Plans to retire at 60

crv1963

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?

The platform/ provider claims the tax so yes £200 becomes £250 per month. She will have (at current published plans) a £12k tax allowance, so could aim for 6k pa drawdown rate, 6x7= 42k pot and don't forget she can (currently) take 25% of the pot as a tax free lump sum. So if you could do it you could have 56k in a sipp - 25% (14k) leaves 42k to draw down tax free as she would still be under her annual allowance!

MK62

Not sure if this was mentioned, but you might also consider transferring marriage allowance from your wife to yourself for years 60-67....it's only a few hundred pounds but it all helps.
This is, of course assuming that this option is still available by then......

bluenose1

I am not sure if the USS modeller takes into account the actuary reduction of taking it before 65 which will be about 4% per year. You would think it would but I don't think it does.

I am looking at doing something similar and can't see any different you should do apart from as kidmugsy said use a SIPP to maximise the 2880 to 3600 tax boost.
I am hoping to retire at 55.
Drawdown 55-60 with £10k pa from £70k DC pot.
My pensions will be approx £9k from age 60.
We have rental profits of approx £11k per annum and my oh pension of £19.5k. Will either do 2880 to 3660 SIPP from 55 or put more of rental property profit in my name to minimise tax bill.
So a joint income of approx £40kish per annum. From 67 this will increase to £55k. Though all depends if we still have the properties.

Spreadsheetman

bluenose1 wrote: »

I am not sure if the USS modeller takes into account the actuary reduction of taking it before 65 which will be about 4% per year. You would think it would but I don't think it does.

....

I think the USS actuarial reduction is worse, more like 6% pa if I remember correctly. My wife is in USS and we are planning on running down her unrelated DC pensions first to avoid the hit. I don't know if we can avoid taking it all the way to 65, but we'll push it as far as we can.

swindiff

bluenose1 wrote: »

I am not sure if the USS modeller takes into account the actuary reduction of taking it before 65 which will be about 4% per year. You would think it would but I don't think it does.

When I spoke to our pensions advisor he told me that the modeller took into account any actuarial reduction. I will contact him again to clarify the situation.

Something that many people assume is that the actuarial reduction applies to the whole pension which is not necessarily the case.

This is a quote from one of the USS pensions factsheets

Joiners since 1 October 2011

If you first joined USS on or after 1 October 2011 the early retirement terms are much easier to explain. If you retire before NPA, with the exception of incapacity retirements, early retirement reductions apply. The amount of the reduction is approximately an average of 4% for each year and part-year earlier than NPA. So, if you retired five years early the benefits you had built up would be reduced by approximately 20%.


Joiners before 1 October 2011

This is far more complex and depends on your age when you retire, but also the reason for retirement and your contractual pension age (CPA) at 30 September 2011. So what is a CPA? USS considers your Normal Pension Age (NPA) to currently be age 65. That's normally the earliest age you can receive the full amount of benefits you have earned, without a reduction for early retirement. However, in the past, contracts of employment could have conferred a different, possibly lower, retirement age (but not less than age 60) and therefore you may have had the right to retire earlier than USS's NPA. If that was the case then you could have drawn the full amount of benefits you had earned in the scheme at that point. USS defines this as your CPA. The CPA only applies to membership built up before 1 October 2011. Therefore, when calculating any early retirement reductions these may apply for each year earlier than your CPA for certain periods of your membership built up before 1 October 2011. For any membership since 1 October 2011 the early retirement reductions apply for each year earlier than USS's NPA.

There is an exception to the general early retirement terms for members that were age 55 or more on 1 October 2011 (exempt members). If you were 55 or over on 1 October 2011 and a member of USS as at 30 September 2011, then you may be able to draw your full unreduced benefits (for all service) from age 60 onwards, so long as you have the consent of your employer. Please see the examples in the tables below.

Benefits will be based on the total benefits built up at the date of retirement. Exceptionally, in this situation, where your employer does not consent to your early retirement , if you have been in active membership for at least five years in aggregate and are age 60 or over, you can receive an immediate pension. However, part of your pension may be reduced by an Early Retirement Factor determined on actuarial advice. We can provide you with a retirement quote to reflect this.

My contract states that I can retire from the age of 60, therefore any pension built up until October 2011 would have no actuarial reduction applied to it if I retired at 60.

swindiff

Spreadsheetman wrote: »

I think the USS actuarial reduction is worse, more like 6% pa if I remember correctly. My wife is in USS and we are planning on running down her unrelated DC pensions first to avoid the hit. I don't know if we can avoid taking it all the way to 65, but we'll push it as far as we can.

It states 4% on the USS factsheet

bluenose1

swindiff wrote: »

When I spoke to our pensions advisor he told me that the modeller took into account any actuarial reduction. I will contact him again to clarify the situation.

Something that many people assume is that the actuarial reduction applies to the whole pension which is not necessarily the case.

This is a quote from one of the USS pensions factsheets

My contract states that I can retire from the age of 60, therefore any pension built up until October 2011 would have no actuarial reduction applied to it if I retired at 60.

Excellent, that's good news for you. I foolishly didn't join the pension scheme when I first joined in 2009, so am post 2011. Making up for it now by increasing my contributions as much as I can.
I have factored in 4% reduction from age 55 so 40% over 10 years, which is a massive hit but I will only have a very small pension with USS anyway, approx £2k. Though when I did the sums as to what I will receive from 55 to 75 taking it early compared to 65 there wasn't a great difference as I will have had the benefit of receiving my USS pension 10 years early.
Though I can't defer it as I need to be able to access my DC pot I have with them to fund my early retirement.I was originally hoping that I could draw the DC first and leave my DB a couple of years, but advised I can't.

Spreadsheetman

swindiff wrote: »

It states 4% on the USS factsheet

Yes, you are right - my memory wasn't correct! I should have googled it: https://www.uss.co.uk/members/members-home/retiring

My wife's NPA is 65 unfortunately. 60 would have been great.

swindiff

Check her contract of employment. Its the contractual pension age (CPA) rather than the normal pension age (NPA) which matters. Mine has this in it which shows my CPA can be 60

https://drive.google.com/file/d/1NYYNXOJI56xK_9en3-e9wVe4zFAjxwR0/view?usp=sharing

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.

swindiff wrote: »

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?

Thinking about it we would probably be better off clearing the credit card and diverting the monthly payments into a SIPP for the wife. Currently she is paying £125/month for a Barclaycard which still has 14 months at 0%. There is £3600 on the card which if we paid off using money from our lowest earning account at 1.5% would cost us £54/year in interest, but it would get £375 added to the SIPP each year in the form of tax relief.
Problem is I know nothing about SIPP's. Any recommendations? Something with not too much risk that could return on average around 5% per year after charges? Would like something that we could just set up a direct debit for then forget about.