Salary+Pension

s11ver

Biggles wrote: »

If your scheme is in line with the NHS scheme, it will no doubt provide for abatement of pension when you become re-employed. Have you checked this out?

The basic rule is normally that, if your salary plus your pension exceeds your pre-retirement salary, your pension will be abated (reduced) pound-for-pound.

There is normally little point in taking retirement and continuing to work in the same employment full-time, as you would be no better off.

Thanks for your comment. When I discussed my options with the pensions advisor, abatement wasn't mentioned. I'll ring them in the coming week and check it out.

You've all given me plenty to think about.

LittleVoice

I am working on a self-employed interim basis with a PCT. I note that nurses who retire (early or otherwise) are told they cannot work for more than 16 hours a week. I had wondered about this and now assume it is to avoid a problem with abatement mentioned above.

s11ver

LittleVoice wrote: »

I am working on a self-employed interim basis with a PCT. I note that nurses who retire (early or otherwise) are told they cannot work for more than 16 hours a week. I had wondered about this and now assume it is to avoid a problem with abatement mentioned above.

I have to say I'm totally unaware of this. Surely my pension advisor would have told me about it if that were the case. Since I don't work in the NHS but for a very large private hospital there may be some differences. It's impossible to see how 16hrs plus my pension would bring me anywhere near what I'm currently earning. The advice on here has definitely given me questions to ask. Thanks.

jamesd

s11ver, please also tell us the pension values now and at 55 so we can see the costs and work out alternative options.

One set of options you might consider initially is seeing if you can switch to an interest only mortgage for a few years, extend the term or take repayment holidays. I'm assuming that there are exactly 14 years left on a 92,000 mortgage at 5.75% because that produces a monthly repayment mortgage payment of 799. Interest only payments would be about 441, reducing your monthly payments by 359. For a repayment mortgage, changing to an end at age 69 would reduce the repayment payments to 664, to 74 would change them to 590, 79 to 544. Repayment holidays of three months a year are fairly often available. Taking three a year would effectively reduce your average monthly payment to 600 a month. Deferring 2400 for three months may help you with renovation costs.

Knowing how much you expect to spend on renovation and when you think you'll sell would also be helpful, in part because one of your options is additional mortgage borrowing to fund both the renovation and additional pension contributions until you relocate and do a normal 55 years old retirement.

s11ver

Thanks for your reply. Will get back to you with pension values soon. Have also found some other information which just might sway my decision.

s11ver

jamesd wrote: »

s11ver, please also tell us the pension values now and at 55 so we can see the costs and work out alternative options.

One set of options you might consider initially is seeing if you can switch to an interest only mortgage for a few years, extend the term or take repayment holidays. I'm assuming that there are exactly 14 years left on a 92,000 mortgage at 5.75% because that produces a monthly repayment mortgage payment of 799. Interest only payments would be about 441, reducing your monthly payments by 359. For a repayment mortgage, changing to an end at age 69 would reduce the repayment payments to 664, to 74 would change them to 590, 79 to 544. Repayment holidays of three months a year are fairly often available. Taking three a year would effectively reduce your average monthly payment to 600 a month. Deferring 2400 for three months may help you with renovation costs.

Knowing how much you expect to spend on renovation and when you think you'll sell would also be helpful, in part because one of your options is additional mortgage borrowing to fund both the renovation and additional pension contributions until you relocate and do a normal 55 years old retirement.

With regard to my pension value if I wait until I'm 55, it is:

Tax Free Lump Sum of £27,786.90 + A Pension of £9,262.30 a year

If I choose to take my pension at the end of September this year, the value will be:

Tax Free Lump Sum of £53,666.77 + Reduced Pension of £8,050.01 a year

Since I don't work in the public sector, my pension will not be abated if I continue to work. If I add my current salary to my pension and subtract my single person tax allowance, I don't hit the £36000 tax threshold.

In addition, if I do take my pension I can then choose to join the new company scheme, but I'm not so sure it would be worth it since I'll hopefully relocate within a few years. I think the money would be better in an ISA but I'm certainly no expert.

My mortgage stands at £92,000 with 11yrs & 7mnths remaining. I don't want to remortgage and would like to reduce the number of years remaining. I can only take payment holidays every 9 months and had one in July. My house needs around £8000 spent on it, to bring it up to scratch. If I were to sell it as it is, I would only get roughly £130,000 as opposed to the average in this street of £150/160,000. I'm not actually planning to sell my home for at least a year to 18 months. Selling and banking the money and going into rented accomodation isn't an option, since I have pets.

Debts other than my mortgage that need to be repaid, are roughly £2500. I've worked out that paying a lump sum off my mortgage plus receiving my pension whilst continuing to work, I will be roughly £800 per month better off (okay in the short term). Of that, I'd increase mortgage payment by £300 per month and place £300 a month into savings. Unless I'm getting something terribly wrong, it sounds good to me but I may be missing something.

Ian_W

s11ver wrote: »

With regard to my pension value if I wait until I'm 55, it is:
Tax Free Lump Sum of £27,786.90 + A Pension of £9,262.30 a year
If I choose to take my pension at the end of September this year, the value
will be:
Tax Free Lump Sum of £53,666.77 + Reduced Pension of £8,050.01 a year

I'm no pensions expert but Mrs W is in the NHS scheme and due to retire in 18months so I do take an interest in what she'll get
and those figure look VERY WRONG to me!
I can't understand why your lump sum, if you have longer service, will be about 50% less than if you go now. The new pension scheme does allow serving members to up their lump sum by surrendering some pension but if that's available if you go now, I don't know of any reason it wouldn't be available if you wait to 55?
There's an NHS pension ready reckoner HERE.
It won't allow the figures for age 50 but you should be able to see if the age 55 ones are right.

jamesd

Assuming the figures are right, that's 1212.29 less a year to get 25879.87 more lump sum, a 21.3 year payback time, taking you to age 73 before you're worse off, ignoring the effects of investment growth and inflation. Cohort life expectancy for you is around 35 years, taking you to 87, with around a 20% chance of living to 92 assuming good health.

8070 more in taxable income so about 6440 after tax, 537 a month.

53667 - 8000 for the house - 2500 other debts reduces that to 43167 lump sum remaining.

One option that's likely to be better than using that to reduce the mortgage is investing it. You could get about 3.3% income from the better funds in the UK equity income sector, 1424 a year, 118 a month on average. On average that would grow by a couple of percent more than inflation and the capital value would also grow by 4% or so more than inflation each year on average. This option can be expected to leave you significantly better off than waiting to take the pension later.

For calculation I'll use 5.5% mortgage rate. Reduce a 92000 mortgage by 43167 and the monthly payments would drop by 410 for those 11 years and 7 months left on the mortgage.

Matching that 410 a month from the investments would require drawing 292 a month from the capital, while the investments grew at a rate I'll assume is 7% ignoring inflation, in addition to paying 3.3% income. 12 years of that would leave you with 33750 of the capital remaining.

So, it doesn't seem wise to pay the money off the mortgage in a lump sum and be left with no cash in 12 years when you could instead have the same reduced mortgage cost but be left with 33750 in capital at the end.

If you do choose the invest option, you have a fair chance of being better off than if you retired later, because the investments would normally grow to more than replace the lost pension income from the later retirement date.

For the investments I used a 50:50 mixture of Invesco Perpetual Income and Invesco Perpetual Higher Income, though you'd really be best served with a broader mixture.

s11ver

Ian, in order to arrive at the increased lump sum annual pension is multiplied by 3 and added to the current lump sum. This will result in a smaller annual pension. In addition, I lose the lifetime allowance. It’s also worth noting that once I reached 20 years service, my contributions automatically doubled because of mental health officer status. Also, although I have a final salary pension that is on a par with the NHS scheme, I work for a private healthcare provider that although large, is certainly nowhere near as large as the NHS. If I were to wait until I 55, I could still opt to take 25% as a tax free lump sum and reduce my annual pension. An increased lump sum equals a reduced annual pension, that’s all.

James, you’ve made some good points and I’ll certainly look into that. Whichever way, I am giving it all serious thought and looking at the options. Many thanks.