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  • Grumpy_chap
    Grumpy_chap Posts: 15,161 Forumite
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    Brie said:
    What I'm talking about is something else.  If the pension could be put into payment without taking the tax free lump and then that pension income be used to clear the debt while they are still working and earning.  
    As the OP mentioned, this would suffer higher rate income tax.

    Plus, AIUI, there would be restrictions on future pension contributions that the OP can then make if commenced draw-down other than the lump sums.
  • zAndy1
    zAndy1 Posts: 244 Forumite
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    Brie said:
    What I'm talking about is something else.  If the pension could be put into payment without taking the tax free lump and then that pension income be used to clear the debt while they are still working and earning.  
    As the OP mentioned, this would suffer higher rate income tax.

    Plus, AIUI, there would be restrictions on future pension contributions that the OP can then make if commenced draw-down other than the lump sums.
    Yes, although I'm currently in a triggered MPAA status due to British Steel paying me a one off compensation payment and by doing so apparently triggering the MPAA which I am absolutely livid about and trying to get reversed now. I didn't receive the letter explaining this would happen (or if I did it wasn't very obvious) and the 2 letters I received recently didn't give any warning I was just told it had been triggered when I received the payment. £175 payment has triggered MPAA , it's ridiculous to be honest as if that stands it's going to have a massive impact on my future pension contributions
  • TheAble
    TheAble Posts: 1,610 Forumite
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    edited 29 October 2022 at 6:22PM
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    How are you breaking down that £45k/year in retirement? I can't see you getting more than a few k a year from the DC pension you have mentioned (lump sum or not) so are there some other sources?
  • ader42
    ader42 Posts: 295 Forumite
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    Everyone seems to think that you will take the 25% TFLS, pay off the debts and then starting building up new credit card debts. They may be right, your history does indicate this as a strong possibility as you seem to have always mismanaged your finances. For example you should never have been on an interest only mortgage!

    In addition, people here seem to be adamant that you will have a long retirement, only you know the true chance of that. I have a friend whose parents both died from medical conditions around 50 years old, he assumed he would die early too, he got to 58 and was diagnosed with terminal cancer and has only months left.

    Therefore I can see value in wanting a better quality of life whilst you are relatively young and able to enjoy holidays etc. Personally I would rather have a wonderful life from age 55 to age 67 and a very reduced lifestyle from 75 onwards than deprive myself in my 50s. We all have our own choices and values to weigh up.

    I do think a £45k retirement income which you are line for without any further pension contributions and after any TFLS has been taken - with the house paid off and no debts will be a very good outcome - and by paying off your debts now this will effectively reset your lifestyle to this level in preparation for retirement. So in that sense your retirement is actually sorted - not many people can hope to retire on £45k debt free.

    The key thing from my perspective would be for you to cut up the credit cards now, pay them off one by one as fast as possible. And then get yourself a repayment mortgage that will mean you pay the house off entirely as soon as you can. And never get a new credit card or loan or finance agreement of any sort. 

    For example  - if this means taking out a 5 year mortgage and paying £3,000 a month then that is one option. If you are committed to the bank to £3k a month going out the day you get paid you won’t have it to spend/waste on things you don’t need.

    If you do take the 25% TFLS to pay off the credit cards sooner, that should only mean it allows you to take out the repayment mortgage sooner - it does not allow you to get a new car on PCP or another credit card. 

    I guess what I am saying is that taking 25% TFLS and using it to pay off high interest debts is not necessarily the worst thing if you can trust yourself to avoid future debt. The way to prove it to yourself if you need to would be to stick to paying off the credit card debts without taking the TFLS for a year first - this should halve the credit card debt and you will probably then think “I can do this again for another year” and then reward myself with a modest new car or the holiday of a lifetime with the TFLS instead.

    On no account take more than the 25% TFLS from your pension as this will reduce your possible future pension contributions.

    An even better option (mathematically) to paying the house off in 5 years (after paying the credit cards off) may be to pay it off (repayment mortgage) over 10 years and increase your pension contributions by £1.5k a month to get maximum tax relief and an even bigger pension.

    If you can avoid taking the TFLS in the short term then the TFLS you get will be higher the longer you leave it, so £34k now or maybe £68k later if you get a 7% return over 10 years?  It might mean being able to retire a few years early?

    When it comes to buying things you need to get into the mindset that if something is £100 now then that is £300+ I am giving up in the future. People that can defer gratification tend to do better in life - and don’t tend to get into debt. I could buy a £20k car now cash or have £60k in cash in X years time… just an example.

    You mentioned you had a pension that starts to pay out from age 60, I would defer this if it meant paying 40% income tax on it - sounds like you won’t need it if you are still working then.

  • Voyager2002
    Voyager2002 Posts: 15,373 Forumite
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    No-one has mentioned the possibility of increasing the mortgage or some other additional borrowing secured on the house. The downside of this is obvious, but the interest rates would be significantly lower than those for the credit cards once the promotional period is over. And of course the total cost of raiding the pension at this stage would be horrendous (although again probably less than the credit card interest).

    I am afraid that the numbers in the SOA indicate an impending emergency. Nice aspects of life such as your wife being able to play percussion in concerts, or you being able to drive to help out your daughter, are things that any rational person would sacrifice in order to avert the looming catastrophe.
  • zAndy1
    zAndy1 Posts: 244 Forumite
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    TheAble said:
    How are you breaking down that £45k/year in retirement? I can't see you getting more than a few k a year from the DC pension you have mentioned (lump sum or not) so are there some other sources?
    £18k state pension (will hopefully be more by then), approx £7k from my DC pension , approx £7k from my DB pension, approx £15k from wife's teachers / local government pensions
  • Grumpy_chap
    Grumpy_chap Posts: 15,161 Forumite
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    ader42 said:

    I do think a £45k retirement income which you are line for without any further pension contributions and after any TFLS has been taken 

    Based upon the figures presented in the other thread, the £45k per year joint pension income is the best case optimistic pension from the current fund.  If the 25% TFLS is taken now, the fund will be smaller and the £45k figure lower.  It is not £45k in the future after the 25% TFLS is taken today.  The same money cannot be spent twice.
  • ader42
    ader42 Posts: 295 Forumite
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    ader42 said:

    I do think a £45k retirement income which you are line for without any further pension contributions and after any TFLS has been taken 

    Based upon the figures presented in the other thread, the £45k per year joint pension income is the best case optimistic pension from the current fund.  If the 25% TFLS is taken now, the fund will be smaller and the £45k figure lower.  It is not £45k in the future after the 25% TFLS is taken today.  The same money cannot be spent twice.
    Nope. He is not planning on retiring right now.

    The planned TFLS from the DC is only a very small part of his pension planning, but it will probably cost him £2,500 a year for the rest of his life and mathematically he would likely be better off keeping it invested as the £30k now is effectively £60k in 10 years time. 

    However, the 25% TFLS from his DC pot only amounts to about 5% of his pension planning (excluding State Pensions!).

    £130k in DC pension pot - aiming to take £30k TFLS leaving £100k. He can quite reasonably expect that £100k to grow to £200k in less than 10 years (7% return) or more (average S&P500 return being 9.4% annually). £200k would support £8k a year on the 4% basis. I think the 4% basis is easily valid given all the other pensions:

    The DB pension will pay £7k per annum from age 60 - he could increase that by deferring to his normal SPA.

    2x State Pensions will provide £19k per annum (most likely higher in 10 years time).

    £15k per annum from wife’s pensions - not sure on the age for taking these perhaps they can be deferred too.

    total = £49k after the TFLS has been taken.

    Even if he only had £40k pension income (i.e. no DC pot) and still had a mortgage he would be classed as having a luxurious retirement:

    https://www.which.co.uk/news/article/the-secret-to-a-happy-retirement-26000-per-year-which-research-reveals-aY2C19C7fhGg

    Personally I think the Which article skews things to the extreme as I think if me and my other half have a retirement income of £24k with no debts it will be luxurious. 

    OP needs to get rid of all credit cards, loans and finance agreements and never take any more out and can then live like a king imho. Can he be trusted to never get credit again is the big question. 

  • Grumpy_chap
    Grumpy_chap Posts: 15,161 Forumite
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    ader42 said:
    Nope. He is not planning on retiring right now.

    The planned TFLS from the DC is only a very small part of his pension planning, but it will probably cost him £2,500 a year for the rest of his life and mathematically he would likely be better off keeping it invested as the £30k now is effectively £60k in 10 years time. 

    However, the 25% TFLS from his DC pot only amounts to about 5% of his pension planning (excluding State Pensions!).

    £130k in DC pension pot - aiming to take £30k TFLS leaving £100k. He can quite reasonably expect that £100k to grow to £200k in less than 10 years (7% return) or more (average S&P500 return being 9.4% annually). £200k would support £8k a year on the 4% basis. I think the 4% basis is easily valid given all the other pensions:

    The DB pension will pay £7k per annum from age 60 - he could increase that by deferring to his normal SPA.

    2x State Pensions will provide £19k per annum (most likely higher in 10 years time).

    £15k per annum from wife’s pensions - not sure on the age for taking these perhaps they can be deferred too.

    total = £49k after the TFLS has been taken.

    Everything else in this and the other threads was presented in the context of "today's value of money", so the £45k is £45k.
    The £49k you mention is an odd mix of "today's value of money" and "10-year future value of money".
    As for growth given the dip that funds are in presently, one would reasonably hope for rapid recovery to pre-dip and then to resume the growth path. That is a big reason why TFLS now is a particularly poorly-timed outcome.
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