Can I stay or can I go

igg59

Hi there, I've been mulling over whether to retire or not iwas planning to go in the next 
12 to 18 months but I'm wondering if I have enough to go now. I currently have an L&G lifestyle work pension with roughly 60,000
Also a H&L sipp 35000. I have a deffered db.pensionthat will pay me 14000 pa and a lump sum of 80000.plus savings of 30000.Full sp in 4 years and need 25000gross pa is that achievable with these figures. 

Linton

First pass answer...
Your guaranteed income is £14K DB pension now, with £9K SP in 4 years time.  You want £25K gross to live on so the amount you need from your savings/SIPP/L&G pension is £11K/year  for 4 years and £2K/year subsequently increasing with inflation.

You have £125K in savings and DC pensions plus £80K lump sum= £205K.

Take off the £44K for the first 4 years leaves you £161K.  If the money is sensibly invested it could reasonably generate £5K/year.  Even if it was kept in cash and you lived another 30 years after you get your SP £2K/year would cost £60K +inflation.

So on these assumptions it looks like you do have enough to live on £25K gross/year if you retired now and you would have a reasonably sized pot for extras and emergencies.

But it raises some questions
1) If you stop work now will you get the full £14K DB pension?
2) Is the DB pension inflation linked?
3) Can you exchange the lump sum for extra DB pension?  This may be worth doing.

Dazed_and_C0nfused

Have you checked your State Pension forecast?

With a decent DB pension you may need some additional years to reach the standard new State Pension amount.

Secret2ndAccount

igg59, the main question we are all talking about relates to your DB pension.

Is it 14k/yr if you take it right now?  Or 14k from 65? or from 67?

Many DB pensions grow well ahead of inflation. So if it's 14k in today's money. It's going to be more than that in 4 yrs time.

Most DB pension payouts are index linked - they grow to keep pace with inflation. If yours doesn't, then we need to know that as it puts a dent in your plans.

If you can take it now and get the full 14k, index linked, then you can afford to retire, as you need less than 50k to bridge the gap to state pension age. After that, your pensions will add up to more than 25k/yr

If, on the other hand, you need to wait 4 yrs, then it's 14k at that time, then things are a bit tighter. It still looks like you could retire, as long as 25k index linked is all you need.

TVAS made some good suggestions: you should use some of your savings to make a large pension contribution this year, so you maximise your tax relief. Briefly, you can put everything you earn into a pension. Please do some reading as it's not quite that simple.  Also, if the 14k DB is available now, you could delay taking it, and get a larger annual sum later. You spend the other pensions first, but you then have a DB+SP that covers all your 25k, so it can never run out.

igg59

My  dB pension is 14000 pa if I take it now

jamjar92

@igg59 I would say live for today based on the figures above, you are happy with 25K, , however based on Covid situation, I would delay 12 months when hopefully things will feel a bit more normal. In meantime take your saving and max your SIPP this year (20.21) and next (21/22), then change to drawdown. Has you are over 55 to can change your mind at any time.

Whatever you decide, enjoy.

Secret2ndAccount

Here’s what I would do.

Right away:

Add up everything you earned or will earn between Apr 6 2020 and Apr 5 2021

Add up everything you (not your employer) have paid or will pay into your pensions between Apr 6 2020 and Apr 5 2021

Take the difference between those two numbers. Multiply by 0.8. Take this amount out of your savings and pay it into your SIPP before the end of March. The Gov’t will add a free top-up of 25%. I normally put in a few quid less so I don’t accidentally go over. If you do go over, there are forms to fill.

There is an annual limit of 40k for you + your employer contributions. If you are close to this, let us know as you can pull in previous years’ allowances.

Retire on April 5th 2021 – congratulations!

After April 6th 2021:

Take £7500 tax free lump sum from your L&G pension. Over the next year, take out 12570 (your tax free allowance) from the taxable part of your L&G. Note that if you take the 12570 as one lump in April, the taxman will take a huge bite out of your payout. You will get it all back, but it could take a while. Better to leave it later into the tax year, or take several smaller payments. You will not have to pay income tax this year if you don’t take more than 12570. So you have 12570+7500. That’s over 20,000 and almost exactly what you would take home if you earned 25k gross. You don’t have to take the 7500 in one lump on day one. You could take one third in April, one third in August, and one third at Christmas. Look at L&G’s rules and charges relating to withdrawals – pension providers vary in their flexibility. Make sure that you get the correct proportions of tax-free and taxable payments (7500 & 12570) over the course of the year.

After April 6th 2022 – leave it until you have spent the 20k from last year:

Take the remaining tax free amount from L&G. Probably somewhere between £7-8k. Whatever the tax free allowance is for 2022, take that in stages from L&G as the year before. That pays for another year, give or take. After that, all the money left in L&G (~20k) will be taxable when you withdraw it.

2023:

Now we start drawing on the SIPP. You can take £8k from there before or after April 6th 2023. So if the previous year’s money lasts, that’s great. If it runs out a bit early, you can take the 8k, or part of it, in March to tide you over. After April 6th 2023 take the taxable money from L&G up to your tax free allowance. That should pay for another year.

After April 6th 2024:

Take the remaining tax free sum from your SIPP. Take the remaining money out of L&G. Top up if needed to 12800 or whatever from the SIPP.

Once this money is gone, you are going to have to start paying tax. By now, you should be close to state pension age. Your DB will have grown. If you add together your SP + DB, that should now be enough to pay your index linked 25k per year for life. Plus you have about 100k in savings & SIPP which you can spend whenever you need/want to.

Remember, each year, you can pay 2880 into your SIPP, which the taxman tops up to 3600. 25% of that comes out tax free. Even if you pay tax on the rest, you still end up ahead. With savings rates close to zero, it’s worth using your savings to pay into this. You can always take the money out if you need it.

 

Warnings:

1.      I am not a financial adviser. Print this out, put it in front of your IFA and see what he says.

2.      I don’t know your personal circumstances – life expectancy; family situation

3.      You should look at the small print of your workplace pensions, particularly the DB, regarding what they pay out if you were to die. With some DB’s you + your spouse would get more out in total if you took the lump sum before you died. In the above plan there are benefits from leaving your DB untouched. It is possible that there are benefits to taking it before you die. If so, you can weigh them up according to your personal situation

4.      Don’t be tempted to spend a lump sum just because you’ve got it. These lump sums need to be spent over the whole year – not the first month. If you are good with money you should be fine. If you are not sure you can trust your self-discipline, talk to the provider about spreading the withdrawals across the year

Good luck with your retirement