Early retirement planning & IFA/FA

Albermarle

Langtang said:

Albermarle said:

 I understand what a SIPP is, and can see the advantage of filling it with cash and then taking 25% each year tax free. It can’t be that simple though, can it?

In simple terms this is how pensions work .

Earn £100, pay 20 % tax and you get £80 in your take home pay . Add £80 to pension and provider adds £20 tax relief.

If you take the £100 out of the pension - 25% is tax free and 75% taxable at 20% = £85 . So overall you gain £5 or 6.25%

Regarding expenditure in retirement this might be interesting 

Thanks very much for replying. The link you provided is great, I feel I have a task over the next week figuring out how much we spend and on what (“those shoes? I’ve had them for ages...”)

Let me get this right, If I took my personal pensions every month, I would be taxed 20% on 75% of it, but if I cashed in both pensions and put them in a SIPP along with some cash, I could remove a similar amount each month tax free?

Would the £20 relief apply if I transferred in both amounts from my personal pensions? That seems too good to be true. 

EDIT. I’ve just read an article on the basics of SIPPs, this explains both my questions above. 

A personal pension and a SIPP are both DC pensions and are governed by the same rules.
You can take out 25% tax free and the rest is taxable at your current tax rate .
I think what you mean is that can you withdraw all the money from a personal pension -25% tax free and 75% taxable and then put it all back into another pension/SIPP and do the same again . The answer is yes, but.....
When you put the money back into a pension you can only get the initial tax relief , if you have sufficient earnings in the current tax year . You can not for example be earning £20K pa and put £30K in your pension and get tax relief on all of it . If you are not earning anything then the max you can add is £2880. 
Secondly there are rules on recycling tax free cash from a pension into another pension. It is possible to some extent without breaking the rules but you have to be a bit careful  Also you could argue it is a bit unethical to benefit from generous tax relief for pensions and then try and double up on it .

semiplural

Langtang said:

When you say maxing your pensions, what do you mean by maxing?

 I understand what a SIPP is, and can see the advantage of filling it with cash and then taking 25% each year tax free. It can’t be that simple though, can it?

I think what snookered was getting at is that you can pay into pensions each year up to 100% of your earnings (or 40,000 if your earnings are above.) and get tax relief on it.
So given  that you are going to have plenty of cash in hand, for the next 3 years you both pay in the maximum amount into private pension or SIPP, gain the tax relief and live off your savings in the meantime.
That leads me on to another similar thought; would you workplace DB pensions pay out a higher amount if you didn't draw them until say 65? If so it might make sense to live off your savings for a little longer - so for eg retire at 60, but don't start taking your pensions until 65.

Langtang

semiplural said:

Langtang said:

When you say maxing your pensions, what do you mean by maxing?

 I understand what a SIPP is, and can see the advantage of filling it with cash and then taking 25% each year tax free. It can’t be that simple though, can it?

I think what snookered was getting at is that you can pay into pensions each year up to 100% of your earnings (or 40,000 if your earnings are above.) and get tax relief on it.
So given  that you are going to have plenty of cash in hand, for the next 3 years you both pay in the maximum amount into private pension or SIPP, gain the tax relief and live off your savings in the meantime.
That leads me on to another similar thought; would you workplace DB pensions pay out a higher amount if you didn't draw them until say 65? If so it might make sense to live off your savings for a little longer - so for eg retire at 60, but don't start taking your pensions until 65.

Thanks for your reply. I have just been reading up on SIPPs and pension contributions. So, I could pay in up to my earnings and get tax relief or up to £40k, but not get tax relief on the balance above what I earn. Am I correct? Would there be any benefit in paying in more than I earn? Following on from the below, would there be any benefit paying into it at all, seeing as it is so low in value?

With regards my workplace pension, I made an error in the fund value (I thought it looked a bit high) The fund at present is sitting at £6k, and not £29k as I first said. It would increase if I left it to run, still paying in. I’d I left it until I was 67 it would pay out £751/£1239/£1973, on a low/mid/high rate. Again, on a low/mid/high basis the fund would be worth £20k/£25.6k/£32.7k

Langtang

Albermarle said:

Langtang said:

Albermarle said:

 I understand what a SIPP is, and can see the advantage of filling it with cash and then taking 25% each year tax free. It can’t be that simple though, can it?

In simple terms this is how pensions work .

Earn £100, pay 20 % tax and you get £80 in your take home pay . Add £80 to pension and provider adds £20 tax relief.

If you take the £100 out of the pension - 25% is tax free and 75% taxable at 20% = £85 . So overall you gain £5 or 6.25%

Regarding expenditure in retirement this might be interesting 

Thanks very much for replying. The link you provided is great, I feel I have a task over the next week figuring out how much we spend and on what (“those shoes? I’ve had them for ages...”)

Let me get this right, If I took my personal pensions every month, I would be taxed 20% on 75% of it, but if I cashed in both pensions and put them in a SIPP along with some cash, I could remove a similar amount each month tax free?

Would the £20 relief apply if I transferred in both amounts from my personal pensions? That seems too good to be true. 

EDIT. I’ve just read an article on the basics of SIPPs, this explains both my questions above. 

A personal pension and a SIPP are both DC pensions and are governed by the same rules.
You can take out 25% tax free and the rest is taxable at your current tax rate .
I think what you mean is that can you withdraw all the money from a personal pension -25% tax free and 75% taxable and then put it all back into another pension/SIPP and do the same again . The answer is yes, but.....
When you put the money back into a pension you can only get the initial tax relief , if you have sufficient earnings in the current tax year . You can not for example be earning £20K pa and put £30K in your pension and get tax relief on all of it . If you are not earning anything then the max you can add is £2880. 
Secondly there are rules on recycling tax free cash from a pension into another pension. It is possible to some extent without breaking the rules but you have to be a bit careful  Also you could argue it is a bit unethical to benefit from generous tax relief for pensions and then try and double up on it .

Completely understand, and agree, regarding doubling up on tax relief. There is quite a lot for me to learn in this field. Yes you can, but... no you can’t, but.. etc. Thank you. 

Albermarle

 So, I could pay in up to my earnings and get tax relief or up to £40k, but not get tax relief on the balance above what I earn. Am I correct? Would there be any benefit in paying in more than I earn? 

Still not quite right 

If you earn £25K for example , you can contribute up to max £20K to a pension and you will get tax relief of £5K .

There would be point contributing more as you would not get tax relief on it, but it would be taxable on the way out . You would be better to invest/save that money outside a pension. In fact the pension provider would probably add tax relief to it automatically and then you would have to pay it back at some point.

The £40K is the maximum that can be paid into a pension(s)  in a tax year . So your contributions + tax relief + any employer contributions .

semiplural

I agree Albermarle, there is no benefit from putting more into your pension than you can get tax relief on - you would get no pension relief on the way in and potentially pay tax on the way out. Far better to put any excess over and above into an ISA  or such (no tax to pay when you withdraw).
Re-reading, I think it is only your OH that has a Defined Benefit pension? That would change the rough sums I did earlier, but I still think you are in a very comfortable position. 

Langtang

We are now in a position to move forward with the estates, and we have set up a first “virtual” meeting with an IFA next week. 

How long do these initial meetings last?

How much detailed info do we impart? (the obvious, of course. How much, and future plans)

Would it be ok to post here with the outcome of this meeting, or potential subsequent meeting to garner everyone’s thoughts?

I started a new job 3 weeks ago and am more nervous about this meeting that I was about, and in, my interview 😳

TVAS

I would never use a firm that has been investigated by the FCA:
https://www.ftadviser.com/regulation/2020/06/05/fca-investigates-lighthouse-over-defined-benefit-advice/  

TVAS

I never understand why people do not do basic research: Google by putting in the IFA name to see what comes up.
They will want to charge you at least 1% for an ongoing advice fee this will be taken from any products they sell you.
I do not like restricted advice because they do not necessarily sell you the best product because they do not have access to the whole market. 
They FCA have decided that they are not fit to do a review of final salary pension transfers and have forced them to appoint skilled persons (outside contractors) to review these cases this is called a S166.

dunstonh

How long do these initial meetings last?

Different firms and different people handle the first meeting in different ways.  Some will be strict on their time management. Others will go with the flow.

How much detailed info do we impart? (the obvious, of course. How much, and future plans)

The first meeting is more of a getting-to-know-you style typically.  A meeting where you can see if the adviser may be a good fit for you and whether you would be a good fit for the adviser.   It is not normally a heavy information gathering session but more general background and objectives.   

Would it be ok to post here with the outcome of this meeting, or potential subsequent meeting to garner everyone’s thoughts?

In most cases, the outcome will be whether you both agree to continue the process or not.