Retirement Planning

Cm97

Hi everyone

I've just started doing some retirement planning (at 39 I don't know if I'm late or early for that!) and wanted to run my thinking past you to see if there are any flaws in my approach, or there is a better way of going about it. As I said I'm 39 and in a well paid job in the NHS. I've been paying into the DB pension scheme since I started with some in a final salary scheme (NHS2008) with a pension age of 65 and the rest in a career average (NHS2015) with a pension age of 68. My aim is to retire in my late 50s - 56 or 57 would be ideal as that would coincide with my youngest turning 18.

My plan is to bridge the gap between retirement and age 62 or 63 before I take my NHS DB pension (at reduced rate) with savings. It is likely that my pension at 62 or 63 will be at, or just over, the lifetime allowance, even with taking the maximum lump sum and it being reduced in value by taking it early. I therefore don't think there is any advantage in trying to bridge the gap with a SIPP (even though I am a HRT now) as any LTA charge will erode any tax advantage. I think I am therefore left with investing inside a S&S ISA (via monthly contributions starting now) to fund from retirement to age 60 and investing inside a LISA to access from age 60 until drawing the NHS pension.

Does this sound like a good plan and am I right in my thinking around the LTA? I've opened a LISA but only funded it with the minimum to open it, but would be looking to max this out over the next 11 years if that is the right way to go. I just wanted to do a sense check on my approach before I did this and potentially locked some money away unnecessarily.

The other option of my wife using a SIPP (who will be well under the LTA) to fund this gap won't work as she is a few years younger than me, so we wouldn't get access to that until I was over 60 anyway.

Grateful for any thoughts and thanks for reading. Happy to fill in any other details which might be useful.

Albermarle

Yes probably stocks and shares LISA with the max £4kpa would be the most obvious starting point and then anymore into a S&S ISA. In both cases you would have to think about what investments to choose. The number of S&S LISA providers is very small , although there are a lot of S&S ISA providers.
It could be a good idea for your wife to have a SIPP anyway . What is her pension situation?
It can be useful for income tax  reasons after retirement and for IHT .

hugheskevi

At age 39, forecasting LTA at age 62 will be extremely reliant on assumptions. It is worth ensuring those are as accurate and reasonable as possible, as well as monitored over time as policy will almost certainly change over time.

Ensure you take into account McCloud judgment.

Why not plan to commence pension earlier, eg, at age 58 (minimum pension age). That will give more LTA headroom. Taking lump sum at such an early age is extremely expensive given the very poor 12:1 commutation rate.

VCTs could be an option to consider.

Cm97

Thanks for the responses.

My wife also works for the public sector and has been paying into her DB pension since starting work, so is well covered.

My investments (in both S&S ISA and LISA) are going to be in a low cost global equity tracker which I plan to steadily switch into something a bit less volatile as I get towards needing it.

I had discounted taking the NHS pension that early (ie 58) as the reductions looked quite severe (40% reduction taking it at 58) but I guess I need to think about whether the reduction, if it avoids taking the lump sum, coupled with having the ISA/LISA money in the bank is a better scenario. It could well be.

Albermarle

I had discounted taking the NHS pension that early (ie 58)

You will know from your profession that many things can happen to a person/family in 20 years and as mentioned legislation/tax can also change . So best to keep plans flexible.

tacpot12

Planning to take the NHS DB pension early is a bad idea as you are giving up 4% of income for each year early you take the pension. This doesn't sound much but it adds up, and the NHS pensions are valuable because they are protected from inflation. It would be better to save hard into a S&S ISA to avoid having to draw the NHS pension early. If you have any small pension pots anywhere from any work prior to joining the NHS, tracing these and drawing them out as a lump sum under the trivial commutation rules would potentially give you another source of income to help bridge the gap. My OH got £27K out of the Universities Superannuation Scheme for two years of work she did in the 1980s, so this is helping her delay the point at which she takes her  NHS pension. 

hemeloid

Career Average provides the opportunity to reduce your weekly hours or move to a less stressful role without a major impact on the value of your pension - something that a DB pension isn't generally set up to do (well, certainly mine wasn't). Perhaps moving part-time a few years earlier and (if needed) working a few years longer might be a valid alternative?

cfw1994

hugheskevi said:

At age 39, forecasting LTA at age 62 will be extremely reliant on assumptions. It is worth ensuring those are as accurate and reasonable as possible, as well as monitored over time as policy will almost certainly change over time.

Ensure you take into account McCloud judgment.

Why not plan to commence pension earlier, eg, at age 58 (minimum pension age). That will give more LTA headroom. Taking lump sum at such an early age is extremely expensive given the very poor 12:1 commutation rate.

VCTs could be an option to consider.

Must admit, when I was 39 I'd never heard of the LTA 
Probably only loosely aware when I was mid-to late-40s

The advice I'd have given my earlier self would be to invest more in S&S ISAs - they are the funds you can access whenever you want, to perhaps plug any gap should you chose to retire early. 
Of course, the money invested there was tax'd already, whereas pensions are the top tax-efficient mechanism.....but flexibility is nice to have.   I remember - used to be able to touch my toes 

Cm97

Thanks everyone. I think what I'm taking from this is the S&S ISA looks like the way to go and think again closer to the time on the best timing to trigger the NHS pension. LISA feels like a no-brainer though.

Glad to talk it through and check I'm not missing anything obvious. 

cfw1994

Be aware that if you don’t use the LISA to help pay for your first home....you cannot access it until you are 60....& cannot pay more into it after turning 50.  

Plus it is limited to £4K pa.  See https://www.gov.uk/lifetime-isa
Okay to get the Government 25%......but, assuming you have a home: S&S ISA is the real no brainer if you want that for pre-pension access .....