Plans to retire at 60

swindiff

The wife and I are now both 48 and have aspirations to retire at 60, our NRA is 67 so 7 years early. To enable this I have recently started putting a fair bit more into my pension. I just wanted to put my plans on here to make sure that I am doing this in the most tax efficient way. Both up to and beyond our retirement age, so any comments are most welcome.

We will both qualify for full state pension by the time we are 67, so that is £8,456 each

My wife has previously worked for the NHS and was in the 1995 scheme, she is going to ask for a current projection but we believe that will be around £1400/year from age 60.

She is currently in the LGPS and with actuarial reduction that pension should be worth around £4000/year from age 60.

I am paying into the USS which is currently running both a DB scheme and a DC scheme. According to their online modeller my DB pension will be worth £17000 with a £51000 lump sum at 60. this is with an 18% employer and 8% employee contribution.

I am also paying 23% into the DC scheme, my employer pays 1% into that, that totals a 50% contribution into my pension. Again according to the modeller with average returns of 5% that should give me around £142k in the DC pension at 60.

The modeller then gives me a maximum tax free cash amount of £132000 with the rest being converted to annual pension, boosting the £17000/year up to £19800.

So from the age of 60-67 I am thinking
Wifes NHS + LGPS pension = £5400 (no tax to pay)
My DB pension = £19800 + Tax free cash of £132000 / 7 years = £18860/year (ignoring any interest) = £38660 (£1590 tax to pay)
Total = £44060 before tax, £42470 after tax.

From 67 on
Wifes State + NHS + LGPS pension = £13856 (£401 tax to pay)
My State + DB pension = £28256 (3281 tax to pay)
Total = £42112 before tax, £38430 after tax

This equates to around £3500/month before 67 and £3200/month after which is about what we take home now with a combined salary of £60k, as we will not be paying NI or pension contributions any more.

Can anyone see any flaws in my logic or plans? This is of course assuming that the USS and LGPS pensions stay as they are which is far from certain at the moment.

swindiff

Just realised I am taxing my tax free cash. I'll have to change that
Now changed

crv1963

Hi Swindiff


I think, but this would be confirmed when your wife gets her NHS Pension Forecast, that she will also get a TFLS of 3x pension or £16200, when she claims her NHS pension, with an option to commute some of her pension to increase the size of her lump sum.


If you didn't need the full income per annum that you currently have then you could invest say 100k of your TFLS into ISAs over 3 years and draw 4% or 4k pa hopefully indefinitely but certainly for 25 years?


You also need to take into account survivors pension should one of you die first. Although commuting pension at a rate of 1:12 isn't great value for your wife it may be worth considering as it shouldn't reduce the NHS survivors pension.


With your pensions I'd find out what survivor benefits there are, or do they die with you? I'd also ask what happens to your pensions if you die before you are 60, will your wife get the contributions you've made refunded only or will she get a pension etc.


Do you spend the 3200 pm, or can some of this be saved into tax efficient wrappers?


Just my thoughts, I'm sure someone much more knowledgeable will comment in more depth soon.

swindiff

crv1963 wrote: »

Hi Swindiff


I think, but this would be confirmed when your wife gets her NHS Pension Forecast, that she will also get a TFLS of 3x pension or £16200, when she claims her NHS pension, with an option to commute some of her pension to increase the size of her lump sum.

That would be £4200 then, I did not realise there was a lump sum with the NHS Pension

crv1963 wrote: »

If you didn't need the full income per annum that you currently have then you could invest say 100k of your TFLS into ISAs over 3 years and draw 4% or 4k pa hopefully indefinitely but certainly for 25 years?

That is certainly an option, we don't know how much we are likely to spend yet in retirement but we are intending to enjoy it and do lots of travelling.

crv1963 wrote: »

You also need to take into account survivors pension should one of you die first. Although commuting pension at a rate of 1:12 isn't great value for your wife it may be worth considering as it shouldn't reduce the NHS survivors pension.

I am not sure what the survivors benifits with my wife's pensions are, but as mine is by far the larger of the 2 that is not too much of a worry.

crv1963 wrote: »

With your pensions I'd find out what survivor benefits there are, or do they die with you? I'd also ask what happens to your pensions if you die before you are 60, will your wife get the contributions you've made refunded only or will she get a pension etc.

If I die before 60 and still in service my wife will get 3x my salary as a lump sum and 50% pension for life valued at if I had worked to 65.

crv1963 wrote: »

Do you spend the 3200 pm, or can some of this be saved into tax efficient wrappers?

Currently we do spend most of it, but £500 is on a mortgage and £600 on credit cards all at 0%
I came up with this on the "My Number" thread
My Number
Car Lease £200.00
Council tax £135.00
Fuel £80.00
Sky TV £60.00
Water Rates £30.00
Fuel £60.00
Mobile Phones £60.00
Home Insurance £25.00
Car Insurance £25.00
TV License £12.00
Food £300.00
Holidays £250.00
Property Maintenance £150.00
Fun Money £1,000.00
Total monthly £2,387.00
Total annually £28,644.00

crv1963 wrote: »

Just my thoughts, I'm sure someone much more knowledgeable will comment in more depth soon.

I appreciate them, thanks

crv1963

Sorry my mistake I'd misread the 5400 as just the NHS pension not the LGPS added to it. But still a smaller lump sum unexpectedly is better than none!


Good luck with the planning.

AlanP_2

If you have a bit of "spare" money you could look at boosting your wife's LGPS benefits.

APC option gives additional monthly pension or AVC option gives a tax free lump sum if taken at same time as main benefits.

I'm using AVCs so don't know much about APCs but I think actuarial reduction would bite into the extra pension.

swindiff

AlanP wrote: »

If you have a bit of "spare" money you could look at boosting your wife's LGPS benefits.

APC option gives additional monthly pension or AVC option gives a tax free lump sum if taken at same time as main benefits.

I'm using AVCs so don't know much about APCs but I think actuarial reduction would bite into the extra pension.

We both work for the same employer, but I am in the USS and my wife is in the LGPS. After talking to the works pensions adviser he recommended putting any extra we had into the USS as the AVC's on the LGPS were not as good. Also the wife isn't as keen on saving for the future as I am, she is more live for the moment :rotfl:

kidmugsy

swindiff wrote: »

from the age of 60-67 I am thinking
Wifes NHS + LGPS pension = £5400 (no tax to pay)

At that income she can pull the old SIPP trick: £2,880 in; £3,6000 out: profit = £720 p.a. In fact she should consider building up a bit more in a SIPP to let her fully exploit her Personal Allowance 60 - 67.

swindiff

kidmugsy wrote: »

At that income she can pull the old SIPP trick: £2,880 in; £3,6000 out: profit = £720 p.a. In fact she should consider building up a bit more in a SIPP to let her fully exploit her Personal Allowance 60 - 67.

Thanks, that's something to consider. Might have to start doing that once the Stooze pot credit cards are paid off.
I guess she would need about £35k in a SIPP to maximise her tax free allowance over the 7 years?

swindiff

Question on the SIPP, If I were to set one up for the wife with say a monthly direct debit of £200, does HMRC automatically top that up with 20% or would she need to start Self Assessment tax returns to claim it back?
£200 in each month becomes £250 with the tax relief?

Audaxer

swindiff wrote: »

Question on the SIPP, If I were to set one up for the wife with say a monthly direct debit of £200, does HMRC automatically top that up with 20% or would she need to start Self Assessment tax returns to claim it back?
£200 in each month becomes £250 with the tax relief?

Yes, HMRC add the tax relief automatically, usually about 2 months after each contribution.