Advice on pension and taxes

ST73

Hi I am looking for some advice please. 

I will have a teacher’s pension (part of which I intend to take at 55) and I am looking at the best way to financially plan my retirement. 

I have a second house which I intend to sell but currently will pay a lot of capital gains tax due to my salary. Would it help to wait until I take my pension,  therefore I would have a lower income and pay less tax. I have also thought about stopping work at 53/54 and selling it then and living off my savings until I am 55. 

I have no idea what to do and any advice would be appreciated. Thank-you

Simon11

You have kind of cracked it there and similar to my own plan for retirement.

I would suggest staying in teaching till the end of the summer term and use up your tax free limit for that financial year.

Then look to sell your second home in the following financial year from April to reduce tax on the sale.

Then in the following year, take the pension.

This is providing you have enough savings in the early part and also may be worth waiting before taking your pension in the long run!

ST73

That’s great thanks advice. I’m reading lots to try and find the best way but there are so many options. This website is great. 

Are you a teacher? I am also going to start looking into the additional voluntary contributions as they will increase with inflation whereas savings interest rates don’t.

Do you know if they are worthwhile? I haven’t started my research on this yet. 

El_Torro

I do not have a DB pension but from the little I know about them it makes sense to avoid taking them early, which involves a reduction in the amount they pay out. A private pension could help with this, or even Stocks & Shares ISAs. The problem with a private pension is that you are restricted on when you can access your money. 

It all depends on how old you are now, what savings / investments you have, how much more you can save between now and retirement, and when you plan to retire.

ST73

I’m 49 and as my mortgage will soon be paid off I am hoping to start saving quite a lot each month. It will be enough to see me through a couple of years without work. 

I don’t know anything about stocks and shares except there is a risk involved. Perhaps some more bedtime reading for me. 

Albermarle

I do not have a DB pension but from the little I know about them it makes sense to avoid taking them early, which involves a reduction in the amount they pay out

If you take a DB pension early, the annual pension reduces by a certain % for each year early you take it. However of course you get to take it for more years. Assuming an average lifespan it usually works out about the same. Although each DB scheme has different rules and % reduction, so needs to be checked. A reduction per year of 3.5 to 4.5% seems typical, the lower figure being better of course.

MX5huggy

I’d have to get out a spread sheet. To see how it compares, and need your numbers. 

But if you sold the house paid the CGT then paid the remainder in to a pension, either additional teacher pension  contributions or a SIPP getting 20% tax relief (or are you a higher rate tax payer?). Then you get 25% out of the SIPP tax free, stop work delay taking the teacher pension so you get the rest out paying little tax. 

If you’re saving for retirement you need to get your head round SIPP’s and Defined Contribution pensions, as a teacher you’ve not needed to because you are a member of a Defined Benefit scheme, but having both is the perfect combination for most. 

Look at some James Shack and PensionCraft videos on YouTube. 

ST73

So that sounds like an even better option? Think I need to process it though. I’m not a higher tax payer due to the personal tax relief but I’m only a few thousand out so when I sell my house a lot will be in the higher tax bracket. I think that’s how it works which I why I wondered if it is better to wait. Thanks for your advice, I’ll have a look at the videos.