I would be considering what you would do if age of access if increased to between 58 and 60, with age 63-65 as an extreme scenario.

That's an excellent idea - *tips hat*

femalemonarchfemalecanine wrote: »

From the post above yours it doesn't sound like 'being idle' is in the plan! There is more to life than work.

:beer:

Many thanks again for all comments.

Silian

I am currently 33 and planning to retire at 45. I am currently leaning towards the idea of paying the minimum I can into my pension (for what my employer matches) and putting the rest into my ISA (and even some outside my ISA if needed).

This might increase my retirement date by a few months but at least I know I can retire on my terms - I'm not dependant on the government.