Ok how do I do this?

Dansmam

No screaming don't do it - I might or I might not but meanwhile I'd be really grateful for some ideas from you wise people. Welcome to my dream world - could I/should I even go there?
350k cetv in DB pension LGPS. Which apart from the house is my main, ok only, asset. I'm 55 (so suddenly have pension options - if I draw pension now it's 11k ish ) with skills to earn in an area of increasing demand for my area of work - current salary 67k. Irons in fire so might improve on that shortly or might not. Quite like work still as long as I can avoid the irritating boss -am getting good at that.
House 640k mortgage-free but half of it (tenants in common) is DHs and he won't contemplate a remortgage. We're not married (and that's not going to change, long story,don't ask ...) so if I draw pension at any point then pop my clogs it's 350k down the Swanee. I'd rather it went to our kids. He has 35k pension plus ad hoc income from bits and pieces so with that and even without my wages we won't starve unless/until he pops his. So I need to be sensible in case that happens.
Option I'm pondering is to put 280k into property to create a business daughters can run, save on their rent and generate 12-20k pa towards property costs while I continue earning to pay it off asap. Daughters can work remotely on other jobs as they do now so wouldn't starve or need bailouts and it's a lifestyle we would all prefer. In a lovely place where we could holiday or live at minimal cost. Potential to add value and sell if I need to cash in. Imho which may be rose coloured. I have never yet lived carefully and entirely within my means. But it's only when I've been cautious that things haven't worked out. And this would be such an adventure ��
Ideas? Tax is the main issue that's taxing me obv.

xylophone

https://mpfmembers.org.uk/content/what-conditions-need-be-met-eligible-cohabiting-partners-survivors-pension-be-payable

You are saying that he does not need a survivor's pension?

What is your situation as regards his pension?

Your wills leave each share of your home to your daughters?

Why do your daughters want or need a business when they already have other jobs?

Dansmam

No he is fine without a survivors pension. I have no rights to any of his pension beyond sharing a home and expenses for many years . Of shared assets my kids get my half his kids get his. Daughters need accommodation and a nice place to work from and I need an additional source of income e.g. a sustainable family business to support me in my old age - if I don't want to work to 67 which I doubt I will.

mgdavid

Age 55, earning £67k, minimal pension provision, self-confessed spendthrift (' I have never yet lived carefully and entirely within my means.'
All sounds like a recipe for disaster, and that you will be living off my taxes in 20 years' time.
Please don't do it.

bowlhead99

Tax is the main issue that's taxing me obv.

As well it should. How do you propose to access the £350k without losing half of it to tax?

You earn £67k and presumably you are not going to give that up for the next half decade at least - because you quite like work, have irons in the fire to improve your salary, and you don't have any further pension provision apart from the DB which you're going to have thrown away, so won't be able to afford to.

So, as someone who earns £67k if you take £350k as a pension income in one year you get £87k as a lump sum and 263 taxable. That 263 will get hit with a blended average tax rate of about 45% ; 40% on £60k, 60% on £23k (due to the loss of your annual personal allowance), and 45% on the last £180k. Total bill of £119k.

Instead you could draw over two separate tax years; 40% on £120k, 60% on £46k, 45% on last £97k. Total bill of £119-£120k. No better.

Actually if you pay 3% to give advice on the transfer (£10k) you would save 45% tax on that £10k so it only costs £6k. So losing £119k to tax and £6k to IFA you're out £125k total from the £350k.

So even with the benefit of being able to take a 'tax free lump sum' from the £350k you've lost more than a third of it immediately and will have a pile of £225k cash and no pension provision whatsoever.

Option I'm pondering is to put 280k into property to create a business daughters can run, save on their rent and generate 12-20k pa towards property costs while I continue earning to pay it off asap.

OK, well you don't have £280k, you are at least £55k short of that even if you give up the pension and have no fixed income to live on between age 65 and 105 (other than poverty-level state pension).

Also, your business plan that says you can make £20k a year on the £280k that you don't have. A 7% yield? Is that after your 40% tax? So a 12% gross yield after all business operating costs? What sort of business gets that kind of performance and still allows you to keep on at your £67k a year job and your daughters keep doing their existing 'remote' work? Do they only work a couple of hours a week on their jobs that they do now and then spend the rest of the week on the new business venture for you and not want to draw a big salary?

Although, you mentioned a range of £12-£20k income. Say it's the more modest £12k. But £20k is about 70% more than that. So if the profits are going to be £x or £x+70% it doesn't sound a particularly accurate and well scoped plan, just a 'finger in the air' job. As many pipedreams are.

He has 35k pension plus ad hoc income from bits and pieces so with that and even without my wages we won't starve unless/until he pops his. So I need to be sensible in case that happens.

OK, let's say it happens this summer. His kids want to sell his half of the house and you have no choice but to accept what they say (or what the court says) and it goes through at a fire-sale price because they want shot of it to get on with their own life. So you get under £300k cash after fees and are now homeless with prospect of getting a much smaller home and there's none of his income to rely on any more which you have been doing for years because you've 'never yet lived carefully and within your means'.

As a side note, you mentioned the house is 'joint tenants'. Under joint tenancy, you get the whole house when he dies. However I'm assuming you mean 'tenants in common' because when xylophone asked if your wills gave the assets to your respective kids you said that your kids get your half and his kids get his half.

Daughters need accommodation and a nice place to work from

If daughters need accommodation why don't they use salary or income to pay rent or buy, like most people? There is no point saying they _need_ abc or xyz if they don't actually need it to be funded from you because they're self-sufficient like most human beings. It sounds like you are just making up a wish list to justify a precarious and risky bit of financial/lifestyle planning because it sounded nice in your pipedream.

and I need an additional source of income e.g. a sustainable family business to support me in my old age - if I don't want to work to 67 which I doubt I will.

If you need a source of income to support you in your old age, why throw away a defined benefit pension with inflation linking for the last 30-40 years of your life?

If you were to take it early at age 55, you mentioned it would pay £11k a year. However, DB pensions are not designed to be taken early. They are designed to be taken whenever they were initially agreed to be taken when you carried out the employment that created them - some 'normal' retirement age like 60 or 65. Then you avoid the large loss of income for the rest of your life by taking them early. So maybe the pension is really £15k or £20k or more. Seems silly to throw that away to give you a chunk of cash that leaves you over £50k short of the £280k you need to start a business that will only generate '£12-£20k' a year with a reasonably high level of risk and requiring you and kids to work within it.

A more sensible thing to do, which most 55-year olds on £67k who had paid off their house would look to be doing, would be to contribute about £14k net into a pension every year (£23k gross) to take you fully out of high rate tax and be adding £100k to your pension assets every four years even with the most conservative growth rate assumptions. As your cohabiting partner is only on £35k and you could both live on that, there is an argument to salary-sacrifice yourself down to minimum wage avoiding loads of tax and NI and putting £60k a year into your pension (assuming you have some spare carry-forward allowance from previous years because you said you haven't been building up much pension).

However, that might seem a bit unfair on your other half and his kids, if you don't have completely joint finances and he is funding everything. In that context perhaps you can only 'get away with' putting £30k gross into a pension each year from your £67k so that you are making the same approximate 'contribution' to household finances that he is with his '£35k plus bits and pieces' ; and then if that is more than you need to live on between you, you could give some of your half of the surplus cash away to your kids, if you don't want to do the sensible thing and stick it in S&S ISAs or extra pension for retirement.

Dansmam wrote: »

No screaming don't do it - I might or I might not but meanwhile I'd be really grateful for some ideas from you wise people. Welcome to my dream world - could I/should I even go there?

It sounds like the sort of situation where you need someone to scream, "don't do it".

Or at least "
- work out the large taxes on 'cashing in' a CETV and see that your starting pot is not realistic ;
- work out the realistic business profits (after your annual high rate tax bill on the profits the business generates) ;
- re evaluate your need / responsibility to house your adult children assuming they are fully functioning normal members of society ;
- accept that a DB pension is a decent way of funding retirement and usually a bad thing to throw away under the pretence of "leaving something to the kids" when they are already going to get half a £640k house;
- recognise that if you think the DB pension augmented by state pension will be insufficient, you are earning a good whack with high skills and could easily put away £100k over the next 4 years or £200k over the next 8 years and probably have that £100-£200k provide a sustainable drawdown pot of a further £4-£8k annually without eroding the capital (i.e. could go to the kids when you pass on).

PeacefulWaters

Are you still employed in local government?

kidmugsy

Dansmam wrote: »

We're not married (and that's not going to change, long story,don't ask ...) ... I have never yet lived carefully and entirely within my means. But it's only when I've been cautious that things haven't worked out. And this would be such an adventure

Cautious chap, then.

Dansmam

Thanks for contributions so far. Edited to correct reference to tenancy. Shouldn't have tried to get technical given I know I always get them the wrong way round ☹️. Should have pointed out that what some would see as spendthrift I see as investment and my earnings have been invested in paying off house as early as possible and raising and educating children. I have always paid my 50% of household expenses including mortgage plus we've put 5 kids through education. It's DH who's saying we'd be fine on just his pension (one option is that I bin current job and work alongside him doing consultancy work) Last of the children's now working so all 5 employed and no longer a drain on the parental funds. All paying taxes too. Between that and the end of the mortgage I suddenly have 1500 left at the end of the month.
I know exactly what I'd buy to live in if it came to selling up. Under 200k with space for a veg patch - property is cheap up here. We each have 3 years to sell before kids can claim a share of house - and anyway am absolutely confident none of them would chuck either of us out.
Yes I'm still in local government and the 11k is what I would get if I accessed pension tomorrow, maybe a bit more as based on last year's figures - projecting 32k if I work to 65. Far too many former colleagues dying at 60 has focussed the mind more than a bit. No hope of VR. I have asked, but apparently I am too useful still. If irons work out I'd still be in LGPS.
Bowlhead thanks for the analysis good to have it spelled out in figures. I sort of knew that, sadly. Any views on taking a mortgage on new property anyone? either self or through support to daughters? 12k income passive from lettings is realistic based on local knowledge as is 20k with added activities as extension to daughters current businesses. They are happy working flexibly and living a very simple life.

GDB2222

PeacefulWaters wrote: »

Are you still employed in local government?

I'm quite worried by that thought.

xylophone

Daughters need accommodation and a nice place to work from and I need an additional source of income e.g. a sustainable family business to support me in my old age - if I don't want to work to 67 which I doubt I will.

I still don't understand why you feel that you are responsible for your daughters' accommodation.

They are young, may wish to move elsewhere, may marry etc etc.

You have no rights to a survivor's pension from your partner.

Your DB pension and state pension are your security for old age.

If you have excess income and want to provide additional support to your daughters, why not make gifts out of income to enable them to save for homes of their own?

kidmugsy

It's a statement of the bleedin' obvious but why not use your surplus income to make personal pension contributions so that you avoid higher rate tax? Then you may be able to retire early by drawing your personal pension whenever you want. Meantime the VR possibilities might change.

You're in a position that huge numbers of people can only dream of: 55, secure job you still enjoy, handsome salary, safe DB pension accumulating, mortgage-free. Count thy blessings.