Sense check needed - very rough estimates

CCW007

I'm after a sense check and to understand if there is anything else I need to think about as pensions are a bit of a mystery to me.

I'm 44 next month, considering my options for retiring at either 57 or 60; my mortgage should be paid off by the time I'm 57.  I am ignoring the state pension (as I am not counting on it being available by the time I get there) but my SPA is 67 and 3 months currently. 

Aiming for £24k p.a. (ballpark figure and doesn't take into account my partner's pension as we need to review that separately).

SIPP - £150k pot - currently contribute £100 per month
S&S ISA - £3k - currently contribute £200 per month

LGPS predictions (assuming I stay working within LG)
Option 1 - Stop work at 57 and take pension - £11k p.a. 
Option 2 - Stop work at 57 and defer pension to 67 - £17k p.a.
Option 3 - Stop work at 60 and take pension - £14k p.a.

I have just set up AVC contributions for £50 a month due to expected impending pay rise (I feel very grown up doing this on the basis that if I haven't had it, I won't miss it!)  Always balked at AVCs as my understanding is that they are tied to when you take the DB pension but having seen there is some flexibility with regard to retiring at 60 and taking a reasonable pension I decided to go for it.

I recently transferred in a number of PP to my SIPP and the post sale illustrations were rather confusing so I am waiting to get an updated prediction. It feels like I'm quite a way off from covering the shortfall, however Option 3 seems like the most achievable:

Option 1 - need £13k p.a. from 57 onwards
Option 2 - need £24k p.a. from 57 to 67 then £7k p.a. from 67 onwards
Option 3 - need £10k p.a. from 60 onwards

Is there anything obvious I am missing?

Officer_Dibble

I don't think you're missing anything obvious (though someone more expert may disagree) but it seems ultra-cautious (not necessarily a bad thing) to ignore the state pension - it would be political suicide to get rid of it completely, and life expectancy hasn't been rocketing up, so the age at which it's payable shouldn't go much beyond current plans. As far as the SIPP goes, the predictions could well be based on buying an annuity rather than drawdown. As annuity rates are pretty poor at the moment, it might be worth more than predicted. The other thing that needs taking into account is inflation, which could well go through the roof before long and all plans could go out of the window (though at least you can change the age at which you choose to retire accordingly)

kidmugsy

What's the interest rate on your mortgage?  How long is that rate fixed for?

I ask because if there're going to be financial storms ahead, including the possibility of high inflation, you might like to consider paying off the mortgage faster while  paying less into SIPP, AVCs, and ISA.  Without a crystal ball, though, you just have to guess what's best.  

Like Dibble I wouldn't ignore the state pension.  I would check, though, to see if I am on course to get paid the maximum.  If not, making extra National Insurance contributions can be excellent value.

CCW007

Thanks both, I've got another 8 years of contributions for maximum state benefit.  I don't think it will be gone by the time I get there but I suspect it may be means tested and I may not get the full pension so I'd rather work on the basis of what I would absolutely need without it and then anything I get will be a bonus.

Current mortgage is  £266k at 2.59%, fixed for another 7 years.  By then it should be down to around £130k so clearing within another 6 years (57) or 9 years (60) should be possible.  It technically runs until I'm 67 but we OP - our basic payment is just under £1,500 but we have paid £2,000 since we took it out.  We can also take holiday payments or under pay if we need to so it felt like a safe bet in case one of us lost their jobs (more of an issue with OH as his salary is far higher than mine). 

I would love to OP more (and send more to SIPP, ISA and AVC) but we are currently renovating our house (just had new oil tank and boiler) so spare money is going to that.  Hopefully when we are finished in next few years we can do that.

Uncertainty is also the reason I'm putting more in my S&S ISA at present because at least I can access it in an emergency.

I'm sure everything will change - this is based on me continuing to work in Local Government for instance which might not happen - but I'd like something to aim for and some kind of goal for early retirement.  I don't hate my job, I rather enjoy it, but I do hate working and would like to stop at the earliest possible opportunity!

MX5huggy

We’re quite similar. Early 40’s LGPS. 

Are your AVC’s Salary Sacrifice? Mine are a hence I’m currently contributing £700pm to those (close the maximum) savings over the last year have built up in Premium Bonds (emergency fund) so will spend from these to maintain that level of contributions if not sustainable, then cut back, but think I can live on what we have. 

Don’t have a S&S ISA, pension saving is more tax efficient. Don’t have a SIPP, SS AVC better. 
Mortgage is smaller £130k but fixed for 7 years at 2.79% then another 10 years to run, not paying it off any faster as AVC’s better value. Inflation would erode the value of a fixed interest mortgage. Outstanding balance in 7 years will be minimal within range of being paid off with emergency fund plus year or 2 of effort,  if required.  

Exact retirement date unknown, aiming at under 60, dad died at 60. 

To sum up all in on AVC’s.

Full declaration also have a mortgage free BTL worth ~ £200k is providing ~£6k income per year. Might sell it on next void. As will need new roof, kitchen and boiler in 5 years ish. 

CCW007

I believe they are salary sacrifice, only set up yesterday though!  Still trying to get to grips with it all.

I know that AVCs make a huge amount of sense, particularly as I understand you can take them as your 25% TFLS and leave the DB untouched but the fact that you are tied to taking them at the same time as the DB put me off.  I always assumed I would wait until 67 to take the LGPS pension even if I stopped work earlier but having looked at the forecast it may be possible to stop work and take the pension earlier so I am definitely on board with AVCs now.  

Silvertabby

If both of you joined the LGPS before October 2006 - and have a decent amount of pre 2008 service - then you may wish to consider retiring or deferring payment until 60, in order to maximise your R85 protections.

MX5huggy

Are they with the Prudential? The customer service / online account (not updated since December) is currently appalling. 

Yes you can go early and while the reduced pension is a issue it seems fair, and when you get to 60 ish the equation becomes something like I can be in work all day and earn £25k after tax or be at home with £14k. 

Taking the AVC as the TFLS to be used in the years between retirement and State Pension is the plan. I think State pension will remain, no government can be elected without pensioners and there is even currently the slightly ridiculous triple lock on it ATM.

CCW007

Silvertabby, only joined in 2016 so that won't apply to me but thank you.

MX5huggy, yes with Prudential.  I would really like the option to take AVCs as TFLS at 57 / 60 (or even just 25% of AVCs then) and leave the DB alone until 67 but it doesn't seem to be an option.  

Interesting thoughts on SP - it would make my goals more achievable if I counted it in.  I take your point about pensioner votes.  My concern is the cost of paying pack COVID19 related costs, in 23 years I suspect we will still be paying it back and then everything could be on the table.

Albermarle

Even in current times the government is still too  scared to even mention diluting the triple lock on the state pension just a little , never mind anything more drastic. That is when they are well ahead in the opinion polls and and some time before the next election. So if there was any time to do it , it would be now , and they still shy away from any changes so as not to alienate their main voting bloc.

Terron

kidmugsy said:

What's the interest rate on your mortgage?  How long is that rate fixed for?

I ask because if there're going to be financial storms ahead, including the possibility of high inflation, you might like to consider paying off the mortgage faster while  paying less into SIPP, AVCs, and ISA.  Without a crystal ball, though, you just have to guess what's best.  

Like Dibble I wouldn't ignore the state pension.  I would check, though, to see if I am on course to get paid the maximum.  If not, making extra National Insurance contributions can be excellent value.

If high inflation comes then paying off the mortgage would be the wrong thing to have done. Inflation erodes the value of debts as well as savings. Remortgaging to a fixed rate long term mortgage is what you should do if you expect inflation to rise.