FIREside Chats

chile_paul2

becky_rtw said:

Always worth knowing absolute minimum (for you and family) versus what you would like to have. Helps with exploring options as well. 

Also making sure everyone is on board with the ideas help massively, its always been a joint plan with me and hubby about retiring fairly early as we always run out of time before we run out of money. I've been the cash provider and he will bring the assets once all sold so we have to be aligned on spending at that point to ensure we dont overspend. Good habit to get into now if your are not already  

Thanks - some really good points. Reassuring to know that even if everything went wrong there is a reasonable annual income already available.

Also completely agree with making sure everybody is on board - I've always managed the finances, but make sure that sit down with DW on at least a twice year basis and make sure we're aligned with our current position and future plans

chile_paul2

Retireinten said:

I'd second looking at your situation in terms of annual income and how you fund that for each year of retirement. Your financials are similar to ours insofar as we have one good DB (£15.5k at 60 and still growing) plus DC and ISA savings. I don't look at my DB in terms of total value. I look at it as a guaranteed income from 60, which leaves another £22k (currently) or so to fund from other means. When the state pensions kick in we're pretty much sorted. 

Good point @Retireinten and @hugheskevi - as you outline we're already well set for the period of 67 onwards with both SP and my DB scheme (and agreed that the annual income is much more valuable than the CETV, I purely use that in my spreadsheet tracker but appreciate it's of limited help to look at it like that)

It's the periods before that which still need some work I think!

the impact of additional work - even at a low wage - is very significant.

This is really key as well for me at the minute - I'm not at FI yet, but a lot of the accumulation work has been done. So I can afford to take a lower paid role (albeit above the level of our annual expenses) which offers more satisfaction and allow the compounding machine to work away in the background??

powerspowers

chile_paul2 said:

the impact of additional work - even at a low wage - is very significant.

This is really key as well for me at the minute - I'm not at FI yet, but a lot of the accumulation work has been done. So I can afford to take a lower paid role (albeit above the level of our annual expenses) which offers more satisfaction and allow the compounding machine to work away in the background??

I think that’s a fantastic place to be in and gives you reassurance that a career change wouldn’t damage your long term financial well-being. One thing to bear in mind is the rising cost as children get older- yes there’s no childcare costs anymore but your expenditure on holidays, Christmas, gadgets, clothes all goes up- plus if they want to go uni. My step sons are a similar age and these feel like the cheap years that won’t last! 

Suffolk_lass

@chile_paul2 don't forget that after you stop work you may still need to ensure your NI contributions or credits accumulate to ensure you maximise your State Pension.

When you check the state pension forecast it is predicated on you working and achieving full contribution years until the end of the financial year before you reach SPA (state pension age). Also, as some of your working life was in a DB pension scheme it is possible that you were opted out of SERPS and under the latest rules, your contributions (at a lower rate) earned credits towards the Basic State Pension, not the New State Pension during this time. The difference is approx £4.50 a week for each year like this.

The cheapest way to continue to receive NI credits after you stop waged employment is probably as a registered carer (elderly or young children), followed by self employed or in an occupation that permits Class 2 contributions (which can be voluntary) - the rules on these are changing this year and it is worth you remaining au fait with Class 2 NI contributions

KajiKita

Morning All,

I am slowly getting my head around FIRE, though I suspect the RE bit will be beyond us. This thread is an amazing resource of knowledge and information! I have got to page 10 and learned so much already! 
I have a question though, so I hope you'll forgive me if this is explained somewhere else in the remaining 58 pages .....

I have been looking up my state pension forecast and am starting to get my head around what other bits of pensions i have here and there, prior to making decisions about them (the small ones mainly seem to be performing really badly and are actively losing value but more on that another day!). When I look at my state pension forecast it tells me that I have paid 33 years and I have 2 more years to pay before I reach the maximum. But, I also know that I was opted out of SERPS for at least 15 years in a DB employer's scheme. This doesn't make sense to to me - how can I have reached 33 year's contributions when I was opted out for 15 and I have been working for 33 years? <head explodes>

I tried ringing the Gov.uk freephone number but the person answering the call knew no more than his screen could tell him / me.  

Just a bit anxious that there might be an error somewhere and I should be making AVCs to the SSP2 but that the system won't let me ....

Thoughts or advice on this would be appreciated. Or where I can go to read more about SSP2. 

KK

Retireinten

Hi 

Welcome to the thread. 

In respect of some of your pots losing money, please bear in mind that the stock market is going through a rocky time and many of the stocks and shares held in pensions have fallen in value. If you're not contributing to these pensions any more then this loss will be obvious. It's definitely worth looking at these though as you may be paying over the odds on fees which will eat into their value over time. 

In respect of your state pension, I'm not an expert but I've also been contracted out of serps for the majority of my working life, I'm 47 with 5 more years to go to reach full State Pension entitlement by which point I would have worked around 35 years.  I've never questioned this calculation - I think how many years you have contributed since opting back is all factored in.

Hopefully someone will be along to put your mind at rest (and now mine😉) that the government site is accurate. I plan to work another 6 years or so, so I don't want this to stretch out too much ideally. 

Suffolk_lass

@KajiKita well done for exploring the SERPS opt out. Basically when you joined your final salary scheme, the employer should have offered you the option to opt out of SERPS (State Earnings Related Pension Scheme) and the vast majority did so because you paid a lower NI contribution (and so did the employer, if you did so) and the "additional" pension that it earned was not as good as your occupational FS scheme. In 2015 the then Chancellor, George Osborne, removed the SERPS Opt out and introduce a higher rate state pension (New State Pension) that was introduced in April 2016. 

The new State Pension is only available to people who reach SPA after April 2016 and the years that FS scheme people were opted out of SERPS do not count towards this higher rate, only the Basic State Pension that existing pensioners receive. Former Pensions Minister Steve Webb produced a really useful guide while at the Royal London Mutual Society to help people maximise their state pension if they had been opted out. Here is a link to it. The numbers it uses are out of date as it was written in 2019.

Before you explore this, you should look again at your state pension forecast and do the maths on whether this matters to you. You might be young enough for it not to matter - if you work long enough it won't matter.

My circumstances are an example
My contribution years started (as for everyone) when I was 16 (1974) and I received a couple of years of credits for being in full time education (a gap year before Uni means I have a gap in my contribution record as credits for FTE were only if they were continuous from 16). So before opt-out I have ten years, I got child benefit for 18 years while opted out, but as I was also paying (opted out) NI, the credits for CB don't count. Then at the end of my working life I have four years of paying full NI from 2015, and four years to pay for now for the four contribution years up to the end of the contribution year before I reach SPA (66 for me as I am older!) - my SP forecast suggests I cannot reach full new basic pension even with 18 years of opted in years, even with the 30 years I was opted out.

Because my overall years of credits exceeds the number I need for a full pension, they also won't write to me to tell me I could increase my entitlement. I will, because the four years I can boost it by are worth 4/80s of the current rate (£185.15 a week) or £24.69 a week, based on this year's price for voluntary contributions of £15.85 a week (would be £3296.80 for 208 weeks or 4 years). It takes under four years to pay for itself. If I were self employed (gardener, cleaner eg) I could pay the lower Class 2 contributions (£3.15 a week) and if I looked after pre-school grandchildren or elderly adults as a carer, I could claim carer credits

KajiKita

@Suffolk_lass, thank you   

I *think*, having worked my way through the guide you linked to, there is no point me adding to the NI contributions pot (atm anyway) as it won't change what I can get, so long as I work and contribute for the further 2 years to complete my 33 years of contributions (which is certainly my plan). 

One thing that has caught my eye though .... If i have understood correctly what the guide said and I am remembering rightly from what I saw yesterday, the 3 years i was in University (i.e. in full time education) should have been covered for NI contributions. On my record they haven't - they are shown as incomplete years. Is this worth challenging so late after the event when i am likely to make up the full number of years anyway?

KK 

savingholmes

@Suffolk_lass
I am confused. My state pension forecast a year ago says I will hit full entitlement within 4 years (by age 55) - despite me having a COPE figure of £38. 

Suffolk_lass

@KajiKita - I think they only credit you until age 19 now (the same as child benefit if in FE not HE) - not through the Uni years. It was different in the 1970s...

@savingholmes I think the COPE (Contracted Out Pension Equivalent) estimate in your SP forecast is how much of the New State Pension they think they need to deduct to compensate themselves for the additional pension you were opted out of (while in one or more opted out schemes). This link tries to explain it. The fact that you will reach the requisite number of years in three years time does not mean it is best for you to stop paying then. The explanation in the Royal London link I posted tries to explain you can boost your New State Pension by just over £6 a week for every additional year you pay NI for - so if you worked (or paid voluntary contributions) for another 7 years after the four in the forecast, I believe that COPE figure would be overwritten by full contribution years. It means your forecast figure is probably for the full amount (today's figures) for the new state pension.

I think the reason things have gone quiet in the media is because if people do work up to SPA this is mostly withering in its impact and being overtaken now (I am one of the transition people) but of course, the forecasts presume you will work up to SPA whereas we are trying to stop work early (FIRE - Financial Independence, Retire Early), so it is probably off the radar of people who are impacted by it.