My Early Retirement Plan - Your Thoughts

OldMusicGuy

CityOwl wrote: »

Its interesting that no one (as yet) has advised us not to gift our children house deposits, which will impact on our early retirement.

I think it's a great idea and if you come from the generation like us that has done very well out of the property market, IMO it's almost compulsory. We certainly plan to do this because we had it pretty easy in terms of getting on the property ladder. I also see property as an asset to be used to finance retirement, but then I've never had a DB pension scheme so maybe that coloured my thinking.

Triumph13

The key thing I think you haven't taken into account is the fact that your husband is going to smash through the LTA if he keeps adding £40k pa until 57 and then leaves it invested until 65. You can avoid this by taking the DB early, but you may not want to do that.
Does your husband's employer share their sal sac NI savings with employees or are all his contributions matched? If so that will make it slightly more attractive to keep putting money into the works DC, but you need to run the numbers on just paying the minimum to get full employer contributions into the work scheme and putting a good slug of the rest into a separate PP or SIPP. He would lose the NI savings, but could start pulling it out from retirement at 57 - avoiding LTA charge on growth between then and when he starts the DB and, most importantly, using his PA in full (plus married couple transfer from you) to get loads out tax free in the period to age 65.
You should also be using a PP or SIPP for you rather than ISAs to be able to use up the rest of your PA until your main pension kicks in.

CityOwl

Triumph13 wrote: »

The key thing I think you haven't taken into account is the fact that your husband is going to smash through the LTA if he keeps adding £40k pa until 57 and then leaves it invested until 65. You can avoid this by taking the DB early, but you may not want to do that.

It hadn’t occurred to me that LTA would be a consideration, thank you. Have I got my LTA calculations right?

DB Pensions - £18850 x 20 = £377,000
DC Pension - £213000 + (£40000 x7) = £493,000

Which makes a grand total of £870,000 (without factoring in any growth in investments)

Triumph13 wrote: »

Does your husband's employer share their sal sac NI savings with employees or are all his contributions matched? If so that will make it slightly more attractive to keep putting money into the works DC, but you need to run the numbers on just paying the minimum to get full employer contributions into the work scheme and putting a good slug of the rest into a separate PP or SIPP. He would lose the NI savings, but could start pulling it out from retirement at 57 - avoiding LTA charge on growth between then and when he starts the DB and, most importantly, using his PA in full (plus married couple transfer from you) to get loads out tax free in the period to age 65.

National Insurance savings made from his pension salary sacrifice are shared 50:50 in the form of an additional employer contribution.

The company pays in 7% of his basic salary whether or not he contributes to his pension, and they match his contributions up to a maximum of 3%. Which I understand means that he needs to contibute 3% to get his employer’s maximum contribution of 10%.

I have no idea how much he would lose in NI savings, is there a formula to calculate this?

Triumph13

CityOwl wrote: »

It hadn’t occurred to me that LTA would be a consideration, thank you. Have I got my LTA calculations right?

DB Pensions - £18850 x 20 = £377,000
DC Pension - £213000 + (£40000 x7) = £493,000

Which makes a grand total of £870,000 (without factoring in any growth in investments)

That becomes £1.1M if you factor in 3% pa above CPI investment growth, £1.2M with 4% growth. Very likely to end up with an LTA charge

National Insurance savings made from his pension salary sacrifice are shared 50:50 in the form of an additional employer contribution.

The company pays in 7% of his basic salary whether or not he contributes to his pension, and they match his contributions up to a maximum of 3%. Which I understand means that he needs to contibute 3% to get his employer’s maximum contribution of 10%.

I have no idea how much he would lose in NI savings, is there a formula to calculate this?

Anything needed to get matching is always worthwhile. Looking at the other options and assuming a 7% 'extra' contribution from employers on the sal sac then foregoing £100 pounds of post tax income gives the following results depending on where you put it and how you take it out:

• Work pension over LTA = £110.69 (= 100/0.58 x 1.07 less 25% LTA then 20% tax)
• Pension for you withdrawn tax free using unused PA = £125
• Separate pension for him below LTA but over PA = £141.67 (100/0.6 less 15% tax)
• Work pension for him below LTA = £156.81 (100/0.58 x 1.07 less 15% tax)
• Separate pension for him taken out tax free with unused PA = £166.67 (100/0.6)

If they do change the rules to allow transfer out of some of his DC funds, then that's best of all as you can then use up all his PA between retirement and DBs with sal sac funds turning £100 into £184.48 and also avoiding LTA by crystallising it early, but if that option doesn't transpire then the priorities are pension for him to fill the gap years, then sal sac to use full LTA, then pension for you to cover your gap years. You can afford to wait a couple of years to see if the option does become available as you still have plenty of time to switch funds to other pensions and amass enough to cover those personal allowances.

enthusiasticsaver

I agree with Triumph that the LTA might be an issue given your husband plans to put in £40k per annum for 7 years. You need to factor growth in so if you come close I would consider maybe upping your husband s and s isa instead and reducing the £40k pension contribution. I know the pension is more tax efficient considering your OH is a high earner but he will be taxed on the way out anyway whereas his s and s isa will be tax free.

My husband had to take his DC and DB pension at the same time although we reinvested the DC pot.

enthusiasticsaver

CityOwl wrote: »

I must admit I have been following your journey on these boards and I always read your posts with interest as they resonate with me.

The wills will be done this year and LPAs have been added too.

Its interesting that no one (as yet) has advised us not to gift our children house deposits, which will impact on our early retirement. The Bank of Mum and Dad is flourishing, even if the other banks are closing down branches.

I have an LPA for my mum but we haven’t yet done ours. I suppose we think that not yet being 60 it is not an issue yet which is mad. Thanks for reminding me and I will put that on my list too.

You do sound as if you are or will be in a similar position to us. I have always been a planner and my husband travelled lots and had a stressful job so I knew if we wanted to be in control of when we finished work and our lifestyle it was up to us to make that happen. I stress that to our daughters all the time. I think for us the late 50s were the right age to aim to retire at. We are healthy still and now the stress has gone my husband is much calmer and happier.

We have helped our kids as my mum helped us. It hasn’t impacted really on our plans to retire early. We might have been able to go at 55 rather than 58 but I considered 58 ok anyway. Initially the plan was to go at 60.

Why not join the early retirement wannabe thread?

Triumph13

enthusiasticsaver wrote: »

I agree with Triumph that the LTA might be an issue given your husband plans to put in £40k per annum for 7 years. You need to factor growth in so if you come close I would consider maybe upping your husband s and s isa instead and reducing the £40k pension contribution. I know the pension is more tax efficient considering your OH is a high earner but he will be taxed on the way out anyway whereas his s and s isa will be tax free.

My husband had to take his DC and DB pension at the same time although we reinvested the DC pot.

I can't see ANY sense in the S&S ISA unless they are thinking of retiring before 55. It definitely makes no sense until they have enough in SIPPs to cover OP and DH's PA from 57 to 60 then the unused further PA over the following years until all DB and SP are on stream - OP will have only £2k PA coming in 60 to 65 and £7k 65 to 67 so she may have nearly £120K she can get out tax free over that period (including TFLS) at an instant 25% return compared to the S&S ISA route. Her SIPP contributions may well cover this, but even when she runs out of tax free space she would still be doing 6.5% better than the ISA thanks to the TFLS.

Thrugelmir

CityOwl wrote: »

The company pays in 7% of his basic salary whether or not he contributes to his pension, and they match his contributions up to a maximum of 3%. Which I understand means that he needs to contibute 3% to get his employer’s maximum contribution of 10%.

contributing £40K pa via salary sacrifice

What are the total annual contributions to the DC pension scheme?

The annual allowance of £40k is irrespective of source, i.e. employee or employer. Exceeding the limit will incur an annual allowance charge. Likewise no tax relief is granted on the excess contributions.

enthusiasticsaver

Triumph13 wrote: »

I can't see ANY sense in the S&S ISA unless they are thinking of retiring before 55. It definitely makes no sense until they have enough in SIPPs to cover OP and DH's PA from 57 to 60 then the unused further PA over the following years until all DB and SP are on stream - OP will have only £2k PA coming in 60 to 65 and £7k 65 to 67 so she may have nearly £120K she can get out tax free over that period (including TFLS) at an instant 25% return compared to the S&S ISA route. Her SIPP contributions may well cover this, but even when she runs out of tax free space she would still be doing 6.5% better than the ISA thanks to the TFLS.

Won't his SIPP be included in the LTA?

Triumph13

enthusiasticsaver wrote: »

Won't his SIPP be included in the LTA?

Yes, but he can crystallise that as soon as he retires so all subsequent growth is outside the LTA. With his work pension he can't crystallise until he takes the DB and so if he doesn't want to take that early he has 8 years of extra growth before the LTA check.