Just lost out on early severance package - What Now

jerrysimon

Not sure how appropriate it is to disclose actual figures

Background.

Aged 56 this September.
On a public sector final salary pension scheme
If I had got early severance I would have been able to go on half salary plus x3 tax free lump sum or reduce pension higher lump sum tax free up to 25%. Its equivalent to 400K pot if I stayed till 60.
We have paid mortgage off even though it has 8 years to go (is a bank account mortgage if that makes sense) and I can gain instant access to the £140K paid off for the remaining 8 years but that would incur mortgage payments again.
Property is worth around 500K
No savings we paid off the mortgage instead
I have a medical condition type 1 Diabetes - Reduced life expectancy.
First grandchild expected in a few months (both daughters left one married with house one renting) wife is leaving part time work then and will eventually do some child care 1-2 days per week. She has small pension 3K, 15K lump sum (aged 65) and we will both have full state pensions payable at 66.5.
I have plenty of hobbies to keep me busy/maybe do some voluntary work/teach guitar.

Although we have a lot of money in our house and could down size we don't really want to do that yet, hence option to draw mortgage equity if we wanted and sell later
I could leave this September with a reduced pension of 43% current salary plus 50K tax free lump sum or increase to 25% but less pension. My wife will have no income as stated above until she is 65/66.5.

I don't hate my job but its lost its challenge. The highlight of my day is the bike ride to and from work (love all things bikes) and company of work colleagues over breaks and lunch lol

I read places you need 2/3 salary for comfortable retirement. I realise finance is just one factor. We have no great plans to travel though that's an option if we draw against the house I guess. I have done a retirement monthly budget (bills, food, entertainment) and after all expenditure we have about £200 left each month.

I have worked since 16 and probably never had more than 3 weeks off work in one lump period lol

Sigh... I guess I have the blues having lost out on early severance and just attended a pre retirement course. Ok I know I am very fortunate but then my pay has always been below that of the equivalent job (I work in IT) in the private sector.

Jerry

princeofpounds

Taking the pension early is likely to be a bad financial deal, depending on the details of your defined benefit pension scheme. You need to understand the rate at which you pension increases for every year you put off drawing it. It's likely to be a very good 'investment'.


If you are determined to leave, you are probably best of looking at other ways to fund the move.


What anybody needs in retirement is a very individual thing. People talk about 2/3rds of salary sometimes because that tends to be where you have no perceptible loss in living standards, but many are happy to retire on half or less.


Remember that life tends to be cheaper as a pensioner (less transport, work clothing, peak travel etc.) and from a certain age you get the state pension (which you can include in your income projections of course).


Mortgage equity release to form a bridge is a possibility, and for now it is quite cheap and likely to be cheaper than drawing your pension (you would have to consider what interest rate risk you are willing to bear) . But be aware that it really does set you down the course of an ongoing liability or downsizing, and people's intentions can often change a lot as they get older.


Personally, it sounds to me that the problem here is more the job that the finances. If it doesn't sabotage your finances, you should probably consider looking for another, more fun job, or go for part-time roles in a kind of semi-retirement that allow you to earn 2/3rds (or close to) of what you did before, but start to free up your time.

atush

Work out your 'number' the amount you both need to keep your current lifestyle.

then either find another job, or keep working and wait for the next round of redundancies.

as far as

No savings we paid off the mortgage instead

It should have read No savings we paid off the mortgage instead ;(

Basically by leaving yourself with zero savings you have restricted what you can do now as you need to build savings back up. One, because you could have an emergency, 2 because it gives you flexibility, and 3 because you really need savings for when you do retire (even at 60) because with a DB pension you dont want to take any of your pension and turn it into a LS as it tends to be a very poor financial decision in most cases.

Another option for you would be to open a personal pension alongside, and whack as much in in the next year as you can Then retire early and use that pot instead of the DB pension.

jerrysimon

Thanks for the quick replies, I appreciate the feedback and suggestions.

Some thoughts.

Why do I need savings when I have access to 140K of my paid off mortgage for the next 8 years to cover any emergency ? I do agree though sending myself down the path of having to sell up is a bit restrictive.

I agree taking my pension early is a sacrifice i.e. would reduce it by about 3-4K/year if taken before 60. However each year I work extra will reduce that.

Waiting for the next round of redundancies is an option though they are unlikely to choose me because my role has to be replaced which is why I got rejected this time round. Also the severance package has now been reduced.

Over the next few months I am going to set up another bank account and pay in as much as I would get paid pension and see what its like to live off that (saving the rest) whilst I wait until Sep to make a decision.

Jerry

maximumgardener

interest rates low at present for sure but who knows what they will be in 3, 5 , 8 years time ?

big call "gambling" with £140k when you want to keep that number as close to zero as poss.....you just have to pay it back at some point.......if you are happy down sizing, fine.....you may look at equity release
but i would not go there unless ABSOLUTELY necessary.?

get the number you need to live off........median pension income for household is generally quoted currently at 18k pa equates £1500 per month. can you live off that?

jerrysimon

Agreed the 140K access should be a last resort thanks.

As stated my outgoings are about £1300 a month. I think a trial run is a good place to start. Waiting to see what happens until Sep seems like a sensible way forward and means six more months of full pay

Jerry

xylophone

Have you explored getting another job? IT is a very transferable skill?

Is there any way of combining your interest in bikes with a job?

jerrysimon

Thanks I guess that is an option but when I retire I dont want to be reliant on another job, plus as an IT Manager its been a while since I ever did any actual IT lol

Bike wise I do a little for friends and family but apart from working at Halfords there are not many options very little money to be made repairing bike self employed.

If I do anything it would probably be voluntary.

PS Part time at my current work may be an option but need to be careful as pension is based on the best of last three years salary.

Jerry

Kynthia

Have you looked at 'partial retirement'? It's possible with some public sector DB schemes to go part time and claim a reduced pension. Take a look at your particular scheme and maybe get a quote.

Also are you sure going part time would reduce the salary figure they use for your pension? In the PCSPS when you go part time they still use your full time equivalent salary and it's only your reckonable service that's affected, and I doubt it would affect yours much if you've been full time for years.

maximumgardener

yes....good idea to consider part time work or even job share?

also don't undervalue the skills you already have .

you may well find employment or re employment easier than you think!!

many employers love to get people with knowledge & experience......go for it & don't give up!

OldBeanz

1. What is the interest rate on your mortgage? On the savings forum they reckon you can make circa 4% in interest pa. This is tax free for the first £1000 if standard rate tax payer and £5000 if you (your wife presumably) earn less than £15k.
2. If you want to retire early then put any excess money into a personal pension. From next fy you can draw £16k without being taxed while having tax relief on the way in i.e. pay-in £12k and withdraw £16k.
3. Are you sure your pension is based on the best of the last 3 years because Classic+ goes back at least 8 years.
4. Part-time working will not damage your pension pay-out.
5. Can you move posts to one more vulnerable to being done away with?
Note you are likely to only get £119 pension rather than the £150 the papers talk about. You need to check both yours and your wife's.