It's the Final (salary) Countdown - A simple mans blog !!

Mr_Countdown

Morning all and thank you so much for all the positive and constructive replies - it really is appreciated.


A few people have suggested I would be better off deferring taking my work pension until I'm 58 and I can see why this might make sense so I thought I'd throw a few figures out so people can see the differences.
I'd also like to reiterate that my main aim is to 'survive' from the point of retirement to getting my state pension at 67 (hopefully !!) and during this period to enjoy life while I'm still fit and able. I'm of the thinking I will slow down a little at 67 and my expenditure will a bit too.


So first if I retire at 56 and take my work pension, lump sum and take my L & G pension at the same time:


£8,947 per year + (£59,649 lump + £30,000 L & G divided by 11 years) = £17,027 per year/£1,419pm.


If I retire at 56 and defer taking my work pension and try to live off my L & G pension for 2 years:


£30,000 L & G divided by 2 years = £15,000 per year/£1,250 pm - not really enough to live on if I want to fully enjoy retirement. Option could be to work a bit part time or take a small mortgage - not really what I want to do.
If I did this though then at 58 my figures would be as follows:


£10,214 per year + (£68,094 divided by 9 years) = £17,780 per year/£1,481pm

So overall I would be £62pm better off with the second option and at 67 when the lump sums might be used up my work pension would be £1,267 per year/£105pm better off. However the downside to that is I would have had 2 years from 56 to 58 where things would be really tight and I would probably have to do some work to do the holidays etc that I would like. Also I would have £30,000 less at 58 in the pot that could be making money from investment.
Hmmmmm decisions decisions ��!♂️


And I haven't even thrown out the idea of taking equity release in my property at some point in the future to release funds !!


Anyway I hope that makes sense but if not then please question away or just comment in general.
Many thanks again for taking the time out your day to read this.

Spreadsheetman

I don't have specific advice, just an observation that running your capital down to zero might be an issue. I know people that have reasonably comfortable pensions, but can't get hold of enough cash to do necessary building work on their property.

atush

1 Dont take the max TFLS, the larger pension is better.

2 What cash and savings/investments do you have? For early retirement better to boost these than taking TFLS.

if you have cash savings and Isas, boost the DC part of your pension

bluenose1

I can understand why you are thinking this way, if you are anything like me you will be refining your plans over coming months,
Have you done the sums as to what would be your income over the 11 years of taking the max pension and the minimum lump sum to see what difference that makes.
I would be considering how I could bridge the gap between 56 and 58 without working. For example could you consider credit cards with 0% rate to top up your income to the required amount for that period? Then pay them back from your lump sum?

If your taxable income was less than £12,500 you could also consider the £2,880 pension deposit each year which would increase your income by £720 per year.
Good luck with your plans.

jamesperrett

I retired from a civil service post at just over 55 and, like you, I was spending quite a bit of time with spreadsheets before deciding on the best choice.

The first thing I would say is take the maximum pension. I know that the financial advisors that they bring along to their pre retirement courses seem to like to suggest that you take the maximum lump sum but for the civil service schemes the rates aren't particularly good. You are much better off taking the higher pension - especially once you factor in inflation which will affect the pension but not the lump sum.

Are you able to take the AVC's early? It would be worth checking as with some schemes you must take them at the same time as the main pension.

Triumph13

As you have seen, lots of people are instantly defaulting to saying 'take the max pension / minimum lump sum'. Obviously this doesn't work to meet your stated aims as it gives you a huge imbalance between having too little money before 67 and loads of extra after 67, but it is indicative of how much better value it generally is not to have your DB reduced by taking extra lump sum or taking it early.

If you retire at 56 and defer to 58 then, on your numbers, the maximum you would be able to get out of a separate pension tax free is about £57.8k. You are only planning to have £30k so just remortgage so you stop repaying / take more out. If possible make it an offset mortgage so that you don't pay any extra interest until you actually spend the money.
Lets say you use this route to 'borrow' £23k and that it costs you £1k in fees to do the remortgage. £22k is used to make extra pension contributions between now and retirement and becomes £27.5k in your pension. Added to your already planned £30k that gives you £57.5k - all of which you will be able to get back out tax free. If £1k goes on the mortgage arrangement fees the net profit to you from the mortgage is £4.5k less a little bit of interest.

At 56 you take the full TFLS from the £57.5k which is £14,375. In your first 2 years of retirement you draw your full PA of £12,500 and use £4,528 pa from that lump sum to get back to your £1,419pm figure under your own plans. From years 3 to 11 you are £62 pm better off already on your own figures just from the benefits of deferment. You also have an extra £2k a month drawn from the DC funds using the rest of your personal allowance and this is what you use to pay off the mortgage (9 years @ £2K = £18K, plus the leftover TFLS of £5.3k = £23.3k). Of course you would probably actually pay off the mortgage instantly from your DB lump sum and the £2k a year of drawings becomes part of your yearly spending.

Mr_Countdown

bluenose1 wrote: »

I can understand why you are thinking this way, if you are anything like me you will be refining your plans over coming months,
Have you done the sums as to what would be your income over the 11 years of taking the max pension and the minimum lump sum to see what difference that makes.
I would be considering how I could bridge the gap between 56 and 58 without working. For example could you consider credit cards with 0% rate to top up your income to the required amount for that period? Then pay them back from your lump sum?

If your taxable income was less than £12,500 you could also consider the £2,880 pension deposit each year which would increase your income by £720 per year.
Good luck with your plans.

Hi Blueose1 thank you for your kind reply.


With regard taking max pension and min lump sum it would be £11,587 pension and £27,972 lump sum with the formula from my previous posts I would come out with £1,399pm as apposed to £1,419pm taking min pension and max lump sum. So £20pm difference which I know isn't much.


Sorry to sound thick but what do you mean by £2,880 pension deposit?

Mr_Countdown

Triumph13 wrote: »

As you have seen, lots of people are instantly defaulting to saying 'take the max pension / minimum lump sum'. Obviously this doesn't work to meet your stated aims as it gives you a huge imbalance between having too little money before 67 and loads of extra after 67, but it is indicative of how much better value it generally is not to have your DB reduced by taking extra lump sum or taking it early.

If you retire at 56 and defer to 58 then, on your numbers, the maximum you would be able to get out of a separate pension tax free is about £57.8k. You are only planning to have £30k so just remortgage so you stop repaying / take more out. If possible make it an offset mortgage so that you don't pay any extra interest until you actually spend the money.
Lets say you use this route to 'borrow' £23k and that it costs you £1k in fees to do the remortgage. £22k is used to make extra pension contributions between now and retirement and becomes £27.5k in your pension. Added to your already planned £30k that gives you £57.5k - all of which you will be able to get back out tax free. If £1k goes on the mortgage arrangement fees the net profit to you from the mortgage is £4.5k less a little bit of interest.

At 56 you take the full TFLS from the £57.5k which is £14,375. In your first 2 years of retirement you draw your full PA of £12,500 and use £4,528 pa from that lump sum to get back to your £1,419pm figure under your own plans. From years 3 to 11 you are £62 pm better off already on your own figures just from the benefits of deferment. You also have an extra £2k a month drawn from the DC funds using the rest of your personal allowance and this is what you use to pay off the mortgage (9 years @ £2K = £18K, plus the leftover TFLS of £5.3k = £23.3k). Of course you would probably actually pay off the mortgage instantly from your DB lump sum and the £2k a year of drawings becomes part of your yearly spending.

Hi Triumph13, thank you for a really good and informative reply that took me quite a while to get my head round your working out but now they make perfect sense !!


It certainly is a very good option to consider and I hope you don't mind me asking a couple of questions in it.


You say take out an offset mortgage - I'm not that familiar with this type of mortgage. Is this one that I would take out with Legal & General who are my non-work pension provider? If so how would this work with regard making monthly payments between now and taking this pension at 56? I can't really afford to pay anymore each month as I'm already paying for my existing mortgage of £302pm and saving £320pm into the L & G pension.


Would it be a case of the offset mortgage of £22k being taken out over a long term so payments are minimal and then just payback from my DB lump sum?

Triumph13

Mr_Countdown wrote: »

Hi Triumph13, thank you for a really good and informative reply that took me quite a while to get my head round your working out but now they make perfect sense !!


It certainly is a very good option to consider and I hope you don't mind me asking a couple of questions in it.


You say take out an offset mortgage - I'm not that familiar with this type of mortgage. Is this one that I would take out with Legal & General who are my non-work pension provider? If so how would this work with regard making monthly payments between now and taking this pension at 56? I can't really afford to pay anymore each month as I'm already paying for my existing mortgage of £302pm and saving £320pm into the L & G pension.


Would it be a case of the offset mortgage of £22k being taken out over a long term so payments are minimal and then just payback from my DB lump sum?

Various banks provide offset mortgages. The idea is that all your bank accounts get added up together (including the mortgage) and you just pay interest on the net balance - calculated daily. I have one with First Direct and keep the overall balance at roughly zero now, but am keeping the mortgage in place for a few more years rather than paying it off as it gives an instant line of cheap credit for any lumpy expenditure - like a really big, low interest overdraft facility. Anything you do pay off you can take back out again, or just put money in a linked account instead of paying off.
What I'm suggesting for you is that you replace your existing mortgage with an offset mortgage equal to the larger of your existing mortgage or £23k. You stop paying off anything more than the interest and put the difference in your pension. In the last years before retirement you draw down more of the mortgage balance to fund more pension contributions such that by the time you retire you have a £23k mortgage and have contributed an extra £22k to your pension.

Does that make sense?

redwolf

Just a note re Pension you probably have factored this but just in case
Have you factored in any early retirement claw back for retiring early clearly the claw back at 56 is worse than 58.
Also you may have protection up till 2008 from claw back at 60 RE 85 RULE