Savings or pension

Bobinyorkshire

I'm new so I apologise in advance for any questions which seem obvious:

I want to retire next year when I am 55 and have the option to take my pension early but with an actuarial reduction. Does it make more sense to support myself with ISA savings and leave the pension to get nearer to a date when the penalty is less?  I assume it would be as I would not be paying income tax or NI, as I would have been if I had a pension's income. But is there any negatives I have not considered, such as not paying NI (although I have 35 years worth already)? The pension is an NHS pension, largely in the 1995 scheme. Thank you in advance for any response

eskbanker

Don't assume that 35 years worth of NI gives you a full state pension as it isn't as simple as that, so get a projection of your state pension entitlement at https://www.gov.uk/check-state-pension

There are many factors you need to consider when evaluating your retirement plan, but one obvious one is how long will your savings support you at your projected level of expenditure?

ColdIron

Bobinyorkshire said:

I assume it would be as I would not be paying income tax or NI, as I would have been if I had a pension's income.

No NI on pension income

Bobinyorkshire

Thank you for reply. 

I have checked my forecast and although its not going to be a full state pension it will be enough with my NHS pension too.

My easily accessible savings will last for 2 years and I have others savings too should this become necessary. It was more about being an unemployed, non-tax/NI payer using savings instead of having an income

Bobinyorkshire

Thank you ColdIron, I did not realise that NI was not paid on income generated from pensions. That's good to know

barnstar2077

Bobinyorkshire said:

Thank you for reply. 

I have checked my forecast and although its not going to be a full state pension it will be enough with my NHS pension too.

My easily accessible savings will last for 2 years and I have others savings too should this become necessary. It was more about being an unemployed, non-tax/NI payer using savings instead of having an income

Does it say that you can buy extra years in your forecast?

xylophone

I have checked my forecast and although its not going to be a full state pension

Had you considered voluntary contributions?

dunstonh

Does it make more sense to support myself with ISA savings and leave the pension to get nearer to a date when the penalty is less? 

Insufficient information to go on. Basically, you need to model the different options (and there may be more than just the two you mention).  That will tell you which is the best way.  Indeed, it may be combination of methods.

Bobinyorkshire

Hi,

I can buy extra state pension years, but don't feel I will need that extra cash after 67 years of age and voluntary contributions in the NHS pension scheme at my age don't improve my finances until I am at least 79 years old.

To compound the problem further the McCloud judgement will impact my choice and this may not be resolved until Oct 23

Albermarle

Buying extra state pension years is probably the best investment you will ever make , so suggest you reconsider this as a priority ..

Regarding tax on your pension income . Presume you are aware that you will still get your personal tax allowance of £12570, so only if the pension is more than that will you actually pay any tax .

Bobinyorkshire

It was always my intension to buy the part year left, but no extra full years - but I will look again. 

The pension does exceed the tax allowance and I have enhanced this with part of my wife's allowance as she has only a small pension. But I still think I will be paying quite a bit in tax if I take my pension.

I feel using savings and allowing my pension to accumulate by annual uplift and reduction in penalty seems the best option, but it would feel very odd not to have an income