LGPS early retirement scenario – is this my time to go?

norfolkandnorwich

I’m approaching my 60th birthday next month with 35 years’ (and continuing) service in Local Government, in a job that I’ve never enjoyed. I have a monthly net income of £2.6k made up of my salary and a pension from my late husband’s employer. I have an investment of £40k from inheritance when my father died, an ISA of £10.6k and around £20k in my current account. I inherited another £120k when my mother died in 2018 which I’ve put in instant access accounts. I’m thinking long and hard about taking early retirement and would warmly welcome any advice and guidance from you knowledgeable people on the MSE forum.
I’m mortgage free and consider myself to be living very comfortably within my means, sharing my home with my son (and occasionally his girlfriend) rent free. I also have a daughter living not far from me who is self-sufficient, having bought a house jointly with her partner three years ago. I anticipate my son will move out within a year either because he has managed to find a more attractive job in London or to live independently with his girlfriend (he has savings of around £25k for a house deposit when the time comes).
My job was downgraded in 2014 when I had been earning around £42k so when I do retire I intend to request my pension is based on the ‘best three years average in the last 13’, which will be 13/14, 14/15 and 15/16.
I qualified for 85 year rule protections a couple of years ago. I reach my normal pension age in March 2026.
To satisfy my curiosity, I requested a flexible retirement quote based on a leaving date of 31 March 2020, when there would be no early retirement financial strain on my employer and I would be entitled to take my pension without my employer’s consent. My understanding is that the quote would be the same whether I opted to flexibly retire or to retire in full. This revealed:
Breakdown of Annual Pension:

1/80th Membership – 23/160          £12,284.04

1/60th Membership 6/000                £4,192.80

CARE Account                                 £4,821.34

Less Early retirement reduction     £1,982.93

Total Annual Pension                      £19,315.25

Breakdown of Retirement Grant

3/80th Membership 23/160             £36,852.13

Total Retirement Grant                   £36,852.13

There is also an option to convert more annual pension to obtain a larger lump sum but my strong preference would be to maximise the guaranteed monthly income.

I’ve obtained my state pension summary which I can receive from 5 March 2026. The estimate based on my NI record up to 5 April 2019 is £143.90 a week and forecast to be £168.60 a week if I contribute another 6 years before 5 April 2025. The summary also confirms that in the past I had been contracted out, the COPE estimate being £88.56 a week and it also states ‘this will not affect your State Pension forecast.’

Here is where my questions start!

•  At the risk of appearing not to understand the obvious, will my maximum state pension be £168.60 a week or £168.60 minus £88.56? a week?
• From what I’ve read about voluntary NI payments, if I take early retirement in full (not flexible retirement), I’ll have the option to buy NI contributions to ensure receipt of the £168.60 maximum at a cost of (currently) £733 for each year. Is my understanding correct and is there any likelihood that this opportunity will be withdrawn in the future?
• Bearing in mind curtailed NI and pension contributions, I’ve calculated that a pension of £19.3k plus £5.3k from my late husband’s pension would give me a net monthly income of around £1,850. Is this understanding correct?
• To put my projected income in retirement at the same level as the net income I currently receive, my goal would be to generate additional income of around £750 a month from ISA and other investments totalling £170k, leaving a very generous £50k for household projects / emergency fund. Does this sound feasible?

 Thanks in advance for any comments!

Dazed_and_C0nfused

At the risk of appearing not to understand the obvious, will my maximum state pension be £168.60 a week or £168.60 minus £88.56? a week?

Why do think it might be £168.60 minus £88.56?

What is it about the line  ‘this will not affect your State Pension forecast.’ that is confusing you?

From what I’ve read about voluntary NI payments, if I take early retirement in full (not flexible retirement), I’ll have the option to buy NI contributions to ensure receipt of the £168.60 maximum at a cost of (currently) £733 for each year. Is my understanding correct and is there any likelihood that this opportunity will be withdrawn in the future?

Or you could become self employed and pay voluntary Class 2 National Insurance of approx £160/year.

Being able to pay voluntary National Insurance has been around for a while, what makes you think this may change?

Bearing in mind curtailed NI and pension contributions, I’ve calculated that a pension of £19.3k plus £5.3k from my late husband’s pension would give me a net monthly income of around £1,850. Is this understanding correct?

Without knowing where you are resident for tax purposes and what other taxable income you have it's impossible to know for certain.

To put my projected income in retirement at the same level as the net income I currently receive, my goal would be to generate additional income of around £750 a month from ISA and other investments totalling £170k, leaving a very generous £50k for household projects / emergency fund. Does this sound feasible?

Not without taking some risk.  You are looking for 5.3% on your £170k.

Silvertabby

My job was downgraded in 2014 when I had been earning around £42k so when I do retire I intend to request my pension is based on the ‘best three years average in the last 13’, which will be 13/14, 14/15 and 15/16.

Your LGPS should select the best average for you - which you may find is based on 11/12, 12/13, 13/14

ie

11/12 = £41,000

12/13 = £41,500

13/14 = £42,000

£124,500 / 3 = £41,500

Whereas...

13/14 = £42,000

14/15 = £38,000

15/16 = £38,500

£118,500 / 3 = £39,500

Check using your actual pensionable pay instead of my examples. 

Note that you will have to leave within 10 years of your pay protection date in order to benefit.  13 years are only used as part of the calculation. 

xylophone

I’ve obtained my state pension summary which I can receive from 5 March 2026. The estimate based on my NI record up to 5 April 2019 is £143.90 a week and forecast to be £168.60 a week if I contribute another 6 years before 5 April 2025. The summary also confirms that in the past I had been contracted out, the COPE estimate being £88.56 a week and it also states ‘this will not affect your State Pension forecast.’

The COPE was used only once and that was in calculating your "starting amount" at 6/4/16.

At 6/4/16, two calculations were done for you

NI years [up to 30] /£119.30 [full BSP 2016-17] + (Additional State Pension - Deduction for Contracting Out)
(NI years [up to 35]/£155.65 [full NSP 2016-17]) - COPE. 

Clearly the old rules would have given you the higher amount and this became your "starting amount".

You were able to increase your state pension up to the full amount by continuing to pay NI after 6/4/16.

If you retire shortly, you will need to make voluntary contributions  as indicated by DWP to reach the full SP.

If you wish you can pay NI monthly as you do when working or you can wait and make a lump sum payment going back up to six years.

https://www.gov.uk/pay-voluntary-class-3-national-insurance

Your net pension income before SP Age would be around £1850 a month.

As for generating income from your savings and investments, what you receive after any tax that may be due will depend on the interest/dividends that arise from them.

If you were hoping to raise the amount in question purely from  interest on cash deposits, then at current rates that is not possible.

There seems no reason why you should not draw down on capital to generate the funds you require to supplement your pensions up to SPA?

norfolkandnorwich

Thank you kindly for your comments!
Dazed_and_C0nfused - I've only recently started educating myself on all things NI, pension and retirement related so my cynical comments about the longevity of voluntary NI payments weren't really based on anything concrete. It's good to have reassurance that they've been in place for a while now.
Silvertabby - your clarification about best average years is helpful. I've had these confirmed by HR colleagues and I agree with their conclusions. From your experience can you advise how it is that I can ensure that my pension is actually based on these previous years? The scheme being administered at County level, will they simply rely on the information supplied by HR at my district authority?
xylophone - the clarification about the 2016 calculation and the voluntary contributions explains a lot. I've looked at the guidance about NI contributions. I suppose my doubts about voluntary payments stem from the information being retrospective. I've not found any guidance giving reassurance about the potential to make contributions in the event of subsequent retirement and a person's ability to plan to make voluntary contributions in the future. In terms of generating income, to clarify, my intention would be to move funds from cash deposits to take advantage of (hopefully) better longer term investment rates. Having said that, your prompt about:
'As for generating income from your savings and investments, what you receive after any tax that may be due will depend on the interest/dividends that arise from them.'
has reminded me that I need to factor in that the additional income of £750 I'm looking to achieve needs to be after any tax due - DOH!

Silvertabby

Silvertabby - your clarification about best average years is helpful. I've had these confirmed by HR colleagues and I agree with their conclusions. From your experience can you advise how it is that I can ensure that my pension is actually based on these previous years? The scheme being administered at County level, will they simply rely on the information supplied by HR at my district authority?

As long as your date of leaving is within 10 years of your protected pay date, your LGPS will request your last 13 years of pensionable pay figures from your employer and calculate your best 3 year average as per my example.  Yes, this is only as accurate as the pensionable pay figures provided by your HR - but you will have seen each year as it appeared on your annual benefit statements and so any anomaly should have already been picked  up.

Your LGPS shouldn't miss this when they calculate your retirement benefits - but you could always give them a ring once your retirement date has been confirmed and talk it through with them.

Silvertabby

Reply double-tapped.  Where's the 'delete' button now ?

xylophone

https://www.royallondon.com/siteassets/site-docs/media-centre/good-with-your-money-guides/gwymg-1b-topping-up-state-pension-2019-interactive.pdf 
You might want to look at the above.

norfolkandnorwich

Silvertabby - thanks for emphasising the need to ensure a leaving date within 10 years, but can you explain how the 'protected day date' is arrived at, please? I've looked again at my salary details and the best average for me would be for 2012/13; 2013/14 and 2014/15 - would I be correct in thinking my latest leaving date would need to be in 2024, in this scenario?

Silvertabby

RAKC said:

Silvertabby - thanks for emphasising the need to ensure a leaving date within 10 years, but can you explain how the 'protected day date' is arrived at, please? I've looked again at my salary details and the best average for me would be for 2012/13; 2013/14 and 2014/15 - would I be correct in thinking my latest leaving date would need to be in 2024, in this scenario?

It's the date your pay was contractually reduced.  The protected pay period is for a maximum of 10 years, so as long as you leave within this time you'll be ok.

ie.  Protected pay date = 31 March 2014

Leave on or before 30 March 2024 and you'll be ok.

Leave on or after 31 March 2024  and you're stuffed.

norfolkandnorwich

Valuable information, thanks so much!