Retirement Strategy - does it sound OK?

camelopardis

Both my wife and I are now retired and I need to start drawing pension - does anyone have any thoughts on this plan?


Me - Age 53
DC Pension £151,000 (Protected Retirement Age of 50)

DB Pension 1 circa £9.3K pa @55, or circa £10.9K @60
DB Pension 2 circa £1K pa @60 with attached AVC fund £35K
State Pension fully paid up


Wife - Age 52
DB Pension 1 circa £5.2K pa @55, or circa £6.1K @60
DB Pension 2 circa £1K pa @60
State Pension approx £5K (missing years)

We have 2x mortgage free properties, the second generating a reliable rental income of £11.7K pa (all in wifes name) and cash / S&S ISA of approx £160K


This current tax year so far we have had no other income except for rental income. We would like to start receiving a joint income of between £25-30K pa after tax.


My plan is to place the DC pension into drawdown and take as much as I can tax free before drawing the larger DB pensions at 55 and smaller ones at 60. So 25% PCLS plus my personal allowance for ages 53 and 54. Then reduced sums from the DC pension of between 4K-6K pa until we start drawing SP when there is hopefully still about £24k left.



Along with the rental income, this gives a joint income after tax of approx £24K until 55, and £30k for 55 onwards (rising to £38K at SP age)



I had originally thought on leaving the DB pensions until 60 but the scheme has recently improved the actuarial reductions significantly with a crossover point well into our 80's


Does this sound like a sensible plan?


I've been sent a form for placing the Zurich DC pension into drawdown and have to choose which fund(s) to place the money into. We have a medium-veering towards cautious attitude to risk and I was thinking of putting approx 75% in Zurich Mercer Diversified Retirement and 25% in Zurich Mercer Cash Retirement (the options are Cash, Defensive, Cautious, Diversified, Adventurous, Dynamic in ascending risk).
My reasoning was I'm worried about a potential downturn in the markets in the early years and I should have a cash buffer (to draw income from first)


Does anyone have any opinion on that plan? Sorry for long post and thanks in advance!

Sea_Shell

I didn't think any pensions allow access before 55. Are you sure yours does??

*EDIT* - Sorry, I presume this is a Local Authority or Public Services pension that does allow access from 50

dmelife

Wouldn’t take 25% upfront, but phase instead.
Can you move the Zurich pension to another provider and maintain protected retirement age?
Don’t bother with the 25% cash retirement fund as it will perform worse than just holding cash!

westv

Sea_Shell wrote: »

I didn't think any pensions allow access before 55. Are you sure yours does??

*EDIT* - Sorry, I presume this is a Local Authority or Public Services pension that does allow access from 50

I'm surprised it's a DC pension.

shinytop

Along with the rental income, this gives a joint income after tax of approx £24K until 55, and £30k for 55 onwards (rising to £38K at SP age)

I have the same sort of situation as you (different ages and amounts) but my plans try to equalise my income before and after DB pension and SP. You seem to have less money now and most when you're 67 or so. Is that what you want?

camelopardis

Thanks very much for replies so far

Sea_Shell wrote: »

I didn't think any pensions allow access before 55. Are you sure yours does??

Yes, I know it's unusual but it definately does - confirmed by Zurich. It's because when I TUPE'd out of BT, the new company didnt offer a DB pension and enhanced rights were negotiated for the new DC pension matching some of the DB rights.

dmelife wrote: »

Wouldn’t take 25% upfront, but phase instead.
Can you move the Zurich pension to another provider and maintain protected retirement age?
Don’t bother with the 25% cash retirement fund as it will perform worse than just holding cash!

Please could you explain more what you mean by phased?
I can't move it without losing the PRA. I may consider moving it at 55 to a provider with lower costs.

I could move into all Diversified, or a mix of Diversified and Cautious, but I was worried about the effects of starting drawdown at the beginning of a downturn that could last several years.

shinytop wrote: »

I have the same sort of situation as you (different ages and amounts) but my plans try to equalise my income before and after DB pension and SP. You seem to have less money now and most when you're 67 or so. Is that what you want?

A very good point! I have thought about this, which is one of the reasons we're thinking about starting the DB pensions at 55 (or at least earlier than 60), in order to level it out a bit and get higher income now.

My thinking was to get as much out of DB tax free inc. personal allowance as I'd only be paying tax on it later once DB pensions started. I do realise this might be the tail wagging the dog and there might be a better plan? Any suggestions welcome!

AlanP_2

i'd explore paying the missing NI years for your wife as she will have a lower income than you if you were to die first so would help to even that out a bit.

Also consider paying 2880 net = 3600 gross into a personal pension for each of you. Get the tax relief and withdraw in same tax year if you need it as income.

Rather than look at tax side look at income requirements side and then plan to get that amount as efficiently as possible.

Most likely scenario is that your retirement spending will tail off as you age and have less capacity or inclination to go out on the town every night. Care costs can affect later life I know so I am talking general expenditure here.

Restricting income now to avoid tax may be an optimal financial strategy but is that really all there is to consider?

dmelife

Assuming your Zurich policy allows, you could take monthly payments of which 25% is tax free and the rest is taxable. Then your remaining uncrystallised fund will in theory grow, increasing the overall amount of tax free cash you get in your lifetime.

xylophone

Your wife has obtained a new state pension statement?

https://www.gov.uk/check-state-pension

https://www.royallondon.com/siteassets/site-docs/media-centre/good-with-your-money-guides/topping-up-your-state-pension-guide.pdf

drumtochty

I think a part time job to pay for the missed NI contributions for your wife and to top up your income until the other pensions come in would be reasonable.

camelopardis

Thanks again for these excellent suggestions. I have taken on board the point about evening out income and taking more now rather than later.


I have rejiggled my spreadsheet to show a phased drawdown approach (UFPLS style but within flexi-drawdown), taking 25% tax free each time and leaving the rest uncrystallised. This produces an income of about £28K the first couple of years and then £34K after tax from 55 until SP age when it increases to £38k ( and the DC pension runs out if it makes no gains). This is a big improvement on the previous plan. It's still a jump at SP age but I cant work out how to improve on that.


We have been thinking of making up wife's NI contributions, whether or not that comes from savings or her getting a job remains to be seen!


I'm not worried about the lesser amounts until age 55 because we're probably a bit strange in that currently we're not actually spending enough rather than too much! That is something we now mean to change and will be increasing our expenditure. Any unused income each year would be placed in ISAs to draw from for big purchases/emergencies etc.
We don't have any children and so leaving an inheritance isn't high up on our priorities, and we don't want to end up with the proverbial pocketless shroud