Should we take my wifes LGSS pension now ?

jerrysimon

I retired early a year ago at 56 taking a DB pension early having 40 years earned. Obvioulsy I took a penalty but worked out I would have to draw it for another 8-10 years before I broke even.


Anyway my wife is 57 this year and also has a much smaller DB pension which would currently return £2700/year at 60 (3.5K lump sum).


We don't really need the money as she is also earning £250/month in a 5 hour/week p/t job she loves. These last 12 months have shown we have sufficient income to enjoy our retirment. Her job will probably end in about a year which was when I planned to take her DB pension to maintain the same monthly income we currently enjoy.


I have also had an estimate of its value (56K) if I was to move it to a SIPP. We could then draw down her max each year below her tax threshold which would enhance our income before we both draw SP at 66/67 about 9/10 years for me/her. We both have nearly full SP before they changed it, which will equate to about another 12K/year total for us both when we draw it. As its unlikely we would need all that we can maybe help children/grandchildren more or take some pretty luxurious holidays for us all. We have 50K in savings, but as yet we haven't gone on any exotic holidays (dont really want to at the moment) as we are content rediscovering the UK mixed in with her p/t work and the voluntary work I am doing. We may start to branch out to Europe later.


We also own our own home, valued at around 550K. We appreciate we are in a pretty fortunate position.



Any thoughts ?

Triumph13

Key thought is to use £12k odd of those savings and/or LGPS transfer value to pay 8 years of post-2016 voluntary NIC each. That will add £2k pa each to your state pensions by getting you up to nearly the full state pension.


Second thought is how comfortable will your wife be financially if, as seems likely, you die first? How much of your DB does she inherit? Will that, plus the £8.5k state pension be enough for her or would she really need the LGPS pension too?


If she would be okay without the LGPS, and you have no reason not to expect a long life yourself, then you might be able to make a case for cashing in / taking early the LGPS to smooth your income in the period up to state pension.

jerrysimon

Thanks. My wife gets half my unreduced pension should I die first.

If I was to die she would almost certainly sell the house and down size to a smaller modern, easy to maintain property.

I need to think seriously about cashing in her LGBS. I guess there is no need to rush until she finishes her current p/t role in a year or so.

I guess if I did cash in her DB pension, I would then have the hassle of investing it to ensure it kept track with inflation during the nine/ten years we draw it down.

Triumph13

Definitely no rush. You only need 8 years of £3k pa = £24k to fill in for her earnings plus £12k odd for voluntary NICs which your £50k of savings covers comfortably, then, assuming you will still be within the basic rate band, you get a post-tax payrise once both SPs are in place of £1,000 a month compared to what you are currently living on happily.
In that context, the LGPS is all jam and you can choose to spread it whenever and however you want. A very fortunate position to be in!

jerrysimon

I will definately fill in my wifes NI gap as she will not be paying any tax. Still not sure if I will bother with my own, given I do pay tax. That said, it does seem good value for money.


Seems its may be most economical to do this before April 2019, when the cost of doing so, may go up ?

Triumph13

You would be crazy not to pay the NICs for yourself too. The payback period on current price (assuming the cash would otherwise have grown at the same rate as the SP increases) is:

• 3.1 years for a non taxpayer
• 3.9 years for a 20% taxpayer
• 5.2 years for a 40% taxpayer

Unless you have good reason to expect you will drop dead soon after SP age it is a complete no-brainer.


As regards which years to buy, you need to get forecasts and work out what combination works best. It will definitely pay to get up to the full 30 years pre 2016 for your wife. You then need to work out whether the COPE from her LGPS means that her pension is higher on the old or new basis to know whether buying any further pre-2016 years have value. You, presumably, have no available gaps between April 2006 and April 2016 as you have only just retired?


When you buy any post 2016 years is up to you. There's a trade off between the risk of the price going up if you wait vs the risk of you being hit by a bus before SP age and any contributions being wasted.

jerrysimon

Ok checked our forcasts.

Me

£130.72/week 41 years contribution (I paid reduced NI contributions). Says I need to pay 8 years for the full £164.35. Payable 5/4/2026

My wife

£154.72/week 38 years contribution. Needs to pay 3 years for £164.35. Payable 28/10/2028

I think what I was saying is it a priority to pay my wifes before mine given she will pay no tax. Should I pay hers now before April 2019 I wonder . I have been doing a SIPP for her the last two years to the max for a none tax payer and getting £720/year back in tax which would fund her 3 years if done next year as well


Even if I don't pay anything that will increase our total income by another 14.8k/year (pre tax for me none for her) in 9/10 years!

Triumph13

Okay, so you are both already maxed out on pre 2016 years. When buying post 2016 years your wife's give most bang for buck, but yours are great value too.
DO NOT buy 3 years' worth for your wife. The first two post-2016 years are great value as discussed, but they would bring her total to £164.11 a week. If you bought a third year it would only give an extra 24p a week!
In your own case the first 7 years are worth buying as each of them is worth £195 a year post tax. The eighth year would only give 76p a week pre tax.
In total therefore , you have 9 years to usefully buy between the two of you. That's a total cost of about £6,800 for which you will gain £1,861 a year post tax.

jerrysimon

Thanks you so much for your guidance


To start with I will deffinately buy my wife another 2 years before April 2019. If it looks like the cost will go up significantly after 2019 I will probably then buy the extra years for myself before then as well.


Great advice about not buying those extra final years!


With that extra 17K (less my tax) income, I think its worth cashing in her DB pension to increase our current income from now to SP age. Funding 10 years with it, would provide a flat transition (well probably a few more thousand after SP age) from now to then :T

Just checked the transfer value details from 2016 when I last asked and its around 50K. I would propose to then put this in her SIPP and draw down equal amounts each year before SP age. Of course I guess it would mean investing it to keep track with inflation and from what I have read, we will be required to seek financial advice before being allowed the transfer ?