DB pension vs Enhanced tranfer value

jerrysimon

kidmugsy wrote: »

Not if your wife's still in it.

But then again fine if she was dead

Jerry

jerrysimon

I have made extensive use of 0% credit cards over 18 month periods these last few years so I know how it works. However here we are talking about 3.5 years and taking on 15.6K/year (equivalent to 17.5K) as its not taxable. Its got be paid back at some point and at a total of 54.6K with a 3K increase in pension that would take 18.2 years (27 years if you include taxpayable pay see below) . I guess you could play around bumping it from one card to another but do we expect 0% credit cards to be avaiable for the next 18 years ? BTW my lump sum increases by just 6K.

I guess I should have provided more info as in my case my wife also has a small 3.5K DB pension which would make up the difference. We had panned to draw that early at 2.5K but she now has 4hrs a week part time which earns us £240/month and more than makes up the difference of my pension reduction. We will leave her DB pension alone until the P/T work dries up. Finally we have been putting money into a SIPP for my wife which has 12.5K in it. Yes I could use that for a year increasing my pension by about £800/year, but again doubt we will.

Of course that 3K extra pension of mine would also attract 20% tax i.e. just £167/month extra tax, which hers wont.

If I had started this whole process again I would have ensured that both our pensions grew at the same rate up to the tax threshold of 11K each, giving us a tax free income of 22K. Hind sight is a wonderful thing.

Finally as I have pointed out before my DB pension payable to my wife on my death is still 50% of the unreduced pension I would get at 60, even though I am taking the reduced amount.

Jerry

jamesd

You don't have to wait for all three and a half years, each year is useful. You appear to be expecting no increase in lump sum, is that a mistake or does it really stay the same? The debts won't increase with inflation but the pension will, so payback times are shorter than just dividing amount left after the lump sum increase by the increase in pension.

I do expect 0% card deals to be around long term but I don't expect you to be able to get enough for £54.6k, particularly not with reduced income. When it comes to that much it's more something for savings, personal pensions and mortgages, including equity release. £15k is probably easy enough on cards.

If you'd planned for it the best ways would have been a personal pension and perhaps not overpaying on a mortgage if you did that.

But what I think you might wonder about instead is whether you could take a higher income now using a regular mortgage or equity release, then, if you want to, get more serious about repaying it once the state pensions for both of you are being paid. Neither of us is getting any younger and it's quite often the case that moving some money from later in life to earlier using borrowing can be useful.

jerrysimon

Sorry just added in the increased lump sum.

I could fund some from my paid up mortgage (it has 8 years to run) but to pay it back later would also have to extend the term.

I have been round all the senarios in my head several times. I retire end of March and who knows may be back here later to eat humble pie.


Jerry

ukdw

jamesd wrote: »

Did that calculation include the bigger lump sum as well as the higher pension?

It's not about retiring later, it's about waiting to claim so you can retire at the same time with more income.

At the moment the CETV is likely to be very good. Two big advantages are 100% spousal pension plus potential inheritance but at the moment it would be normal to see substantially higher safe withdrawal rates for income than a DB pension would pay, in exchange for being willing to take a drop if you experience unusually bad times. Since you can pick the lowest drop you can constrain things so even if you saw a repeat of the worst outcomes in the last hundred years it wouldn't go lower than the pension level. Or you can go with higher starting level and more of a drop if you are unlucky if you prefer.

No my DB at 55 calculation did not include any lump sums - just 5 years extra 80% being enough to cover the missing 20% for 20 years. (i.e. 5x80=20x20).

Agree with your points on CETV.

jamesd

jerrysimon wrote: »

I have been round all the senarios in my head several times. I retire end of March and who knows may be back here later to eat humble pie.

There is one small tweak you might use even taking it soon. The amount may depend on your age not the exact date. So waiting until after your next birthday could add a full year's worth of lower reduction.

No real need for humble pie whatever you do. Bouncing options around is useful but it's ultimately your call.

jamesperrett

jamesd wrote: »

There is one small tweak you might use even taking it soon. The amount may depend on your age not the exact date. So waiting until after your next birthday could add a full year's worth of lower reduction.

I think Jerry is on the same pension scheme as I am (CS Classic). In that case, the actuarial reduction reduces each month on the same date in the month as your birthday (according to their Excel calculator). In my case, waiting a few days after the end of the preceding month makes around £70pa difference to my pension.

Retiring early isn't always about maximising returns - sometimes it is a way of staying sane!

jamesd

Thanks. Yes, can be about staying sane or just wanting to do it. Then come the thoughts about how to do it as efficiently as possible.

jerrysimon

Yes I am on Classic and have already had about three or four estimates over the last 9 months or so and decided 31/3/17 was optimal. I have also planned 31.3.17 as it fits in nicely with tax year end. I can still change that a few days/weeks after, maybe 5/4/17 ?

What I dont want to find is I get taxed more than appropriate for the lower monthly income and then find I have to reclaim it back. I assume they base the tax on the new income and not just take off as much tax as the previous month before I retired ?

In paid employment, I am just below the higher rate of tax currently (i.e. only taxed at 20%) so hopefully this will be ok ?

As my pension will attract tax (but no NI or pension ) I assume I can still use my wife's 1150 allowance ( she only earns £240/month). I think someone already said that is ok ?

For me timing is perfect, changes are happening at work and this is an excellent time to exit and maitain my sanity! I could have tried and waited for VE or redundancy again but thats a gamble and I have been unsuccessful in the last two rounds. I began planning my exit last March when I failed to get VE and decided I needed to take control and work to my own agenda.

Regards

Jerry

jamesd

If they have a P45 from you they can use that, else they will use the emergency code for the first payment. That payment will be notified to HMRC and they will issue them a tax code for you in time for the second or third payment.

It's fine to transfer your wife's allowance.