Any tips to help maximise my income?

Julia1927

So requested the trustees waiver the reduction of my final salary pension as they were making me redundant at 62. They sent a confirmation email saying they would. I then received a statement showing they would pay me £10100 per annum at NRD of 65.

It took me a couple of months to re organise my life and find a new job albeit part time and I have a 2nd part time job to start in a couple of weeks. I then went back to working through my finances and pension options and requested a fresh quote. I was suprised that my offer had reduced by more than £800 per year. For the last couple of months I have been trying to get an explanation as to why this would be given that the reduction factor was 4% per annum under normal circumstances so why was my offer being reduced by approx 8%? (They confirm this offer will be valid until Jan 2019 when I will be 2 years and 1 month from NRD) Despite countless emails back and forth I am still none the wiser. I am being told that it is due to reduction factors that they use. I have sent copies of the email confirmimg the trustees agreement to waiver the reduction but they are still saying other reduction factors apply? Im sure one of the board members could answer this for me in simple terms as I'm just going around in circles with the administrators.

I then asked for a CETV and this has also reduced from the previous estimate of £251k by £20k.
I did toy with the idea of investigating via an IFA (I would not DIY) if it would be feasible for me to take CETV now and leaving it alone whilst using my tax free redundancy money and income from jobs to take me through to SP age of 66. Thereafter perhaps look at a mixture of flexible drawdown, an enhanced annuity and a level term life assurance to provide some monies for my beneficiaries. I'm not altogether sure this is now something to consider given the reduction offered.
I was looking at booking an appointment with pensionwise but they apparently only offer to help with DC pensions.

So I looked at taking the DB pension (which I know is indexed linked) but there are a couple of things that stick in my throat:

My part time earnings of £15.5k per year + my DB pension would give me an annual income of approx £25k. I need an income of £17k per year. My take home pay on £25k would be a tad over £20k per year. So I will be losing nearly £5k per year on tax and NI.

I have good reason to believe that I will not get into my mid 80's which would be the break even point based on the CETV however am aware this could actually lose value.

I have a DC pot of £41.5k, shares at approx £12k currently and £15k tax free redundancy.
Not large sums by any stretch of the imagination but it is what it is.
I plan on using my tax free redundancy money to pay this years earned income into my DC pension to get the tax uplift.
I currently pay into my new employers pension (NOW pensions) but not expecting much from that over the next couple of years.
I have 42 years of NI credits so am entitled to full SP when I get there.
Am happy to carry on working past SP age (perhaps just 1 PT job would be good:)) until health catches up with me. I know its often said people underestimate their life expectancy but believe me I wont be needing a pension when I'm 90!

Would really appreciate any thoughts/next steps or general pointers.
Thank you.

bostonerimus

Rather than maximizing income, first do a budget and look to minimize expenditure. When you have that well under control you can look at the risk/return ratio that will best meet your income need and circumstances.

tacpot12

If it is feasible for you to take the CETV now and leaving it alone whilst using your tax free redundancy money and income from jobs to take me through to SP age, then it is also feasible to for you to take your DB pension at 65 and leave the CETV well alone. An IFA will probably advise this, but no-one can be sure without doing the necessary analysis which will cost you a couple of thousand pounds.

Based on the figures you have given, you need to generate about £6000 of income after tax if you take your DB pension from the scheme between the age of 62 and 66. Your redudancy money + shares or your DC pot will easily cover this and provide some inflation protection. So you can retire now or very shortly if you want to, but your retirement income will be less than if carry on working (no surprise there).

If you are happy to keep working, the best way to maximise your income in retirement is to draw your DB pension at NRA and use your redundancy money to top up your earned income (£15.5K) to £17K prior to retiring. This will mean you will pay the least tax and NI prior to retiring (although you will pay more in the last year - you could ask your DB scheme if they will pay you more if you defer this pension for 1 year). After four years, you would still have circa £8K of redundancy money, your shares (which I think should rise in value once the Brexit dust has settled), and your DC pensions.

If you retire at the State Pension Age, you should be able to defer claiming your state pension for a number of years, living just off your DB + DC pensions in the interim. Aim to run the DC pensions down to zero before claiming your state pension. Use the remaining redundancy money as your emergency fund and the shares for treats.

Well done for providing for yourself so well.

Triumph13

First up, if you did take the DB now whilst still working you would only be paying about £3.6k pa on tax and NI, not £5k. There's no NI on pensions.
I'm assuming that you have got a state pension forecast to confirm you will get full new SP? Just because you have 42 years doesn't mean you will as you were clearly contracted out for many years because of the DB pension.
Stepping back a bit, you say you need £17k pa to live on and that you have DB due in 3 years and SP in 4. That means you already have enough saved between DC, savings, etc to comfortably get you through until both are in payment. You don't say how much your DB would be if you take it at NRD, but I'm guessing this would take you up to around £18.5k ps vs the £17k you'll have if you take it reduced. Both these assume full SP.
If you want to keep going with your part time job, then that's only £3k a year you need to pull from your savings / DC lump sum to get your £17k so that way you get to keep most of your capital as well as taking your DB unreduced at 65.

Julia1927

Thank you very much Bostonerimus, tacpot12 and Triumph13. Your thoughts are very much appreciated.

Just by way of any update with regards to my request to the trustees that they waiver the reduction to my pension given that they made me redundant at 62 when NRD is 65:

Their email back in March this year reads "We confirm that as you will be taking your pension at early retirement age therefore trustee will waiver the reduction".

I was obviously naive enough to believe that this would mean I could take my pension unreduced i.e. same offer as if I had worked through to NRD as this is exactly what I requested when I approached them initially.

Upon receiving my pension quote following that email the annual pension was >£800 per year less than that quoted for NRD.

I have been emailing back and forth for 6 months now and have finally received the following in the post:

"Employed members who joined the company before 1st December 2006 (I did), retire by 21st November 2018 and remain in continuous employment until they retire are able to retire on with consent factors. If you decide to defer beyond 22nd November 2018 then with consent factors will no longer be applicable".

At 62:
Pre 2012 - with consent 0.9195 - without consent 0.8559
Post 2012 - with consent 0.8714 - without consent 0.7765

At 65:
Pre 2012 - with consent 1.0 - without consent 1.0
Post 2012 - with consent 0.9482 - without consent 0.9037

Please can any board members explain (in simple terms) what the above actually means and how does this reflect on the fact that the trustees agreed to waiver the reduction in my pension.

Thank you.
J

Brynsam

Julia1927 wrote: »

Just by way of any update with regards to my request to the trustees that they waiver the reduction to my pension given that they made me redundant at 62 when NRD is 65:

Their email back in March this year reads "We confirm that as you will be taking your pension at early retirement age therefore trustee will waiver the reduction".

I was obviously naive enough to believe that this would mean I could take my pension unreduced i.e. same offer as if I had worked through to NRD as this is exactly what I requested when I approached them initially.If you take your pension early, it is reduced for 2 reasons: you have worked fewer years than if you had remained in pensionable service to NRD; and you are drawing your pension sooner than expected and it will therefore be payable for more years

Upon receiving my pension quote following that email the annual pension was >£800 per year less than that quoted for NRD.You have fewer years of pensionable service

I have been emailing back and forth for 6 months now and have finally received the following in the post:

"Employed members who joined the company before 1st December 2006 (I did), retire by 21st November 2018 and remain in continuous employment until they retire are able to retire on with consent factors. If you decide to defer beyond 22nd November 2018 then with consent factors will no longer be applicable".

At 62:
Pre 2012 - with consent 0.9195 - without consent 0.8559
Post 2012 - with consent 0.8714 - without consent 0.7765

At 65:
Pre 2012 - with consent 1.0 - without consent 1.0
Post 2012 - with consent 0.9482 - without consent 0.9037

Please can any board members explain (in simple terms) what the above actually means and how does this reflect on the fact that the trustees agreed to waiver the reduction in my pension.

J

Please see my comments in red above.

I think there's confusion over what has been agreed. Reading your first post, I suspect the trustees believe you are enquiring about taking your pension at 65, when no reduction factor for early retirement would apply because you aren't drawing your pension before the scheme's NRD. The quote you've been sent indicates the pension you would receive at 65, which rather supports that idea.

I don't understand the bit about post-2012 service having any sort of reduction factor applied once you reach the scheme's NRD (assuming it is 65). For your own peace of mind (and to make quite sure you are paid the correct amount), I'd ask for a copy of the scheme's Internal Dispute Resolution Procedure - not as scary as it sounds! - and make a formal complaint about the length of time it has taken to get answers and the fact that you believe these to be at odds with the information you were given by e-mail. Free, impartial help to do this from TPAS: https://www.pensionsadvisoryservice.org.uk who will also be able to talk you through the explanation of what all your figures mean - probably much easier done on the phone to them, rather than here.

CETVs vary in line with market conditions, so the fact it has gone down is not unreasonable. As it is over £30,000, you would need to show you had received (although you don't have to follow) financial advice from a suitably qualified and regulated adviser - that's a legal requirement.

Triumph13

It looks as though your scheme changed it's normal retirement date in 2012, presumably from 65 to state pension age. That would explain why they are quoting different early retirement factors for Pre 2012 and post 2012 service.
As Brynsam says, I believe the heart of the confusion around reductions being 'waived' is that there are 2 separate things that would otherwise lead to your pension being lower than what was quoted. 1) not making as many years of contributions because you finished work before normal retirement age; and 2) taking the pension before normal retirement age so it gets paid for more years.
You need to go back to the original email correspondence and establish exactly what they agreed to waive as whilst you think it was both things, they seem to think it was only one of them.