55 Conundrum

grocerjack

Hi all, I'm 55 in August. My situation is this. I'm in a final salary pension scheme which closed down 5 years ago. I paid all my previous pensions into this, bar a Scottish Widows one which was topped up after a mis-selling thing which I can't move. My final salary pension was at it's max payout when it closed (33/60ths) and is inflation index-linked to a 5% cap. As things stand it's projected to pay around £35k per year. Since closure I've paid into the new DC fund. I pay 5% of my salary, my employer pays 10% and this equates to about £11k per annum. I can add to the 5% but the employer contribution stops at 10%.

Now when I'm 55 I'm sorely tempted to take a chunk of the current DC pot to become debt free aside from the mortgage. Plus it gives me enough to upgrade a holiday mobile in France with a small amount per month for the shortfall in the total mobile cost (but way less than the debt servicing I manage now). It's not a Ferrari treat but it would secure our holidays each year for the next 10-12 years as we'd rent to cover the site fees for 5 years. Now, Martin has always said servicing debt is a bad thing and as I see it this gives me a huge chance to minimise debt, treat myself, conserve my entire final salary pension and still have 10 years of gainful employment to contribute to the DC fund (providing I keep my job of course!). It would release around £350 per month.

Am I mad to think like this or should I adopt a 'live for today' ethos on this? I am aware of the tax hit but part of me thinks as a one off I'm entitled to a treat as I have no intention of doing such a thing again until I retire properly. I've been paying into company pensions since I was 18 (1979) and the inner devil is saying to hell with being uber cautious. The DC fund when completed as it stands projects an annuity of around £5.5k per year. If I did this it would halve to around £3k per year.

It seems a nice problem in some ways but I'm also a bit paranoid about how things would look after retirement. I'd appreciate if anyone has done similar or is planning to on reaching 55.

Cheers Jack

kidmugsy

When does your DB pension pay out?

atush

If you take your 25% TFLS, can you continue to pay into the pension as long as you still work?

what are your debts? What amts and %?

grocerjack

Hi, DB pays out at 65 so 10 more years of inflation growth capped at 5%. My employer has a policy that if made redundant within 5-6 years of retirement (depending on length of service) they offer early retirement instead.

grocerjack

atush wrote: »

If you take your 25% TFLS, can you continue to pay into the pension as long as you still work?

what are your debts? What amts and %?

Hi, not sure what TFLS is, but I can take pretty much what I want and yes still continue to pay in. My calculation is it would 4 years to get back to current pot figure and then there'd be about 6 years left afterwards.

Debts are around £17k and manageable and I don't want any more. I realise it's a gamble, but not a huge or drastic one at first glance when the DB pension is not being touched. It would deplete the DC pot by around two-thirds but I'd be clean from debt aside from an Argos card, which is quite handy. I also have a BOGOF share scheme and a rolling 5 year SAYE share scheme which pays out every year. So I am saving as well.

Thx

hugheskevi

It would deplete the DC pot by around two-thirds

This would presumably reduce your Annual Allowance to £10,000 - further details at this link.

Which will be a problem, given you say:

I pay 5% of my salary, my employer pays 10% and this equates to about £11k per annum.

atush

TFLS is tax free lump sum, and 25% is all youc ant take tax free. the rest would be taxed as income at your highest rate and could put you into HRT and be taxed 40%. Unwise int he extreme.

So, take the 25% if you want.

But really if you wanted more help you could have provided more details. Such as % of interest.

So look up smowballing and do it. but you really need a spending diary and an SOA first.

Anyone your age who has 17K in debt, and no savings wont be retiring for a very long time. And certainly should NOT be considering buying a french mobile property. and if you dont cut down costs, you'll never have savings.

If you want to buy a holiday home, wait until you can afford it and arent in debt.

grocerjack

hugheskevi wrote: »

This would presumably reduce your Annual Allowance to £10,000 - further details at this link.

Which will be a problem, given you say:

Just recalculated 15% of salary (my 5%, employers 10%) and it comes to £9800, a schoolboy calculation error with the calculator (my brain first time).

As I say, the DB is protected and won't be touched, but for me this looks a massive chance to clear debts down, which I though was a key pillar of the MSE web site.

If my DB goes up at 2% a year I'd still be on a reasonable pension (roughly £40k projected), plus the DC would build again although I do realize it would not reach previous projections if left untouched. Then of course I would get the state pension,lets say thats £10k per year by then, plus the £1.2k from the Scottish Widows topped up poension I can't move elsewhere right now. I haven't included my wife's projected £25k per year pension from her old DB scheme (index linked) and her current DC one.

The chance to be debt free seems very compelling against what might be saving for an extra £5-6k per year. Thanks for the link though, I will look deeper into this of course, but I can't believe I'm the first to wonder about all of this.

Thanks for the answer :

grocerjack

atush wrote: »

TFLS is tax free lump sum, and 25% is all youc ant take tax free. the rest would be taxed as income at your highest rate and could put you into HRT and be taxed 40%. Unwise int he extreme.

So, take the 25% if you want.

But really if you wanted more help you could have provided more details. Such as % of interest.

So look up smowballing and do it. but you really need a spending diary and an SOA first.

Anyone your age who has 17K in debt, and no savings wont be retiring for a very long time. And certainly should NOT be considering buying a french mobile property. and if you dont cut down costs, you'll never have savings.

If you want to buy a holiday home, wait until you can afford it and arent in debt.

I already have the home! Well a 10 year old one anyway. This was a chance to upgrade with a very good part-ex offer.

In terms of savings I have around £250 a month going into a BOGOF share scheme (£125 from me, £125 from employer) that's backlogged around 6 years. I sell a few occasionally for Christmas or holiday spending top ups or the occasional thing for the house, but I can only sell the shares that are over 5 years old to remain tax free.

The SAYE share scheme opens each year, and each year I invest £50 per month for 5 years and then buy the shares at the price 5 years ago. I've done this since being with them so the scheme is rolling as the max that can be put in to this is £250 total. At the end of each 5 years we get an additional 3 months bonus added. So every year in September I get £3150 to keep, save or to buy shares at the price set 5 years ago. Last year this gave me £3150 to buy shares at £1.21 and then sell and £2.73 tax free.

I don't think savings are an issue at £375 per month into very good schemes. However the debts are a bit legacy and like many others I got caught with my pants down a bit in the cheap credit boom days pre-2008. I have no court orders or CCJs against me but have been paying the minimum or a little above. We rarely buy on credit these days as we fund stuff from the BOGOF shares which are also quite lucrative and from the annual SAYE payout.

The truth is I could jack the share schemes in and cash them in to clear debt, but is that any better? Isn't saving better in the long run than servicing debt? Let me also make it clear, these debts are not causing pain apart from my own pride at having them hanging over me. I'm looking to a debt free and low credit future.

My whole point is I think my future 'pension wise' is pretty secure and savings are good as long as I remain employed with this company. I would wager the vast majority of people would love to be saving £375 per month with a final salary pension locked away.

The temptation to take some of the DC pension money to clear debt and treat myself is ....errr......tempting. Surely the risk in my case is quite small.

I do intend to talk to an IFA, but my feeling is the minute they discover I'm not about to buy a product from them then they won't be interested.

Thanks for your answer, I will look up 'snowballing' - all answers and comments are appreciated

HappyMJ

It depends on what interest rates you are paying on your debts. If they're credit cards charging a lot of interest then do whatever you can to pay them off as no pension fund will ever return enough to exceed what you're paying in interest.

If you're paying less than what the SAYE scheme returns then there's no need to pay the debts off any sooner.

I personally have a lot of debt at 4% APR or less but I earn more in interest/returns from savings and investments so there's no need to pay any of them off.

kidmugsy

grocerjack wrote: »

I'm entitled to a treat

A valley girl speaks.