Royal Mail Pension Question

deejaybee

I joined RM in 2004 ( meant to be an in-between job ) but ended up doing about 4 1/2 years....

One good thing was that I was able to transfer 2 small occupational pensions and a small private pension into the RM scheme,( the 2 occupational schemes were NOT FS )  and i ended up with around 11 years pension service ( they check details of previous scheme and give you a "quote" on how many years/months that buys you ) so it tidied things up quite nicely...

I took my RM pension at age 55 ( 59 1/2 now ) as i needed the lump sum at the time, the pension "only" pays 2300 ish a year, but have been saving it as i am stilll working , i realise long term that wasnt the best decision financially, but you have to play the cards sometimes...

xylophone

have been saving it 

Can't you use it to contribute to a pension and gain the tax relief?

deejaybee

xylophone said:

have been saving it 

Can't you use it to contribute to a pension and gain the tax relief?

Yep i guess i could..

What  i am doing is trying to get a lump sum together to help bridge the gap from 65 ( when i want to retire ) to 66 + 7 months ( SP age ) Obviously at 65 i will still be receiving the Royal Mail pension, plus at 65 start receiving another FS pension, although thats only 4 or 5K depending if i take the lump sum .

Going at 65 is dependant on having mortgage paid off by then ( currently overpaying )  had to start all over again financially in middle age following divorce, so where i am now, is not where i thought i would be, but you have to play the cards etc..

I realise what i am doing is not tax-efficient,on the other hand i think it gives me more flexibility having easy access to the money.

I /have/ been considering sticking 5K or so in a SIPP ,waiting for the dead cat to stop bouncing ;-)

xylophone

If you were to contribute to a pension, even if you stayed entirely in cash, your money would grow with the tax relief. You could regard it as interest!

£2300 a year would become £2875 a year - after six years you would have £17, 250, 25% of which could be taken tax free - with your DB pension due at that point and the small DB you should be in a reasonable position to cover your expenses for  18 months?

deejaybee

I recognise that your suggestion is substantially more tax efficient than my plan,  but the 25% Tax Free ( 4312)  would only be 226 per month for the 19 month "bridging " period plus around 580 per month from the 2 pensions,things would be a bit tight on that.

Of course i havnt accounted for the money already saved over last 4 1/2 years, or the money that would be remaining in the SIPP.

xylophone

things would be a bit tight on that.

But you could draw down the balance of the  pension over that period?

And you could pay more into the pension over the six years provided that you had the earnings to cover it.

Would it be worth considering contributing more to the pension rather than overpaying the mortgage?

It might be possible to create a fair sized tax free lump sum?

deejaybee

Yeah its that old conundrum - sort the pension or overpay the mortgage...

I suppose i'm paranoid about getting the mortgage cleared by 65 at latest, and i feel that chipping away now is getting me there, but if i go the other route and pay more into a pension,i think i would worry that things might go wrong, and i get to 65 without being able to clear mortgage, that forces me to carry on working....

My earnings are pretty healthy, usually around 30K profit before tax - i'm self employed courier and i dont see the online shopping explosion slowing down anytime soon, so i feel fairly secure, if one can in this day and age.

Thanks for the advice, has definitely given me food for thought.

deejaybee

Hi again Xylophone ( and anyone else who is interested ! )

Have been thinking about your advice above, and had an idea...

If i retire @ 65 ,  ( Nov 2025 )  That would be 2025/26 Tax Year, and i would have used up Tax Allowance for that Tax Year , as would have been working from start of Tax Year.

But in the 2026/27 Tax Year I would only be receiving 2 small FS pensions ( around 6 or 7K ish )   ( would be topping up from savings also ) so i would have a few thousand available of tax allowance  ( assuming it will still be 12,500 for arguments sake ).

So, if i opened a SIPP with 8K, would be topped up by 2K  = 10 K total.

In 2026/27  would take the 2.5K TFLS, and i am assuming i could draw down most,if not all of the remaining 7.5K Tax  Free as well ?

Does this sound like a plan ?

Thanks

xylophone

In a year when you have no "relevant earnings" (pension income does not count), you are limited to a net  pension contribution of £2880 - the pension provider will claim £720 TR and and it to your pot.
If you build up your SIPP while you have relevant earnings, you will be able to draw down a  bigger PCLS when you access the pension and income only up to the PA (if you wish) or more (taxable).

deejaybee

xylophone said:

In a year when you have no "relevant earnings" (pension income does not count), you are limited to a net  pension contribution of £2880 - the pension provider will claim £720 TR and and it to your pot.
If you build up your SIPP while you have relevant earnings, you will be able to draw down a  bigger PCLS when you access the pension and income only up to the PA (if you wish) or more (taxable).

Understood, thanks.

Yep,  I was planning to open the SIPP while still fully employed.