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

Mr_Countdown

redwolf wrote: »

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

Thanks for your comment Redwolf.


I've tried a bit of online research on early retirement claw back but not really found out much or understood it. I don't think that it will affect a fairly low earning civil servant like myself tho. Quite a few people from my office have recently taken early retirement and none of them have mentioned it.

Mr_Countdown

Triumph13 wrote: »

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?

Thanks for this reply Triumph13.


Yes it pretty much makes sense. I think my problem with your suggested scenario is that I'm currently only 18 months into a 5 year fixed rate mortgage. I needed a guaranteed rate at the time of separation/divorce and thought 1.94% fixed was a decent rate. As such although I can overpay my mortgage each year by 10% I can't just change it or try and pay it off.


I really appreciate your way of thinking tho and any advice is always welcome. Keep it coming !!

Triumph13

Okay, does this work. You say in your second post that the mortgage will be paid off by 56. Do the timings / your earning line up such that you can:

1. You pay off the existing mortgage on schedule
2. You take out a new, flexible mortgage, ideally an offset.
3. You pay an extra £22k into a pension scheme, funded by the mortgage in the last tax year you have significant earnings
4. You retire and crystallise the new pension taking out the lump sum and any unused PA for that tax year.
5. You wait a few months before crystallising the £30k pension and taking the lump sum on that.
6. At 58 you take the DB and pay off the mortgage from the lump sum.

I think this doesn't get caught by recycling rules as the lump sum on the new pension is less than £7.5k, but others on here will be able to advise.

bluenose1

I would definitely do the sums for what as Triumph13 has suggested in the post above.

With regard to the £2880 tax. As you know everyone can have income up to £12,500 before paying tax. Therefore a lot of people on this board who are not working put in the maximum allowed of £2880 per annum to get it topped up by £720 by the tax man, so £3,600 in your SIPP.
For you this will depend on how much your pension is and how much of your taxable crystallised pot you take per year.
Even if you have used up all your £12,500 there is a smaller tax advantage of £180.
Just need to use SIPP with lowest costs etc.

There is a thread on here that is worth reading about it.
https://forums.moneysavingexpert.com/discussion/5580163/paying-2880-into-pension-when-retired&highlight=2880+3600

Mr_Countdown

Triumph13 wrote: »

Okay, does this work. You say in your second post that the mortgage will be paid off by 56. Do the timings / your earning line up such that you can:

1. You pay off the existing mortgage on schedule
2. You take out a new, flexible mortgage, ideally an offset.
3. You pay an extra £22k into a pension scheme, funded by the mortgage in the last tax year you have significant earnings
4. You retire and crystallise the new pension taking out the lump sum and any unused PA for that tax year.
5. You wait a few months before crystallising the £30k pension and taking the lump sum on that.
6. At 58 you take the DB and pay off the mortgage from the lump sum.

I think this doesn't get caught by recycling rules as the lump sum on the new pension is less than £7.5k, but others on here will be able to advise.

Thanks again Triumph13.


With regard your points above:


1. Yes should happen.
2. Yes can do that.
3. Here I think is the problem. The monthly amount I pay into my L & G pension comes directly from my pay so can't be more than I earn each month ((£1,650). I also can't make anymore payments into it if I retire. As such I wouldn't be able to make the full £22k payment into it once I've paid off my existing mortgage at 56 if I wanted to retire around 56. Does that make sense?
Points 4,5 and 6 also make sense.


I'm not sure how other private pension schemes work and if I could get a similar one where I get 20% tax relief on what I put in?

Mr_Countdown

Oh one point I did miss out in my above reply was that my fixed rate mortgage ends in May 2023 (aged 55) so I would have about 10 months to take out a new mortgage. Although as I'd still owe about £6k on this mortgage I'm not sure if I would have to have the offset mortgage with HSBC or take out another offset mortgage with a different lender?


Also with only making 10 months of pension payments I'd only be able to get around £16k into the pension. I guess the option is to work several more months to get the full £22k into it.

german_keeper

I really do hope this is me getting the wrong end of the stick here (has been known!!) but based on Redwolf's post above if you are a civil servant with service in Classic/Premium/Classic Plus/Alpha I think you need to google something like Civil Service Pension Actuarial Reduction and understand what it means. Put simply each scheme will have a Normal Retirement Age and if you retire before that your pension is reduced because you will receive it for longer.

As I say I really do hope this is just me being a numpty!!

Sorry forgot to add if the figures in your OP have come from the calculators on myCSP website the AR has probably already been applied.

Mr_Countdown

german_keeper wrote: »

I really do hope this is me getting the wrong end of the stick here (has been known!!) but based on Redwolf's post above if you are a civil servant with service in Classic/Premium/Classic Plus/Alpha I think you need to google something like Civil Service Pension Actuarial Reduction and understand what it means. Put simply each scheme will have a Normal Retirement Age and if you retire before that your pension is reduced because you will receive it for longer.

As I say I really do hope this is just me being a numpty!!

Sorry forgot to add if the figures in your OP have come from the calculators on myCSP website the AR has probably already been applied.

Hi and thank you for your comment.


Yes my figures have all come from myCSP website which have a very accurate (according to people who have now retired) online calculator for working out your pension and lump sum based on the age you go. It works out at slightly under 5% for each year you retire early.
I hope that clears up what you were thinking.

german_keeper

Happy Days. Probably just the terminology used (early retirement clawback) that caused my confusion.

redwolf

there is no claw back for redundancy or efficiency of the service
however if you retire through choice 10 years early is a big claw back i dont know what it is for civil service but for local government for someone 55 who has a pension age of 68 = 13 years its 46.3 per cent and lump sum before 2008 gets hammered too

Number of Years Paid Early Pension reduction
three columns
years to state pension age , claw back % lump claw back before 2008
plus its not unusual to have 65 and 68 as the calculating year for
pensions pre 2008 and after 2014 68

0 0% 0%
1 5.1% 2.3%
2 9.9% 4.6%
3 14.3% 6.9%
4 18.4% 9.1%
5 22.2% 11.2%
6 25.7% 13.3%
7 29.0% 15.3%
8 32.1% 17.3%
9 35.0% 19.2%
10 37.7% 21.1%
11 41.6% N/A
12 44.0% N/A
13 46.3% N/A