M49 - my pension plan - open for critique...

6244_WM

I've spent a few years developing this plan and beleive I've dotted the t's and crossed the i's, but I'd really appreciate some confirmation or otherwise....

The story so far, I have 25 years in a public service that will see me with a pension payable at 50. I now work in IT industry on a good salary.
My hope is to hang it all up at 58 and go travelling for a few years.

So as I approach my 49th birthday, here is where I am today.
Salary £70k plus bonus
Current private pension pot £23K, each month contributing £1130 including Employers cont.
Provider is Peoples Pension, vanilla deduction, I have to claim higher rate tax relief myself.

Expected value at 50th BD = £41k

At that point I will have pension start paying at approx £16000 PA, alongside salary of est £75k

I propose to set my pension deductions at 45% of salary.

So for 8 years I'll assume a monthly payment into my pension pot of £2800 + tax relief 20% = £3374 + EC £187
total = £3561 per month for 8 years.

My salary with such a big pension cont is £2500, plus £840 pension (all taxed at 40%).

Looking at some calculators, that puts the pension pot at 58 to around £300,000. 



Then from 58 intention is take 25% lump sum.
Then on top of £16k pension top up with £14k drawdown until 68, then drawdown £8k.
Drawdown expected to last 20 years minimum. So from 78 I'll have my teeth and an income of £16k plus state pension (if it exists).


I hope that all that is clear, I know things like salary growth aren't included, I've left them out to be conservative with estimates.

QrizB

Welcome to the forum.

One thing jumps out at me:

6244_WM said:

So for 8 years I'll assume a monthly payment into my pension pot of £2800 + tax relief 20% = £3374 + EC £187
total = £3561 per month for 8 years.

I think that puts you over the £40k pa annual allowance.

michaels

Personally I can't understand why drawing DB does not trigger the MPAA but it doesn't.

af1963

A few quick thoughts:

From your post-58 planned figures it looks like that you think you need about £30K gross ( roughly £26.5K net) to live on ?  

Post-68 - are you factoring in State Pension being worth £6K , to allow you to reduce the drawdown by £6K at that point ? Max state pension is more than that ( about £10K) and you may be able to 'buy' missing years if you are not currently forecast to get the full amount. 

The DB pension:  are you obliged to start drawing it at 50 ? If there's an option to defer it till later and get a higher annual amount, that's worth checking the numbers. Means you could avoid being taxed on it at 40% while you continue working and earning.

Another possible approach if you do need ( or choose) to take the pension : rather than "work full time till 58, then stop completely and go travelling", is there then any scope for "reduce to part time sooner than 58 to allow more regular travelling while still working" ? It means you'd lose a chunk of your income, but that chunk would otherwise be taxed at 40% (plus NI).

NedS

QrizB said:

Welcome to the forum.

One thing jumps out at me:

6244_WM said:

So for 8 years I'll assume a monthly payment into my pension pot of £2800 + tax relief 20% = £3374 + EC £187
total = £3561 per month for 8 years.

I think that puts you over the £40k pa annual allowance.

They may have some carry forward available, but the calculations are potentially a little more complex with DB pension input amounts also to be taken into consideration (depending when the OP left the DB scheme).

SouthCoastBoy

af1963 said:

A few quick thoughts:


Post-68 - are you factoring in State Pension being worth £6K 

Why would the state pension only be worth £6k?

QrizB

SouthCoastBoy said:

af1963 said:

Post-68 - are you factoring in State Pension being worth £6K 

Why would the state pension only be worth £6k?

No-one knows, but that seems to be the OP's assumption:

6244_WM said:

Then on top of £16k pension top up with £14k drawdown until 68, then drawdown £8k.

Drawdown decreases by £6k pa when the OP reaches SPA.

Albermarle

So from 78 I'll have my teeth and an income of £16k plus state pension (if it exists).

People have been making comments about the state pension disappearing for 50 years and in fact if anything it gets better.

With older people/pensioners much more likely to vote than younger people, any government stopping or even reducing the state pension, would find themselves out of office for a generation. So they will not do it. Just look at the fuss over removing the very generous Triple Lock for one year. At worst the age at which you get it will keep drifting upwards.

6244_WM

Thank you for your time in responding.

So....

Was aware of maximum pension contribution, but thought this was excluding employers input. Setting my contribution to 3374 is a rough guide but I'd check with taxman first on the full effects of the DB pension.

I chose to reduce by 6k as I'm married. Wife is on track for 500k pension pot at 58. Chose to be realistic on what I might need/want. Plus I'd expect to have burnt through some of the lump sum money by that time.

Its a Police pension, don't believe I can defer it further. Plus I get a £45k lump at 50 that is going to kids for house deposits.

As for part time pre 58, possible, but will still have one parasite in education as I approach 57, so 58 is the ticker tape parade.

Pensions_matter_2

My understandinv is that MPAA was introduced when the pensions flexibilities (from 2015) permitted someone with defined contribution funds to take their whole pot out in a lump sum or in large chunks, in contrast to previously when drawdown only was possible and that was very much restricted so as to mirror an annuity or DB pension with income being drip fed over a lifetime. Once unrestricted funds could be taken out from DC funds, it opened the doors to recycling income by putting the funds back in as contributions, gaining tax relief and then taking them out again, including partly as tax free cash, and doing this over and over again, creating a snowball effect of increasingly larger sums. Im sure someone could illustrate the maths! That’s my understanding why the MPAA is irrelevant to DB income. Tax free cash recycling has been around for a long longer (since 2006 when the new pensions regime was put in place) and applies to both DB and DC funds as similar rules apply to both.

Pat38493

6244_WM said:

I've spent a few years developing this plan and beleive I've dotted the t's and crossed the i's, but I'd really appreciate some confirmation or otherwise....

The story so far, I have 25 years in a public service that will see me with a pension payable at 50. I now work in IT industry on a good salary.
My hope is to hang it all up at 58 and go travelling for a few years.

So as I approach my 49th birthday, here is where I am today.
Salary £70k plus bonus
Current private pension pot £23K, each month contributing £1130 including Employers cont.
Provider is Peoples Pension, vanilla deduction, I have to claim higher rate tax relief myself.

Expected value at 50th BD = £41k

At that point I will have pension start paying at approx £16000 PA, alongside salary of est £75k

I propose to set my pension deductions at 45% of salary.

So for 8 years I'll assume a monthly payment into my pension pot of £2800 + tax relief 20% = £3374 + EC £187
total = £3561 per month for 8 years.

My salary with such a big pension cont is £2500, plus £840 pension (all taxed at 40%).

Looking at some calculators, that puts the pension pot at 58 to around £300,000. 



Then from 58 intention is take 25% lump sum.
Then on top of £16k pension top up with £14k drawdown until 68, then drawdown £8k.
Drawdown expected to last 20 years minimum. So from 78 I'll have my teeth and an income of £16k plus state pension (if it exists).


I hope that all that is clear, I know things like salary growth aren't included, I've left them out to be conservative with estimates.

A couple of small comments

- It looks like you are planning to put 42K into your pension / year for 8 years - the 40K limit applies to all amounts put in.  You can roll over your prior unused allowance so you could do that for 3 years but not 8 years otherwise the excess will be taxable.

- I am not sure what you mean by "My salary with such a big pension cont is £2500, plus £840 pension (all taxed at 40%)" - why would your salary be taxed at 40% if you have a 16K pension DB plus the remaining salary that you haven't put in to your pension?

- It's pretty easy to check your state pension entitlement online if you have an HMRC account (or to get a login if you don't have one) - takes 5 mins.  For example I am already fully accrued for state pension at age 53 (not sure how but I think that kids got free years from 16 or something up to a certain date).  I concur with the above that it's highly unlikely the state pension would just be cancelled - worst case it would be wound down over several decades and even that is highly unlikely.