Thoughts on our early retirement plan

enthusiasticsaver

We are on the countdown to retirement now. My OH is planning on going in October 2018 when he is 60 and I will continue with my part time job until February 2020 when I will also be 60.


Our present circumstances are that we have a net income of £42k per annum and are mortgage and debt free. At present we save around 1/3 of our income and would be able to manage comfortably on a net income of £30k.


My OH has a DB and DC pension which is projected to pay him £26k in 2018 with a lump sum of £97k. He has a small amount of cash savings in an isa but as a HR tax payer most of his savings have gone into his pension which he overpays. (10% of his salary).


I have worked part time for quite a few years and took a career break when our children were small so my pension is much smaller and is projected to be £9262 per annum in 2020 through a LGPS (with my current employer) and a frozen GMP scheme through Barclays. As my salary is only £12k that should be fine and I will have around £150k - £170k in cash and investments to buffer that. Most of our cash savings are in my name as I pay tax at the LR and in fact will not pay tax at all on the interest due to the recent changes. Our state pensions will kick in 6 years after retirement and I also have a 1/3 share in another property which will be sold probably in about 5 years time and is worth £250k with no mortgage.


My feeling is that we should be able to comfortably manage on this but wonder if I am missing anything?

Al.

Have you considered saving more into your pension? The closer you get to achieving your annual income allowance you'll be, the more tax efficient you'll be. Granted, you're not paying anything really now, but why not benefit from a little more tax relief?

You mention children; as you'll be comfortably in surplus, have you considered estate planning?

enthusiasticsaver

I have considered paying more into my pension and when I was working full time while my daughters were at Uni I was overpaying and still am but I also opened a stocks and shares isa and did that alongside in the hope this would give me more flexibility in when to draw the pension.


We have not really investigated estate planning but we have done wills and I have passed my third share in a second property straight to my daughters rather than my husband. At some point I will have an inheritance coming to me so I think we will think more about it then. We do gift substantial amounts through the year to our daughters but I think that £30k, our income in retirement will not be a huge fortune and if we want to do holidays etc then we may need to draw on the lump sums for home improvements which will cost us more as at the moment OH does a lot of diy but as he gets older he may not be able or willing to do that. My plan is to do PETs as and when - ie after sale of second property, inheritance and maybe when we are settled into retirement and know what our long term plans are with our house. My mum has done considerable Pets with us over the last twenty years and we have done the same with our daughters and aiming to get below inheritance tax threshold. Any other ideas would be welcome but I am not keen on trusts and don't think we are rich enough for those anyway.

Triumph13

You could retire tomorrow an easily meet your target income. You should both have just about enough time between April 2016 and your SPA to pay voluntary NICs and get up to the full single tier pension (assuming you have enough NICs to qualify for the old one in full between working and child rearing - have you got statements?). If so that would get you to about £50kpa gross / £44k net once all the pensions are on line and plenty of savings and lump sums to fill in the gaps until they are. You're options therefore include retiring earlier or upping your current spending by 50%!


If you do keep working I would recommend using some of those savings to contribute 100% of you salary to a private pension to get maximum tax relief, but basically you're already home and hosed.

atush

I too would suggest opening a private pension and getting tax relief.

And using this and savings to last until your DB pension pays out UN reduced.

Triumph13

atush wrote: »

I too would suggest opening a private pension and getting tax relief.

And using this and savings to last until your DB pension pays out UN reduced.

This is one of those interesting cases where the option that gives the most in cash terms may not be the one that gives maximum utility. One would normally always recommend using savings, DC pensions, a mortgage or anything short of robbing a bank to avoid taking a DB pension early. In this case though the OP is already looking at 150% of current spending, when you include SP, even after the reduction. It may therefore be that they would find the available capital now more useful than even more extra income for life - a good bone for the OP to chew on! For example it could translate into a choice between using the cash to buy a holiday home somewhere warm, or go for the extra income and use it to rent somewhere different each holiday...

xylophone

frozen GMP scheme

Do you mean that you used to work for Barclays and have a deferred pension which includes GMP?

If so, it is not "frozen"?

enthusiasticsaver

xylophone wrote: »

Do you mean that you used to work for Barclays and have a deferred pension which includes GMP?

If so, it is not "frozen"?

Yes, sorry wrong terminology. It is a deferred GMP and it actually increases by 8% per annum. There is some confusion though on how this works. I know that it pays out when I am 60 but I have been told that once my SP kicks in it may be reduced or stopped altogether depending on government rules at the time. No one knows this for certain though as the goal posts can be changed apparently.

enthusiasticsaver

Triumph13 wrote: »

You could retire tomorrow an easily meet your target income. You should both have just about enough time between April 2016 and your SPA to pay voluntary NICs and get up to the full single tier pension (assuming you have enough NICs to qualify for the old one in full between working and child rearing - have you got statements?). If so that would get you to about £50kpa gross / £44k net once all the pensions are on line and plenty of savings and lump sums to fill in the gaps until they are. You're options therefore include retiring earlier or upping your current spending by 50%!


If you do keep working I would recommend using some of those savings to contribute 100% of you salary to a private pension to get maximum tax relief, but basically you're already home and hosed.

All the projections I have are based on us retiring at 60. If at all possible we may defer drawing on my DB pension but if we retire tomorrow or any time before 60 I am assuming the pensions will be reduced by 5% for each year early so that would be 15% for my OH and 20% for me and we don't want to do that. I would rather have too much and can gift money to our children or take additional holidays etc. I will look at paying more into my DB pension as this seems to be the general advice. I will have sufficient NI contributions for a full pension and my last statement was 2012. I will get another one next year.

xylophone

Yes, sorry wrong terminology. It is a deferred GMP and it actually increases by 8% per annum. There is some confusion though on how this works. I know that it pays out when I am 60 but I have been told that once my SP kicks in it may be reduced or stopped altogether depending on government rules at the time. No one knows this for certain though as the goal posts can be changed apparently.

You left Barclays with a deferred pension which included GMP. There was also an excess?

You mention that it is revaluing in deferment by 8% but I am assuming that you mean either 8.5% or 7.5% - see here

https://www.barnett-waddingham.co.uk/comment-insight/blog/2014/08/18/what-is-a-gmp/

Did you leave employment with Barclays before or after 6 April 1988?

When your pension comes into payment at age 60, Barclays has no obligation to pay you any inflation linked increases on the pre 88 GMP or anything in excess of 3% on post GMP - any revalued excess should increase by scheme rules.

It appears that Barclays makes a reduction to scheme pension at State Pension Age. See post 43

https://forums.moneysavingexpert.com/discussion/comment/62875440#Comment_62875440

atush

I will look at paying more into my DB pension as this seems to be the general advice.

I didn't suggest paying more into your DB pension, but into a DC or personal pension/sipp as this can be accessed before you draw your DB pension. So as to bridge the gap. Plus this could be used to leave money to the children if you die before 75, or to draw down to give to them.