early retirement for wife - advice please

racey

I've already retired but my wife has about 5 years to reach retirement age. She's in an NHS pension scheme. If she retires now taking what's on offer from the NHS what options have we got? We have enough savings/investments between us but I would like to know the best options.
Is it best to invest in a private scheme?
Or in an ISA?
Any advice will be much appreciated

Linton

One would have to see the numbers. In particular what the reduction would be for taking the NHS pension early. Then it's probably an easy decision, if it's large dont defer, if it's small take it early. Best to get the values from your wife's pension people.

If your wife is going to retire nearer the end of the tax year, it may be worth her while using the savings to make as large a private pension contribution as possible gaining tax relief and then drawing the money down over the next 5 years tax free because her income will be less than her tax allowance. It is unlikely to be worthwhile this early on in the tax year as she wont have built up enough taxed income.

It doesnt help you but may help someone else: It's too late to be thinking about this. If you had planned your retirement 5-10 years ago she would have been able to build up a private pension that would bridge the gap.

racey

Assuming the decision is made to take the pension now, what are the current options? Are there obvious tax-efficient options such as a SIPP? (I may be talking nonsense here as I don't really know what a SIPP is ��

atush

Stuff a DC pension (a Sipp r PP) with all of her allowance that is left each year (and use carry forward for the past 3 years).

This pot should see her thru to getting her NHS pension later, unreduced.

enthusiasticsaver

As linton says you need the figures to decide. She needs quote from her scheme administrators to tell her what she will get if she retires now and what she will get if she defers until her Normal retirement date.

My OH retired early last year at 58 and because he had been overpaying into his company pension from his 20s the gap was only around £1k per annum between him taking it last November and waiting until October 2023 which is his NRD. Consequently he took the pension early. I am 57 and retiring at the end of this year and my existing LGPS pension administrators are still working out quotes for me. At present it looks like around £1k will be the difference between mine if I take it from January 2018 or defer until my NRD in 2026. In which case I will be taking it early too.


I have done a sipp for the last 2 years so it may be worth your wife doing this now. She can put in up to 100% of her earnings(less her company scheme contributions) and the government will top it up by 25%. We are holding a large cash buffer and stocks and shares isas to bridge the gap until our state pensions kick in and my former pension scheme pays out when I am 60. We are hoping not to touch the investments though.

racey

atush wrote: »

Stuff a DC pension (a Sipp r PP) with all of her allowance that is left each year (and use carry forward for the past 3 years).

This pot should see her thru to getting her NHS pension later, unreduced.

Can you clarify this, please?
What is a DC pension (SIPP r PP?
What allowance are you referring to?
Thanks

Linton

racey wrote: »

Assuming the decision is made to take the pension now, what are the current options? Are there obvious tax-efficient options such as a SIPP? (I may be talking nonsense here as I don't really know what a SIPP is ��

A SIPP (Self Invested Personal Pension) is a form of personal pension. When people talk about it on these forums they generally mean an online system that lets you buy and sell investments such as shares or funds within a Pension tax environment. SIPPs like any pensions are limited (with one small exception) to investing money that you have earned by employment (as opposed to a pension, profits from investments etc). So if your wife is retiring imminently she is restricted to the amount she has earned since the 6th April which in the overall scheme of things is presumably not a massive amount. If however she had been using savings she could have done it for the past n years.

The one small exception may be of some interest. If you are a non tax payer you can contribute £2880 per year (net) into a SIPP without the earned income restriction. HMRC will add £720 as a refund of tax you havent paid making the total contribution £3600, £720 being 20% of £3600. If you were over 55 you could then withdraw the money which will be tax free if you are within your tax allowance. So a profit of £720/year. Useful but perhaps not life changing.

racey

Linton wrote: »

The one small exception may be of some interest. If you are a non tax payer you can contribute £2880 per year (net) into a SIPP without the earned income restriction. HMRC will add £720 as a refund of tax you havent paid making the total contribution £3600, £720 being 20% of £3600. If you were over 55 you could then withdraw the money which will be tax free if you are within your tax allowance. So a profit of £720/year. Useful but perhaps not life changing.

That does sound interesting. Obviously if she retires there will be no earned income so the profit of £720 will be handy. The SIPP could also increase in value over the 6 years until retirement age. Is that correct?

Linton

racey wrote: »

That does sound interesting. Obviously if she retires there will be no earned income so the profit of £720 will be handy. The SIPP could also increase in value over the 6 years until retirement age. Is that correct?

Yes, though 6 years is rather a short time to ensure that a volatile investment will increase in value. There could be a crash in year 5. You would need to choose your investments with care to be compatible with the planned timescale. Leaving it in cash would lose value because of inflation and possible charges.

Wookey

racey wrote: »

That does sound interesting. Obviously if she retires there will be no earned income so the profit of £720 will be handy. The SIPP could also increase in value over the 6 years until retirement age. Is that correct?

It will only increase in value if you invest monies you add to it wisely and worldwide stockmarkets and global events generally behave themselves. 6 years is a smallish timeframe to allow stockmarkets to recover if there are significant drops so there is always potential for losses. If you just add money to it as cash you will almost certainly see a loss in real terms as inflation will be higher than the interest you get from just holding cash on account in it.

atush

racey wrote: »

Can you clarify this, please?
What is a DC pension (SIPP r PP?
What allowance are you referring to?
Thanks

Defined contribution pension, a self invested personal pension, personal pension.

Annual allowance is 40K or your entire salary, whichever is lower. Some of that will be taken u by the contributions into her NHS pension.