Early retirement-funding the gap

Redsox64

Would like to retire around 60 but keep early reduction down by deferring LGPS for as long as possible. Is it worth looking at private pension as I am 56? I have £18K in S&S ISA’s, £15K in NSI investment saving and £39K in savings account. Any thoughts gratefully received, thank you. 

jamesd

Yes. Gross pension contributions up to your gross pay seem sensible, or 3600 gross if pay is lower. Moving most other savings into a pension would be good.

I've assumed that pay is no higher than 40k and you're not subject to the MPAA.

AlanP_2

Yes.

If you don't want to access LGPS pension then you need an alternative and a pension is likely to be the most tax efficient method of building a pot.

How long do you wnat to defer for?

How much income do you need / want?

Have you checked your State Pension situation? 

Redsox64

I have to contribute for another 3 years to get maximum state pension. 

Ideally I would like to draw my LGPS between 60-62. Majority is protected by Rule of  85 at 60. I appreciate that doesn’t give me long to build up a pot and will dictate how much income I could get. 

michaels

You can move your savings into a sipp by paying in all your income into the sipp (which then gets grossed up) whilst living off your savings, then when you drawback out before your pension cuts in you can get 25% plus your annual allowance tax free so big gains over living off your income and then your savings.

What I don't know are your options to pay more into your DB pension and what return you might get from doing this.

stephenadarglas

However you do run the risk of your pot being lower if there's a correction

westv

stephenadarglas said:

However you do run the risk of your pot being lower if there's a correction

Not if you keep it in cash for the small number of years it's needed.

Redsox64

michaels said:

You can move your savings into a sipp by paying in all your income into the sipp (which then gets grossed up) whilst living off your savings, then when you drawback out before your pension cuts in you can get 25% plus your annual allowance tax free so big gains over living off your income and then your savings.

What I don't know are your options to pay more into your DB pension and what return you might get from doing this.

I already pay into an AVC but I do t think I can take that until I take my pension.  Sorry if I’m being dumb but are you saying pay from my salary into a SIPP and live off my savings? Thanks

Redsox64

stephenadarglas said:

However you do run the risk of your pot being lower if there's a correction

Sorry but I’m not sure what a correction is?

Secret2ndAccount

Yes, we are recommending you open a SIPP and pay into it.

Suppose you earn £20,000 per year. You will take home about £17,200 after tax. You can pay £16,000 into a SIPP. When you do that, the government gives you back the tax you paid. It doesn't matter exactly how much tax you personally paid - they add a quarter to whatever you pay in. So your 16k paid in turns into 20k. It's free money. You can only do this trick up to the amount you earn in any tax year. That's why I said 16k, because it becomes 20k, which is what you earned in this example. Let us know if you are a higher rate taxpayer as it gets better, although more complicated. So, yes, it's better to pay in your salary and live off your savings. Even if you don't do anything with the money in the SIPP, you have still gained from the governemnt gift. Most people choose to invest the money in the SIPP into some kind of investment. Stocks and shares tend to grow 5% or more every year, although they can go down too. Any growth you achieve inside the SIPP is free of tax - woohoo!

When you come to take the money out of the SIPP, 25% is tax free. The rest gets taxed as income. So some of the generous government gift gets taken back again. However, if you aren't earning a lot at the time, you might pay little or no tax as you still have your annual tax free alowance - the first £12000+ is free of tax. So in the years between retiring and receiving State Pension, when you have no earnings, you might be able to get it all back out of the SIPP without paying any tax at all. Let me know if you need an example to understand this. It would help, in that case, to have some idea of your annual income, and how much you need to live on.

Secret2ndAccount

A 'correction' is stock market speak for a substantial drop. Stocks tend to go up, up, up, then down, then up, up, up, then down. It is pretty normal to see an investment fall 10-20% occasionally. The good days outweigh the bad days, making stocks a good investment for most people, as long as you have the stomach for it. So we don't refer to a drop as a crash. We say the market got ahead of itself, then there was a correction.

When you put money into a SIPP, you have to choose what to do with it. It's permitted to keep it in cash, but then it won't grow. As long as you have more than a few years until you take the money out, you have time to recover if the stock market goes down, so you are likely to be better off choosing some sort of investment. Plenty of discussion on this forum as to what is a good investment, but there are some simple options for those who don't want to spend their life thinking about it.