Suggestions for early retirement planning

Shedman

enthusiasticsaver wrote: »

... Our plan always was for him to go in October 2018 round his 60th birthday but due to his company asking him to work longer and longer hours and more weekends we are now looking for him to go this October instead so 2 years early. It looks like his pension will reduce from around £25k per annum to around £21k..

One thing that seems odd to me is that the reduction from £25k to £21k for taking 2 years earlier seems very steep at around 8% per annum when normally you would be looking at 5% p.a. reduction i.e.a reduction of 10% to £22.5k. Are you sure about these figures or perhaps is his normal retirement date for the DB pension actually later than 60 and hence he wouldn't have been getting £25k at age 60 anyway?

mgdavid

If he's going to leave the DB alone and live on drawdown it's possibly best to work until March 2017 then start drawdown in retirement with a fresh year's Personal Allowance.

Wellgood

JamesD - couple of quick questions. 1) is this with a personal pension as opposed to a work salary sacrifice one? 2) Can you use previous carry forwards to say make this 40,000 to 80,000 or 120,000?Thx

jamesd

Wellgood, it can be a personal pension or a work pension.

If work you need to be sure that the scheme rules will let you transfer it. Also if it's work and using salary sacrifice you must not sacrifice down to the point where your work income is within the personal income tax band because you won't get any pension tax relief for that under salary sacrifice, instead do that last bit with a personal pension outside work. It's also illegal for your employer to pay you less than minimum wage so you'll have to stay no lower than that, which may require use of a personal pension for more of it.

Carry forward can be used but you're still limited to paying in no more than your earned income in the tax year of the pension contributions, or 3600 gross if that is more.

pathtofreedom

Could he look for another job just for those last couple of years? Or does he work in an industry where he could do 6-12 month contracts instead of permanent work just for a couple of years. Age doesn't matter to employers as much if you're doing contracts, as you're only a short term employee anyway. I know age shouldn't matter, but I have friends who have found it easier to work that way when close to retirement. Just thinking that might be another option so you don't have to take the pension before you planned to.

SnowMan

enthusiasticsaver wrote: »

Beyond paying an IFA and getting accurate quotes from the pension provider is there anything else we should be looking into?

As his current pension is defined contribution then another thing he can do is book a Pension Wise appointment to talk him through his options. This will be useful prior to seeking advice from an IFA.

If he opts for face to face then he can locate his nearest appointment centre at

https://www.pensionwise.gov.uk/book-face-to-face

One of the things that isn't clear from above is are the defined contribution and defined benefit pensions completely separate. If they are then is worth considering options such as taking the defined benefit pension at the age at which it is first paid unreduced without reduction for early payment (is that 60?), and using the defined contribution pension to cover the gap up to then.

enthusiasticsaver

Shedman wrote: »

One thing that seems odd to me is that the reduction from £25k to £21k for taking 2 years earlier seems very steep at around 8% per annum when normally you would be looking at 5% p.a. reduction i.e.a reduction of 10% to £22.5k. Are you sure about these figures or perhaps is his normal retirement date for the DB pension actually later than 60 and hence he wouldn't have been getting £25k at age 60 anyway?

The DB scheme is hardly reduced at all from going 2 years early if the figures on the company statement are correct. We always intended for him to go at 60 so have always overpaid since he started at the company 35 years ago. His normal retirement date would have been 65 but he reaches maximum contributions anyway at 60 due to the booster schemes we have used.


The DC scheme seems to be the one most affected by going early according to the projection figures which we have asked the pensions company to check. To be honest most of this is double dutch to me which is why I think we need some proper advice as to whether to take from the DC scheme and leave the DB scheme untouched and how much lump sum to take. I really do not understand though why some advice is to not take a lump sum and instead keep the higher pension as that surely means he pays more tax?

enthusiasticsaver

mgdavid wrote: »

If he's going to leave the DB alone and live on drawdown it's possibly best to work until March 2017 then start drawdown in retirement with a fresh year's Personal Allowance.

That is possible or we have enough savings to cover six months salary and then could do drawdown from March. I really am not keen for him to go through another winter doing the long hours and travel he is having to do. We have overpaid on our pensions and saved for just this eventuality so that is one good thing.

enthusiasticsaver

SnowMan wrote: »

As his current pension is defined contribution then another thing he can do is book a Pension Wise appointment to talk him through his options. This will be useful prior to seeking advice from an IFA.

If he opts for face to face then he can locate his nearest appointment centre at

https://www.pensionwise.gov.uk/book-face-to-face

One of the things that isn't clear from above is are the defined contribution and defined benefit pensions completely separate. If they are then is worth considering options such as taking the defined benefit pension at the age at which it is first paid unreduced without reduction for early payment (is that 60?), and using the defined contribution pension to cover the gap up to then.

We saw from his company website we could discuss the DC scheme with pensionwise but this is really only about 25% of his pension. Most of his benefits will be from the DB scheme now frozen. His latest statement says the benefits built up so far (March 15) was £17825 per annum and at age 60 (October 2018) it would be £18917 so very little difference considering the statement is 12 months out of date. Even if we wait until October 2023 (age 65 which is NRD) the benefits would only be £20885. I think both the DC and DB pensions are in the same scheme as it says he has several options as to how the lump sum is made up. Would it still be a good idea to draw on the DC scheme first?

atush

Yes, if you can avoid getting the other pension reduced.

Go see pensionwise, and bring detials of the DB scheme as well. They cannot advise on it, but they can see the level of income you will have in both cases.

But an IFA can advise on both together