Retiring Soon Do I Stay In Scheme or Tranfer Out

Debt_Free_Chick

Soreneck wrote: »

(1) If I take a lower annual income than the maximum allowed in the USP I would be paying less overall to the taxman on my pension and earnings. (I could probably manage on £13,000 pa with part time work but with a much reduced capacity to save)

Yes you pay less tax - you also get less pension! You say you could "probably manage". Is that the best you deserve after working the last 40-odd years? Do you really want to be forced to work PT to make ends meet or simply "exist" on a low income?

(2) The pension fund money is available to my wife on my death and subsequently our children.

And what would the NHS provide? Certainly a pension for your wife, for the rest of her life.

The projected figures for the USP scheme at 5% show a potential growth in the fund to £418,000 after 20 years at age 75. This would then be used to purchase an annuity giving an income of £33,400 pa.

And if it doesn't acheive those levels of growth then .....?

Plenty of businesses have failed due to projections that didn't materialise.

Are you clear about what is attracting you to consider this option?

And are you clear about what the NHS scheme provides (a cast iron guarantee in terms of the future pension you receive, is one thing)?

dunstonh

Ignoring figures for the moment, what is it that you want to achieve with your retirement?

The potential gains with this option are your children getting a chunk of the money when you are both dead which they dont with the NHS option and that you get a higher tax free lump sum at the start.

So, there are the hard and fast benefits.

The potentials are for higher income later in retirement but also lower income in retirement as investment returns can go both ways.

That is the risk element. You could get more, you could get less. How do you feel about that? Having your income rise about 30% would be nice but how would you cope with it being 30% less?

Are the absolute gains worth the risk? When you are both dead, wont the children have enough inheritance without you needing to risk your retirement income?

Personally, I dont think the absolute gains or the potential gains are worth the risk.

EdInvestor

Soreneck wrote: »

I am retiring soon at 55 on quite a good annual NHS pension of £18000 with a lump sum of £55000

Are you due for a basic state pension at 65 as well?If so, you would be in age allowance clawback territory with this NHS pension.

It might be worth looking at whether you can commute a bit more of the NHS pension for a bigger lump sum, with a view to then building up your Stocks and shares maxi ISAs over the next 10 years, so as to deliver a stream of tax free income in addition to the pension.The lump sum accumulated here can also of course be passed on, so you would then have the best of both worlds - a secure guaranteed pension plus a large lump sum. Aiming for a total of 21k NHS plus state pension would be optimal.

Also, how about your wife's retirement income?Will she be using her tax free allowance to the full? This will be up to 10k p.a. for oldies by the time you reach state pension retirement age.

Soreneck

Many thanks, Dunstonh, Mortgage & dept free and EdInvestor, for your time, patience and expertise. Also a big thanks to Dept_Free_Chick for helping to put things in perspective.
I never really felt comfortable with the USP I don’t suppose my IFA would have been doing his job properly if he had not suggested this product for consideration but in my case I don’t think it was right.
I did ring my IFA to say that I was more inclined toward staying with the NHS scheme before I posted on the forum but he talked me through the advantages of the USP at some length and left me feeling uncertain.
I am a little concerned that the large commission offered by the investment companies, even with my comparatively modest pension, this would have been £15,000 to £20,000 ‘in the first year’ (and the way this is phrased suggests further payments are made) must make it difficult to be truly objective when offering advice.

dunstonh

I am a little concerned that the large commission offered by the investment companies, even with my comparatively modest pension, this would have been £15,000 to £20,000 ‘in the first year’ (and the way this is phrased suggests further payments are made) must make it difficult to be truly objective when offering advice.

It would have no impact on the advice of any decent IFA. It could hit a bad apple which thankfully are a minority but there you.

As a rough rule, any IFA taking more than £10k initial commission is taking the p***.