Pension plan

bioboybill

Like so many people I've only started to be interested in pensions in my 50s. Long story short, I've never been able to save until now, and I'm 55 in a few months!

Ok, here's my situation. Married, earn £36K a year. Have a LGPS pension with 32 years service so far. Wife is 56 and works part time in same place, but has just accepted voluntary severance. Lump sum of just under £10K tax free to go (75% of salary). Pension fund rules say if leaving on redundancy even if voluntary she is entitled to non-reduced pension, but employer says they will only let her go if she accepts reduced pension, so she will only get just over £2400 a year, reduced from £3600. She also gets about £3.5K tax free lump sump.

Fortunately she is already receiving a pension of just under £9K a year from previous job, which will reduce to about £3K when she hits state pension age. I have checked her state pension, and it says currently she will get £142 a week, and could get £159.55 if she makes NI contributions the next 4 years (she has 40 years, but laps was contracted out). Not sure how she can make NI contributions now retired. Could she pay for added years?

My wife is going to use her severance payment to pay off a loan of £500 a month that we took out a few months ago to help son with house deposit. We have also been giving him £200 a month for his help to buy is a, and his is due to complete a purchase shortly, so that burden is nearly up lol.

We have finally started to save £500 a month about a year ago and have £6500. We will add the pension lump sum to that to make £10K savings.

I want to retire by 60, so decided that starting an AVC would be a good idea. The LGPS use Prudential, and you can have contributions deducted from salary. I was thinking of putting £600 a month in for 5 years, and understand it would cost £500 due to tax relief. Wife however is risk averse and would rather I put £300 a month in to AVC and £250 into easy access savings.

We have paid off our mortgage, btw.

I understand that retiring at 60 my pension would be reduced, but due to 85 rule protection to my pre-2008 pension benefits a lot of it would be protected, and I would still get around half my final salary, and my lump sum would be unreduced.

My plan would be to use my lump sum of around £27K and the hopefully in the region of £30K + in my AVC and savings to top up my pension between 60 and 67. Then the state pension of £159.55 kicks in for me and my wife's a year before.

Comments and suggestions welcome. Am I being stupid? Have I missed anything? Are their better routes?

xylophone

See page 19

https://www.royallondon.com/Global/documents/GoodWithYourMoney/TOPPING-UP-YOUR-STATE-PENSION-GUIDE.pdf



https://www.gov.uk/government/publications/national-insurance-application-to-pay-voluntary-national-insurance-contributions-ca5603

AlanP_2

bioboybill wrote: »

Wife is 56 and works part time in same place, but has just accepted voluntary severance. Lump sum of just under £10K tax free to go (75% of salary). Pension fund rules say if leaving on redundancy even if voluntary she is entitled to non-reduced pension, but employer says they will only let her go if she accepts reduced pension, so she will only get just over £2400 a year, reduced from £3600. She also gets about £3.5K tax free lump sump.

I suspect it's more "may be entitled" as opposed to "is" entitled when it is voluntary as the employer needs to agree to reimburse the scheme for the additional pension they will be paying out if it is unreduced

I'd suggest that if your wife is not working you should pay in £2880 net / £3600 gross into a personal pension for her each year. That is the limit for someone with no earned income and can be done up to Age 75. This can be taken straight out with a 25% TFLS and the remainder added to her taxable income. See http://forums.moneysavingexpert.com/showthread.php?t=5580163

If you can afford it you could do this whilst not taking her LGPS pension for a couple of years out of the redundancy lump sum thus reducing the impact of the actuarial reduction she would suffer, and her annual taxable income would still be under the standard personal tax allowance.

Don't leave yourselves so short that there is no "quick access emergency pot" available though.

My wife and I use the LGPS AVC and are of a similar age as the fact that you can take it all tax free is just to good to miss out on in our opinion.

If you put £600 in out of your monthly salary that is the equivalent of £480 out of post tax salary.

The way we look at it is we "make" 25% straight off the bat and as long as the AVC fund does not drop by more than the tax relief given to us we are in profit.

Risk is an issue as fund values go up and down with the long term prospects being for growth but if you have a fixed date in mind and it is quite close as you have then it is a risk serious enough to minimise if you can.

I would suggest that if you do go down the AVC route you put a good proportion of it into less volatile / near "cash equivalent" options within the Prudential offer.

That will reduce the chances of gaining much from investment growth but minimises the chances of losing what HMRC have given you for nothing.

You should also start to think about how much you will need / want in retirement "your number" and then see what your various pensions will add up to to see whether your "plan" will work for retiring at 60.

hyubh

AlanP wrote: »

I suspect it's more "may be entitled" as opposed to "is" entitled when it is voluntary as the employer needs to agree to reimburse the scheme for the additional pension they will be paying out if it is unreduced

"Where an active member who has attained the age of 55 or over is dismissed from an employment by reason of redundancy or business efficiency, or whose employment is terminated by mutual consent on grounds of business efficiency, that member is entitled to, and must take immediate payment of -

(a) retirement pension relating to that employment payable under regulation 16 (additional pension contributions), adjusted by the amount shown as appropriate in actuarial guidance issued by the Secretary of State; and
(b) any other retirement pension relating to that employment payable under these Regulations, without reduction."

http://www.lgpsregs.org/schemeregs/lgpsregs2013/timeline.php#reg30

In a nutshell, if this went through, the employer would be reporting a resignation not a redundancy to the pension fund administrator.

bioboybill

Interesting to read that section of the LGPS rules. This is what it says in our pension fund rules (pasted direct from site)
If your age is greater than 55, and your contract of employment is terminated on the grounds or redundancy (this includes voluntary redundancy), or in the interests of the efficiency of the service, then providing you have over 3 months service, or you have transferred previous pension rights into the Scheme you will be entitled to receive your pension immediately.
Unlike some other forms of early retirement, you will not suffer a reduction to your benefits if you are being made redundant or are being retired in the interests of efficiency before your normal retirement date.

Silvertabby

“ I suspect it's more "may be entitled" as opposed to "is" entitled when it is voluntary as the employer needs to agree to reimburse the scheme for the additional pension they will be paying out if it is unreduced
Originally posted by AlanP ”

"Where an active member who has attained the age of 55 or over is dismissed from an employment by reason of redundancy or business efficiency, or whose employment is terminated by mutual consent on grounds of business efficiency, that member is entitled to, and must take immediate payment of -

(a) retirement pension relating to that employment payable under regulation 16 (additional pension contributions), adjusted by the amount shown as appropriate in actuarial guidance issued by the Secretary of State; and
(b) any other retirement pension relating to that employment payable under these Regulations, without reduction."

http://www.lgpsregs.org/schemeregs/lgpsregs2013/timeline.php#reg30

In a nutshell, if this went through, the employer would be reporting a resignation not a redundancy to the pension fund administrator. Posted by hyubh

Started to see a few examples of this before I retired. Certain individual employers (ie, academies) applied their 'employer discretions' not to pay the extra costs in the case of voluntary redundancy pensions. I did query this with my manager, but was told that it was legit in the case of voluntary severence. The retirements were registed as 'redundancy, extra costs NOT to be paid by employer'.

bioboybill

Silvertabby wrote: »

Started to see a few examples of this before I retired. Certain individual employers (ie, academies) applied their 'employer discretions' not to pay the extra costs in the case of voluntary redundancy pensions. I did query this with my manager, but was told that it was legit in the case of voluntary severence. The retirements were registed as 'redundancy, extra costs NOT to be paid by employer'.

Yes, I suspect that's what will happen, but for me it is a cheek when the pension fund rules say the pension will not be reduced and the employer can just ignore this.

bioboybill

AlanP wrote: »

I'd suggest that if your wife is not working you should pay in £2880 net / £3600 gross into a personal pension for her each year. That is the limit for someone with no earned income and can be done up to Age 75. This can be taken straight out with a 25% TFLS and the remainder added to her taxable income. See http://forums.moneysavingexpert.com/showthread.php?t=5580163

If you can afford it you could do this whilst not taking her LGPS pension for a couple of years out of the redundancy lump sum thus reducing the impact of the actuarial reduction she would suffer, and her annual taxable income would still be under the standard personal tax allowance.

Don't leave yourselves so short that there is no "quick access emergency pot" available though.

My wife and I use the LGPS AVC and are of a similar age as the fact that you can take it all tax free is just to good to miss out on in our opinion.

If you put £600 in out of your monthly salary that is the equivalent of £480 out of post tax salary.

The way we look at it is we "make" 25% straight off the bat and as long as the AVC fund does not drop by more than the tax relief given to us we are in profit.

Risk is an issue as fund values go up and down with the long term prospects being for growth but if you have a fixed date in mind and it is quite close as you have then it is a risk serious enough to minimise if you can.

I would suggest that if you do go down the AVC route you put a good proportion of it into less volatile / near "cash equivalent" options within the Prudential offer.

That will reduce the chances of gaining much from investment growth but minimises the chances of losing what HMRC have given you for nothing.

You should also start to think about how much you will need / want in retirement "your number" and then see what your various pensions will add up to to see whether your "plan" will work for retiring at 60.

Thanks Alan, some very good advice there IMHO. I am thinking exactly the same as you regarding the AVC route. I had worked out that I could take the whole AVC sum as tax free cash according to sums on my pension fund website. Very nice!


I wasn't aware of SIPPs at all, but the idea of a free £720/year is very tempting. I have suggested to my wife that she defer her LGPS pension for a couple of years at least if she can. That would leave her with just under £9K year income from her first pension, leaving her an allowance of a further £2500 to play with under the SIPP arrangement if I have understood it correctly?


Just to check I have understood this right she could open a SIPP with say HL and deposit £2880 a couple of months before the end of the tax year. This is left as cash and not invested. A couple of months later the HMRC add £720. My wife can then withdraw up to £3400 (£900 as tax free cash and £2500 to keep within her personal allowance). I understand that HL want you to keep £1K in to keep account open, so she will in reality take £2600 out and leave £1K in as cash. In the next tax year she can put £2880 in and get another £720 from HMRC, Assuming the personal allowance goes up to £12K as expected she could withdraw the whole £3600 out tax free and still be within her PA. If the PA doesn't go up she could draw out £3400 tax free. Is that right?

AlanP_2

That's how I understand it yes.

There are others on here actually doing it so may have something to add based on their experience.

I have seen comments that Virgin are a good provider to do it with as charges are less and there is no £1k limit to avoid closure but you would need to check current Ts&Cs.

tempus_fugit

Looking at my SIPP T&Cs with HL it seems I only need to leave £50 in it to avoid closure, unless I've missed something elsewhere.

bioboybill

tempus_fugit wrote: »

Looking at my SIPP T&Cs with HL it seems I only need to leave £50 in it to avoid closure, unless I've missed something elsewhere.

Yes, that's how I read the T+Cs, but I read another thread where people were saying it's £1000. Either it's changed or we are reading it wrong.