Mind the 'age' gap: retirement planning

Cottage_Economy · 24 May 2018 at 9:35AM

Malthusian wrote: »

I'm not a postman and if I was unable to work again I'd get an income (rather than a lump sum) based on lost future earnings paid to me up until State Pension Age thanks to the group income protection policy (aka PHI). Anyone well-off enough that state benefits will be inadequate can take out one of their own. So the concept of being compensated for loss of future earnings isn't abnormal in the slightest.

If I took out a regular premium pension with waiver of premium cover, I'd get the fully funded pension as well.

I don't think income or pension protection is normal for the majority of people or for a considerable proportion of workplaces. A large number of people wouldn't even know it existed.

I'm looking at PHI/income protection at the moment for me, and asked around last time I was in the office to see what other people do. I was met with a sea of blank faces.

kidmugsy · 24 May 2018 at 12:52PM

Cottage_Economy wrote: »

I'm looking at PHI/income protection at the moment for me, and asked around last time I was in the office to see what other people do. I was met with a sea of blank faces.

http://monevator.com/do-you-need-income-protection-insurance/
http://monevator.com/family-income-benefit-the-forgotten-policy/

Cottage_Economy · 24 May 2018 at 4:26PM

kidmugsy wrote: »

http://monevator.com/do-you-need-income-protection-insurance/
http://monevator.com/family-income-benefit-the-forgotten-policy/

Wonderful. Thank you very much!

EDITED TO ADD: I can see this isn't going to be simple or quick thing to knock of the list by this weekend! No joint policies due to the amount of complexity involved so we will need separate policies. Need to either go direct or use an IFA.

More careful thought required...

Cottage_Economy · 30 May 2018 at 11:31AM

Well, I decided to see what the figures looked like if DH took a lump sum and his pension at 62, instead of just his pension.

The figures still work, we can maintain our level of income while paying the mortgage, and overall our tax bill will be less. We can also put that lump sum through the SIPP I am opening when DH retires for the additional uplift. Once the mortgage is paid off, our income can drop down to just include our three occupational pensions, his state pension and around £50k in savings and investments BUT I can see that:

a) If DH lives for 25-30 years after retirement, the amount of money he has to give up from his pension income for that lump sum outweighs any tax benefits.
b) When he dies I will be financially strapped. I would get 45% of his already actuarily reduced occupational pension, which will be very poor, and that combined with losing his state pension means I would be stuffed. That £50k in the bank accounts would be whittled down quickly. I would still have the cars to sell to help out but I could be looking at using property equity as early as my mid-60s.

I think I am going to rule out taking lump sums from the pensions.

kidmugsy · 30 May 2018 at 3:36PM

Cottage_Economy wrote: »

I think I am going to rule out taking lump sums from the pensions.

Cottage_Economy wrote: »

a) If DH lives for 25-30 years after retirement, the amount of money he has to give up from his pension income for that lump sum outweighs any tax benefits.

I think I am going to rule out taking lump sums from the pensions.

(i) Make sure that you understand the implication for your widow's pension of his taking the lump sum. In the case of my own principal DB scheme I took max lump sum and it had no effect at all on my widow's pension. Everything turns on the T&Cs of his particular pension scheme.

(ii) Would an alternative possible conclusion be "I think I am going to rule out taking an actuarial reduction on the pension"? Maybe avoiding the AR while still planning to take the lump sum would be effectively an efficient way of buying an index-linked annuity for you both while freeing cash to run through SIPPs. Our would the timing of the lump sum then be unhelpful?

(iii) You probably can't say much definitive at all until the Royal Mail scheme has properly published its new T&Cs. Till then perhaps the best you can do is economise on outgoings, maximise tax-efficient saving and investing, and explore how best to deal with the mortgage - which might well include not trying to pay it off at the earliest achievable moment.

Cottage_Economy · 31 May 2018 at 9:26AM

kidmugsy wrote: »

(i) Make sure that you understand the implication for your widow's pension of his taking the lump sum. In the case of my own principal DB scheme I took max lump sum and it had no effect at all on my widow's pension. Everything turns on the T&Cs of his particular pension scheme.

Ahhh...that's interesting. Thanks for mentioning that. I assumed I would receive 45% of whatever he had received annually after all the reductions. It was so small I was shocked.

kidmugsy wrote: »

(ii) Would an alternative possible conclusion be "I think I am going to rule out taking an actuarial reduction on the pension"? Maybe avoiding the AR while still planning to take the lump sum would be effectively an efficient way of buying an index-linked annuity for you both while freeing cash to run through SIPPs. Our would the timing of the lump sum then be unhelpful?

Just to clarify (I got a bit confused at the mention of annuity) are you saying it might be possible to take the lump sum at 62 but defer taking the pension income until 65, buy an annuity for me with the lump sum, and use the income from that every month to run through a SIPP for the uplift? That would give me a guaranteed income if something happened to DH. Or are you suggesting DH has the annuity but we get one that I can inherit some of the benefits of?

kidmugsy wrote: »

(iii) You probably can't say much definitive at all until the Royal Mail scheme has properly published its new T&Cs. Till then perhaps the best you can do is economise on outgoings, maximise tax-efficient saving and investing, and explore how best to deal with the mortgage - which might well include not trying to pay it off at the earliest achievable moment.

Agreed. Regardless of what plans I make for the future, right here and now on a daily basis it involves sticking to the budget and saving. There are so many facets to the RM pension at the moment, and I don't know how that will change. Until recently, DH was able to take NRA60 benefits separately to the NRA65, which was helpful in that the NRA65 benefits would be left to grow. Hoping that will still be available when the T&Cs are released.

As for the mortgage, it is a big one but the rates we can access are low at the moment (we have 48% LTV) so I don't really want to pay it off early. I've just fixed for the next five years to lock in the next low rate. It is due to be paid off in 2035.

Cottage_Economy · 1 July 2018 at 5:00PM

atush wrote: »

He will see you retire at 55 and say 'oh he must be rich then'.

Well, aren't you a wise man!

Guess who just tried to tap us for a £50k loan. He knows we haven't spent DH's inheritance. The other £50k he wants he is trying to get off MIL.

All BIL's inheritance is spent after a year, his wife now wants a divorce and
apparently if he 'can't buy a house outright after this at this time of my life I might as well be dead'.

Crack on is what I say.

Just in case DH folds under pressure, I have hidden all the information to access the accounts.

Now very worried as BIL has joint POA over MIL with DH. Just hoping he doesn't take it upon himself to try and access her money and claim he had permission.