FIREside Chats

Suffolk_lass

CCW007 said:

Thanks both, some really excellent points there to consider.  It is all CARE so no final salary element to consider.  I will see if I can get in touch with the pension administrators to confirm whether I can take them at different times or need to take them together, I had assumed I could but definitely need to check in that case.

You should be able to commute up to 25% of your accrued benefits to realise a TFLS. It may not be the default but it is still possible. The rate is normally (currently and for ages) 1 to 12 so if your annual pension were going to be £16000 you could commute £4000 (ie 25%) and then multiply that by 12 so £48,000 TFLS. With a DB pension where death of the pensioner loses the capital, a lot of people take the maximum TFLS. It depends what you need to live on, commitments, debt, plans - so many personal things to TIC

D123456789

Hello all, haven’t been on for a while since I have been doing some research as know very little about pensions. So I (currently) need to work another 9 years to get a full state pension. At 67 it looks like I could get 24k (total)  annually. At 60 I would get 9k annually. 

I presume the 24k will increase provided I continue to pay into my work pension. I only work part time now though.

So how do I work out how much I will actually need in retirement and how do I take into account inflation? I find it all very confusing. Do I look at how much I earn now and minus the mortgage payments which I hope to pay off before I am retired? am trying to learn instead of just hoping for the best.

hugheskevi

So I (currently) need to work another 9 years to get a full state pension. 

Is this based on a Pension Forecast? Many incorrectly assume they need 35 qualifying years.

I presume the 24k will increase provided I continue to pay into my work pension. I only work part time now though.

It depends on the different types of pension.

Your State Pension should increase by at least inflation.

A Defined Contribution pension will increase in line with whatever it is invested in, which may be more or less than inflation. Over a longer-term it should increase by more than inflation.

A Defined Benefit pension can be complicated, depending on when you accrued pension and caps which may be applied in the scheme rules. Overall, it is likely to increase by a bit less than inflation, unless it is a public service pension scheme.

So how do I work out how much I will actually need in retirement and how do I take into account inflation? I find it all very confusing. Do I look at how much I earn now and minus the mortgage payments which I hope to pay off before I am retired?

You are aiming to preserve the same quality of life. Some expenses will reduce in retirement, others will increase.

You can start by calculating your net retirement income - which should be quite easy as it is only income tax to deduct as there will not be pension savings or National Insurance contributions. Consider how all existing costs will change, eg commuting costs and work clothing, and any other work-specific costs will fall away. Then make allowance for things that will increase, eg, utility bills due to being at home all day, maybe travel/leisure, etc. You could use a template such as this Statement of Affairs list to aid in this, preparing one for now and then one based on what you expect in retirement.

You can probably ignore future inflation, as pensions should increase to cover it, one way or another.

D123456789

@hugheskevi thank you for the reply!

Yes I checked the pension forecast, but I understand the goal posts Might change so I have to keep an eye on it.  My pension is NHS.

I will look at the SOA 

Thanks again.

savingholmes

On your annual pension statement you might find it gives you a predicted figure at retirement age that assumes you continue to contribute at the same level.

powerspowers

Local gov pay rise has come through this month plus I get my incremental next month so I decided to increase my AVCs to £300pm (salary sacrifice). 

I started paying AVCs in 2019 and my current pot is worth £3700. I’m aiming for at least £100k to supplement taking my DB pension at 58. I put 300pm in to a calculator and it came to £120k with an assumed 5% growth over next 21years. I’m not sure how realistic that is but going to keep plugging at it for now and reevaluate each year- it’s still early days for me. I’m confident that my DB pension will be enough once I’m retirement age, so taking the approach that early is a bonus and that chipping in now can only help. 

savingholmes

Well done on the AVCs. Your future self will thank you.

CCW007

@powerspowers my back pay is coming through tomorrow and is about £460, I've just done my tax return for last financial year for some consultancy and I owe £500 so that's that taken care of!

Finally got the paperwork through re combining my two LGPS pots and there's a really useful document setting out the pros and cons.

One of the things I hadn't considered is if I was offered early retirement due to ill health or redundancy, I may be offered full pension but that would only be the portion of the pension which relates to the current scheme, not the deferred scheme.

The other thing that was interesting is the re-evaluation against CPI. The active scheme could see a negative re-evaluation in times of negative inflation, whereas the deferred scheme would be 0% as it cannot be negative. From what I'm hearing, negative inflation is possible in a few years time.

Lots to think about but I'm erring towards keeping them separate. Although I could lose some benefits paid early due to redundancy or ill health, my SIPP would hopefully cover any shortfall as my deferred pension is about £6k a year and my SIPP is currently around £150k.

D123456789

Just updating that I had a pension education session through work (NHS) and it looks like I could be able to take more of my pension at 60 than I first thought. This is due to the McCloud judgement.  Going forwards from April 2022 anything I put in will go towards pension I can receive at 67. So if I have understood this correctly then I will be better off at 60 than I thought.

Scrimps

Our pension saving has taken a backseat as we have decided we really need to make our living situation better. We're both in our early 40s and the house feels more like a student squat at times because we've been making do for 10 years or so...despite it feeling like we've poured money into it. Which we kind of have with external wall insulation and driveways etc.  Anyway, we have decided to get the kitchen extended and the architect is coming round tomorrow to talk about plans for the drawing. Obviously cost of materials has shot up but we're going to proceed because even if we wanted to move, we don't think we could with the house the state that its in. We're pretty sure we want to stay put as the children are in a great school and are developing friendships with children who live very locally.

We think we also want to have a holiday. We have done uk trips and days out but haven't been abroad for 6+ years and really would like to.  This is somewhat flying in the face early retirement planning but I'm getting very little joy from continuing to scrimp so much.

I'm having to balance this with, at the moment, loathing my job and really wanting to leave. I would be silly to, top of nhs band 6 and very flexible to be able to pick up kids after school or work from home if theyre sick. I think its a common thing in the NHS at the moment as everyone is just so worn out by it all so will ride it out but its tempting to always want to hold on to every penny so can give up work ASAP or just go for a low paid, leave work at work type job that I had before.