Where to get advice re-funding forced early retirement?

BoudiccaUK

My husband is almost 55 and works contracts. The present climate means we would like to have a back-up plan if his contracts dry up and he is forced into early retirement or semi-retirement. I’m also a director of our limited company (and do actual work!) but don’t take a salary. I own two mortgaged rental properties. I don’t pay tax and don’t have a pension, although pay voluntary NI contributions.

I am a bit cautious about contacting a Financial Advisor because twice I have been forced to pay for advice which in one case, on closer inspection, was not appropriate and in another (contractor mortgage) I found a better deal myself!

My husband has an ok pension pot but not sufficient to start drawing an annuity at 55. Obviously we could draw out 25% but what to do with it?

What I really need is someone to take a full look at our financial situation and make some suggestions. This may however not involve him being able to sell us anything where he could gain commission. My experience has been that financial advisors only want to sell products, where the better solution may be to just be a bit clever with what we've got already - pay off our tiny mortgage, the buy-to-lets or even buy another.

Any recommendations on where to turn?

jamesd

Forget an annuity at 55 unless in quite bad health. The level of income they will pay is way below what can be expected from using income drawdown instead, likely well under half as much. Instead see Drawdown: safe withdrawal rates and use cfiresim as shown in examples linked from there about how to use it.

He could take 25% as a tax free lump sum paid into a bank account of his then give it to you into a bank account of yours. You can then use that to make pension contributions in your own name but since you have no qualifying income you're restricted to paying in 2880 net, 3600 gross a year.

Alternatively if you have savings and investments in your own name you could give him some of that and he could use it to fund higher pension contributions.

If the company has the revenue to support it, pension contributions for both of you can be tax efficient and a reasonable level can be paid to you even if you're not drawing a salary. I'm a little puzzled why you wouldn't be paid enough to use your income tax personal allowance, though. Even though you'd have no income tax to pay on this much you'd still get basic rate income tax relief if you paid 80% of the money into a pension, 80% so that the gross after relief is added is no higher than your earned income.

Each of you has an annual allowance of up to £40,000 a year for pension contributions but for personal contributions you're limited to your earned (qualifying) income. In addition to personal contributions a company can pay in more. Personal and company are both subject to that 40k limit per year.

You could also post more about your overall financial situation here and it's quite likely that someone would have useful suggestions for things to investigate.

dunstonh

I am a bit cautious about contacting a Financial Advisor because twice I have been forced to pay for advice which in one case, on closer inspection, was not appropriate and in another (contractor mortgage) I found a better deal myself!

All advice has to be paid for. However, you should not use an FA. you should use an IFA. Mortgage advisers are different to financial advisers. Although a small number of FAs will also do mortgages (more commonly, they refer mortgages to a mortgage adviser or have in-house dedicated mortgage advisers. It is difficult to be a jack-of-all-trades nowadays).

My husband has an ok pension pot but not sufficient to start drawing an annuity at 55. Obviously we could draw out 25% but what to do with it?

Annuity at 55 is not normally a good idea. Can be but it would depend on the scenario but more often than not, you would try not to do it.

This may however not involve him being able to sell us anything where he could gain commission.

There is no such thing as commission. That has been gone for some years. You pay a fee of the advice. That is the product you are buying.

My experience has been that financial advisors only want to sell products, where the better solution may be to just be a bit clever with what we've got already - pay off our tiny mortgage, the buy-to-lets or even buy another.

If your experience has been mortgage advisers and FAs paid on commission (when that was allowed) then clearly sales of products could have been a focus for them. Especially if bank or insurance company sales reps. However, if you pay an IFA for advice, then there is no incentive to buy a product as the IFA will earn the same whether you buy a product or not. IFA services are paid for by you for the services you agree to use.

woolly_wombat

BoudiccaUK wrote: »

I’m also a director of our limited company (and do actual work!) but don’t take a salary. I own two mortgaged rental properties. I don’t pay tax and don’t have a pension, although pay voluntary NI contributions.

I'm curious to know why you aren't paying yourself the equivalent of the Lower Earnings Limit (currently £112 per week) for the work that you are doing?

If you paid yourself the LEL equivalent in salary then your National Insurance record would be credited as though you had paid NICs. It wouldn't cost you a bean.

For further details see:
http://www.litrg.org.uk/tax-guides/tax-basics/what-national-insurance#toc-what-are-class-3-national-insurance-contributions-

tacpot12

I'd encourage you to also develop a backup plan for if HMRC comes knocking for any back tax and Ni that have been avoided. If HMRC determines that your limited company is a Personal Service Company, it would be a pity to have to change your plans in order to pay a large tax bill.

BoudiccaUK

Thanks all!

The reason I don't pay myself a salary is that I own two rental properties in my name. The income from the two rental properties + dividends brings me just short of being taxable.

My husband takes a small salary + dividends and remains a low rate tax payer.

We try to put as much as possible in the pension pot but started contracting late. There is about £100,000

I looked at taking a salary and paying NI that way, but from what I understood I would then be taxable (with the rentals) and this would outweigh any advantage of me paying less for NI.

I was only paying interest on the rental mortgages (2%) and keeping any profit in Santander 123 accounts (3%) so that it was available in an emergency (such as not able to work for several months). I will of course need to review this with the drop in Santander rates to 1.5%.

There is around £100,000 capital to repay on the rentals - from the pension pot? From downsizing? Possibly partly from a small inheritance later on?

I try to keep enough cash available to survive for at least 12 months between contracts (probably could manage 24). This has never happened although he had several months after an accident.

We will eventually be able to release around another £100,000 when we downsize. But we don't know when that will be as my mother lives with us.

He does intend to continue working but I'm trying to formulate a back-up plan in case he doesn't have the choice. )

tacpot12

You basically have two options for advice; free advice from users of Internet forums like MSE, The Motley Fool, etc. or paid-for advice from an IFA who will have qualifications, a regulator and hopefully some professional liability insurance that would pay out something if they gave completely inappropriate advice.

The free route is a viable route to take but you get none of the protections of paying a professional. But paid-for advice is always going to be a minefield because you don't know what the outcome would be if you hadn't take the advice, and even the best advice can't avoid the unforeseen events that can affect even with the best laid plans. No one can drive the risks of investments down to zero.

If money is tight, I'd recommend the free route. Develop your own ideas and post them on MSE to get as much free feedback on them as you can.

BoudiccaUK

tacpot12 wrote: »

I'd encourage you to also develop a backup plan for if HMRC comes knocking for any back tax and Ni that have been avoided. If HMRC determines that your limited company is a Personal Service Company, it would be a pity to have to change your plans in order to pay a large tax bill.

Thanks tacpot. We do have an accountant and we are very careful to comply with IR35 etc. We are both fully paid up in terms of NI contributions. I got into a bit of a pickle when they changed the status of landlord to not being self-employed but I sorted it with HMRC and paid any gaps I had at the same time. )

BoudiccaUK

tacpot12 wrote: »

Y
If money is tight, I'd recommend the free route. Develop your own ideas and post them on MSE to get as much free feedback on them as you can.

Thanks again Tacpot. It's not so much that money is tight but I actually do like researching this sort of thing myself. I'm no expert but when it's my money I like to understand as much as possible (it sometimes takes me a while but I get there eventually!). I have been known to find errors in the spreadsheet used by the finance department of a rather large agency...

bigfreddiel

The forum rules don't allow for us to give you any advice, you need to either pay for it from a professional advisor who may be just a salesman, make sure you see their qualifications.

Or get a few around and make use of the free initial meeting with some very direct questions

Or visit your local CAB office

Cheers fj

BoudiccaUK

bigfreddiel wrote: »

Or get a few around and make use of the free initial meeting with some very direct questions


Cheers fj

Yes, good idea. I don't mind paying if I feel that I have found someone with the same attitude towards money, some good ideas and someone I feel comfortable with.

It's more suggestions of options really. Things I may not have thought of. I don't mind then going off and having to do the maths myself and deciding what's best for us. I've been number crunching all afternoon