Pension Planning. How does this look ??

LULULU1

Hi all, we just wondered if anyone could give any thoughts to our current situation and retirement plans and see if we are on the right or wrong track.

I am 55 and have a full time job paying 45k per year gross. I have a final salary pension which will pay me £15k a year if I take now or 20k a year if I take when I’m 60. There is a lump sum available of 70k which would give me 11k pension should I choose to go that way.

My wife is 51, she is starting work soon after leaving her previous role and hopes to earn approx. 8k per year. She has a final pension of £5k per year due when she is 55.

Both of us are due to receive full state pension.

We have a mortgage of 120k at 3% interest rate due to finish in 15 years’ time.

We have low interest debt mainly credit cards of 55k. (rate tart Max 2.9%)

We have 105k in our AVCs which we can access when we reach 55. (me 65k, wife 35k)

We have 55k in my wife’s SIPP.

We have 45k in my share ISA

I guess firstly to explain the large debt. We have used this over the years for various household items cars, college, kitchen etc. We are paying it down and it causes us no problems. We have kept this high instead of using money from our other sources to pay it off. This is due to the low interest rates and better returns for our money elsewhere.

Our plan is to keep working for another 2 years and then I would retire from my current role, take my 17k pension and pick up a part time job for a couple of days a week (say 10k per year).

For the next 2 years we plan to continue to save and should have got our debt down to approx. £30-35k and mortgage to approx. 105k.

We plan to both fully retire when I am 59 and my wife 55 with our pensions of 22k and our investments and think this should see us through then to our state pension at 67.

So I guess our questions are:

Are we on the right track generally.

Should we be looking to pay down more debt as a priority or continue to save.?

Are we retiring to early? (average 1 holiday per year type people)

Should we be investing more in wife’s SIPP as she will be paying much less tax when it comes to fruition.
Is there anything else we should be doing. I’m especially conscious of my wife’s low pension at present

Any other thoughts or ideas would be greatly appreciated.

AlanP_2

Can you access your AVCs independently of the main FS/DB pensions?

Some schemes you can, some you can't.

Can either of the AVCs be taken tax free as the 25% PCLS at the same time as the main FS/DB pension?

Again, some you can and some you can't.

Have you checked spouse's pension entitlement from the FS schemes as you need to consider the financial situation once one of you has passed away?

Balancing the income across both of you is certainly sensible if possible.

Has your wife transferred across to the £1k or so of tax allowance she is allowed to?

If your wife paid into a SIPP she would get 20% tax relief against here earnings even though she won't have paid tax at £8k salary. Drawing on the SIPP from 55 would mean a fair bit could be taken tax free, perhaps even enough to not suffer an actuarial reduction on her FS scheme.

Audaxer

LULULU1 wrote: »

Should we be investing more in wife’s SIPP as she will be paying much less tax when it comes to fruition.

Yes I would think so - if you wife earns £8k per year, then up to that amount gross can be paid into her SIPP, less anything she is paying into any other pensions. That means if she paid £6,400 she would get tax relief of £1,400 per year. That's most likely all free money as she will probably be under the Personal Tax Allowance when she starts drawing down from her SIPP on top of her £5k other pension, so not pay any tax on the way out.

Suffolk_lass

My immediate reaction is that your level of debt is very high for people intending to retire within four years. Your mortgage alone will cost you just under £30,000 in interest if you run it over the full 15 years and the interest rate remains unchanged. The repayment amount of over £800 per month is also a big hit out of your pension, after you stop work.

You do not mention whether you have any children you might wish to make provision for either, so the picture is rather incomplete to allow anyone to comment in any detail.

You seem quite content with having over £30,000 in unsecured debt on top of your mortgage, that will also require regular servicing, or paying down - after you finish your current role?.

I am also less than two years from stopping work and I have been paying down all unsecured debt so that it is clear when we retire. Our mortgage will be paid off by using a defined contribution pension in my DH's name, taken in annual lumps across different tax years while his pension is below the tax threshold. Having just taken the TFLS, we are hopeful this will clear it, while minimising the tax he will pay on the draw-down and combined with the regular overpayments I am making of between £400 and £1000 every month.

I would definitely look to reduce your debt. I would look at the credit cards first, based on the tart duration, put them in date order and look to pay down the shortest as quickly as you can - at least then you would pay a fee on a smaller balance when you tart it next time. You could also round your mortgage payments up, even to the next hundred would knock two years off the term so it is easy to see how this would benefit from your early attention. With a concerted effort, and perhaps staying in your current job for an extra 2 years, I am sure you could clear that £55k by the time you finish work.

Thrugelmir

LULULU1 wrote: »

We have a mortgage of 120k at 3% interest rate due to finish in 15 years’ time.

We have low interest debt mainly credit cards of 55k. (rate tart Max 2.9%)

You've been fortunate to enjoy a period of time where this has worked. My personal feeling is that the sand timer is running down though, on two counts. Interest rates are edging upwards. Banks are beginning to withdraw/ tighten up on transfer balance accounts (as on the BOE's radar).

I'd wish to reduce this debt exposure before I stopped working. Once off the treadmill you'll find it extremely hard to get back on.

kidmugsy

LULULU1 wrote: »

There is a lump sum available of 70k which would give me 11k pension should I choose to go that way.

(i) Do you really mean that by eschewing a £70k tax-free lump sum you can get an extra £11k p.a. pension? That is an annuity-like return of 16% p.a. And would it have index-linking?

If so, what do you mean "should I choose to go that way"? Of course you must go that way. It would be mad not to. If the T&Cs on your AVCs let you take them as a substitute tax-free lump sum you're quids in.

(ii) Have you considered transferring your mortgage - while you are both earning - to a long term fixed rate? It might make everything much more comfortable for you. Then you could stop overpaying and concentrate on reducing the other debt and making pension contributions for your wife.

(iii) Is it your present job that comes with the FS pension?

(iv) Are you sure you're due full State Pension? People with FS pensions have usually been contracted out for long spells which typically reduces their pensions. That is especially true if you plan to stop paying NICs soon.

(v) Is your wife's pay at the moment high enough to get her credited with NICs? Are you certain about her State Pension?

(vi) You don't mention your emergency cash reserve: how big is it? If you don't have one consider turning the shares ISA into cash.

enthusiasticsaver

You have £200k of investments/AVCs and your FS pensions and £175k of debt across the cards/mortgage.

Where you say you could take a £70k lump sum and £11k pension - is that instead of £15k at age 55?

My first feeling is your debt is far too high and I wonder if you would be able to service this on pension income alone. How much monthly income would you need given you will still be servicing debt and a mortgage?

Do you have any cash reserves to back up your pensions. If the market is low when you come to retirement age are you prepared to take the hit on crystallising your AVCs?

Do you really think you can clear a total of £35-£40k debt over 2 years across the mortgage and cards on a combined gross income of £53k per year? That means almost half your monthly income going on paying off debt.

If you check the number thread the average income required for a couple in retirement is around £25k gross. That is with no debt or mortgage though. Your pensions will be around £22k for 7 or 8 years until state pension age. I doubt you will be able to increase your savings over the next 4 years while you are still paying down your debt but you will have £200k of investments and sipps and isas. I would say it is doable given your decent final salary but this depends very much on how much debt you have remaining and monthly payments.

I would use the next 4 years to really get that debt and mortgage down rather than save especially with noises of interest rate rises and market volatility.

Your wife has a £5k pension and £55k SIPP. She should use it to draw on over that period between retirement and spa and try to keep below the pa.

LULULU1

Can you access your AVCs independently of the main FS/DB pensions?
Yes I can access my AVC separately of my FS pension


Some schemes you can, some you can't.

Can either of the AVCs be taken tax free as the 25% PCLS at the same time as the main FS/DB pension?
Yes the AVCs can be take a completely tax free.


Again, some you can and some you can't.

Have you checked spouse's pension entitlement from the FS schemes as you need to consider the financial situation once one of you has passed away?

Yes its 50% pay able on the death of either of us. We also have life insurance.

Balancing the income across both of you is certainly sensible if possible.

Has your wife transferred across to the £1k or so of tax allowance she is allowed to?
Not sure what you mean here. Could you explain further ?

If your wife paid into a SIPP she would get 20% tax relief against here earnings even though she won't have paid tax at £8k salary. Drawing on the SIPP from 55 would mean a fair bit could be taken tax free, perhaps even enough to not suffer an actuarial reduction on her FS scheme.

Thanks for your comments and help.

LULULU1

We have 2 grown up children both already home owners in well paid jobs.

LULULU1

!!!8220;
There is a lump sum available of 70k which would give me 11k pension should I choose to go that way.
Originally posted by LULULU1
!!!8221;(i) Do you really mean that by eschewing a £70k tax-free lump sum you can get an extra £11k p.a. pension? That is an annuity-like return of 16% p.a. And would it have index-linking?

No. What I meant is if I take a tax free lump sum my pension of 70k my annual pension would reduce from 15k to 11k. I assume its more sensible to keep with the higher lump sum


If so, what do you mean "should I choose to go that way"? Of course you must go that way. It would be mad not to. If the T&Cs on your AVCs let you take them as a substitute tax-free lump sum you're quids in.

(ii) Have you considered transferring your mortgage - while you are both earning - to a long term fixed rate? It might make everything much more comfortable for you. Then you could stop overpaying and concentrate on reducing the other debt and making pension contributions for your wife.

Very good point. That you.

(iii) Is it your present job that comes with the FS pension?

Yes

(iv) Are you sure you're due full State Pension? People with FS pensions have usually been contracted out for long spells which typically reduces their pensions. That is especially true if you plan to stop paying NICs soon.

I have checked it. I need to earn enough to pay NI for a couple of more years.

(v) Is your wife's pay at the moment high enough to get her credited with NICs? Are you certain about her State Pension?

I will double check

(vi) You don't mention your emergency cash reserve: how big is it? If you don't have one consider turning the shares ISA into cash.

Good point. Thanks

Dazed_and_confused

Has your wife transferred across to the £1k or so of tax allowance she is allowed to?
Not sure what you mean here. Could you explain further

This is a reference to "Marriage Allowance".

There isnt sufficient information to know which years your wife could apply for this but from your op it seems likely she could apply for the 2018:19 tax year when it starts. By applying she if agreeing to give up 10% of her personal tax allowance and in return you would get a fixed amount (worth £238 in 2018:19) knocked off the tax you need to pay.

Whether it is worth applying for this tax year or the previous two Marriage Allowance existed in depends on her total taxable income in those years. She needs to review her taxable income (from all sources) in those years and she what the impact would be on her tax liability by applying. If she has income less than the Personal Allowance for a particular year it is usually worth applying but the closer to the Personal Allowance her income is the less the benefit to you as a couple (in theory she could end up with a small tax bill but you would get a bigger deduction in the tax you needed to pay).

If she has savings interest or dividends which takes her income over the personal allowance it may still be worth applying because those sources of income would be taxed at either 10% or 0% when you would be getting the benefit of 20% of the allowance she is giving up.

And you can only get the benefit of the Marriage Allowance if you aren't paying higher rate tax. For 2018:19 you should be ok if your taxable salary is £45,000 and you don't have any other taxable income and you don't live in Scotland.