New pension rules force me to seek IFA advice

Sioux18

Thankyou all once again! I do receive some council tax benefit & help with the mortgage but there is still a monthly outgoing for both. I am breaking even at the moment just with no capacity for unforseen expenditure. I have exhausted all my savings since I had to give up work following my sons accident on adaptations to the home and topping up income to get by.

I can't move as although there is some equity (about 50%) I can't realise enough to buy anywhere else without a mortgage and so, the vicious circle continues to go round and round. Paying off the mortgage is more important to me than 'benefits' as it will mean my son is provided for in terms of a home without risk of being forced to sell, by the lender at least!

I could defer taking the pension but, while I fully acknowledge the tax free sum and annual income will be higher, from my current position, a guaranteed income with no financial commitments and peace of mind far outweighs the extra. Also, the prospect of living as I am now for any longer is quite frankly not worth the trade off for me, I'd much rather get a good few years of decent sleep than chase a few £ extra.

I'm lucky I have options - I just wish the decisions weren't so hard to make!

I am really grateful to this forum for making me better informed - thanks once again.

Sioux18

jamesd wrote: »

What those results suggest is that you could reasonably take an income of about £19,000 a year provided you use the Guyton-Klinger drawdown method after having spent £80,000 to pay off the mortgage and fees. This would start now and not increase when your state pension starts. Depending on investment performance you would normally get increases with inflation. If investments do as well as average the increase would be larger. If investments do badly you'd still not expect to go below the £12,000 floor.

That's really encouraging to hear & I would be happy with such a scenario - I shall take a look into this. Thankyou

jamesd

So far as the mortgage goes, its normal for a mortgage lender to allow a mortgage to be ported to a replacement property when there is a reduction in mortgage balance.

Or if you use the CETV you might be able to buy a cheaper place that might be both cheaper to run and easier for your son, while selling your current one. Your income level could be increased by about 6.8% of any money you can free up in this way.

jamesd

One tweak to consider is your birthday. The amount you get from the pension might increase after a birthday because you're now "a year" older even if it's only a few weeks away.

Sioux18

jamesd wrote: »

What those results suggest is that you could reasonably take an income of about £19,000 a year provided you use the Guyton-Klinger drawdown method after having spent £80,000 to pay off the mortgage and fees. This would start now and not increase when your state pension starts. Depending on investment performance you would normally get increases with inflation. If investments do as well as average the increase would be larger. If investments do badly you'd still not expect to go below the £12,000 floor.

jamesd wrote: »

So far as the mortgage goes, its normal for a mortgage lender to allow a mortgage to be ported to a replacement property when there is a reduction in mortgage balance.

To be honest I had expected some
Or if you use the CETV you might be able to buy a cheaper place that might be both cheaper to run and easier for your son, while selling your current one. Your income level could be increased by about 6.8% of any money you can free up in this way.

To be honest I had expected some flexibility on their part, however they will not entertain a longer term period with either the existing mortgage or a ported one as they deem my affordability using my DB income will not enable me to enter into a capital repayment arrangement. Having enquired elsewhere where they ' might', 15 years appears to be the absolute maximum term and even at current low rates I will struggle on a repayment basis. A hike in rates would be a disaster. I think we looked at hypothetically rates of 4% requiring £600 monthly repayments, which with a DB income of £8000pa wasn't affordable, assuming I didn't repay any capital and about £230 pcm if I used the tax free cash to reduce the debt. Either way I'm exposed to increasing rates, if indeed I could get an actual mortgage elsewhere. Hence despite being risk adverse I felt I had to at least explore the CETV options now, given I may not get such a generous offer in the future. A crystal ball right now would be useful!

Sioux18

jamesd wrote: »

One tweak to consider is your birthday. The amount you get from the pension might increase after a birthday because you're now "a year" older even if it's only a few weeks away.

That's a very interest point and as I don't think this will be resolved before my next birthday I will certainly ask for revised figures. Thank you

jamesd

What about porting at the same term, still nine years away?

The reason to wonder about this is the 6.8% from my last post. Say you were able to port to a place 38k cheaper and keep 40k of mortgage. That's initially a £2720 a year increase in income. Dedicate that to just mortgage repayment and that's at least another £27,200 off the mortgage in optional capital payments over nine years. Since the 6.8% is inflation linked you'd probably be able to do more. And keep that higher income for the rest of your life, long after the mortgage is gone.

Or alternatively put just half of the £2720 towards the mortgage then do equity release in nine years and pay off the equity release mortgage at the same rate. If interest rates go over 6.8% you can just repay the mortgage then.

Or even equity release while moving, so there's no deadline and a fixed interest rate. Can take max equity release you can get and use the lump sum or saving from moving to pay off the rest.

Worth mentioning that 6.8% is only approximate, you'd really want to plug the higher starting capital into the calculator. It's good enough for the sort of numbers being discussed here, though.

Sioux18

Sioux18 wrote: »

To be honest I had expected some flexibility on their part, however they will not entertain a longer term period with either the existing mortgage or a ported one as they deem my affordability using my DB income will not enable me to enter into a capital repayment arrangement. Having enquired elsewhere where they ' might', 15 years appears to be the absolute maximum term and even at current low rates I will struggle on a repayment basis. A hike in rates would be a disaster. I think we looked at hypothetically rates of 4% requiring £600 monthly repayments, which with a DB income of £8000pa wasn't affordable, assuming I didn't repay any capital and about £230 pcm if I used the tax free cash to reduce the debt. Either way I'm exposed to increasing rates, if indeed I could get an actual mortgage elsewhere. Hence despite being risk adverse I felt I had to at least explore the CETV options now, given I may not get such a generous offer in the future. A crystal ball right now would be useful!

jamesd wrote: »

What about porting at the same term, still nine years away?

The reason to wonder about this is the 6.8% from my last post. Say you were able to port to a place 38k cheaper and keep 40k of mortgage. That's initially a £2720 a year increase in income. Dedicate that to just mortgage repayment and that's at least another £27,200 off the mortgage in optional capital payments over nine years. Since the 6.8% is inflation linked you'd probably be able to do more. And keep that higher income for the rest of your life, long after the mortgage is gone.

Or alternatively put just half of the £2720 towards the mortgage then do equity release in nine years and pay off the equity release mortgage at the same rate. If interest rates go over 6.8% you can just repay the mortgage then.

Or even equity release while moving, so there's no deadline and a fixed interest rate. Can take max equity release you can get and use the lump sum or saving from moving to pay off the rest.

Worth mentioning that 6.8% is only approximate, you'd really want to plug the higher starting capital into the calculator. It's good enough for the sort of numbers being discussed here, though.

That's a really interesting concept and I can see how that could work. I've had to have lots of adaptations to my home so finding what we need elsewhere is going to be difficult, but worth looking into for sure. Thanks

jamesd

There also tends to be a shortage of homes with adaptations. You might find that helping a sale or you might get good rent from it that you could use as part of your income. A chat with the council and local housing associations might be useful to see whether they are interested or know of someone who is. They might even want to do a deal for a property where you are for a smaller or otherwise cheaper one in the area.