Retirement plan check

green.lander_2

Reviewing my retirement plans again and before I pull the trigger, I would like you kind people to sanity check my thinking. 

 I will be 63 next year and would like to go part time at that point and work for another 12 months ending full time work on my 64th birthday. The plan ideally thereafter is to work in a small local “non stress” part time work says around £5k PA mainly to keep social. 

 I am forecasted to get a deferred DB sum of around £30k at 65, have a full state pension at around 67 and currently have a DC pot of around £400k. My wife works for the NHS part-time but have not included this in my thinking but she will hopefully get a full state pension as well and a small NHS. 

I do not have much saving (£30k) and only a couple of small loans (Kitchen and car mainly £20k). Ideally £40k net would be my aim in retirement, so here's my options when I am 64: -

Option 1 

Take DB scheme early (1 year early retirement penalty 3%) so around £29K and 25% tax free of my DC pot (£100k). Pay off the loans and provide a good cash buffer until I start taking a regular draw down of my DC pot.

Option 2

Take 25% tax free of my DC pot (£100k). Pay off the loans and provide a good cash buffer until I take my DB pension at 65 and start taking a regular draw down of my DC pot.

If you have any views would like to hear them. Thank you.

NedS

You certainly seem to have plenty of assets to work with.

Can we have some more details around the DB pension. What is the inflation protection? Is it uncapped, 5%, 2.5% or maybe something different. If it's gold plated (uncapped), I would avoid taking it early at all costs, and use your DC pot to cover until NRA (65) - so Option 2

In fact, I'm not sure I would wait until 64 to take the tax free lump sum from your DC pot. Why not crystallise enough now to take sufficient TFLS to clear your debts (or use your £30k savings)? What interest rate are you paying on those debts? Are you making more in your DC pension that the debts are costing you? If not, why wait another 1-2 years to clear them? You could use the money you are saving from not paying the debs to maximise current DC pension contributions until you finish work, effectively recycling some of that cash (within pension recycling rules).

green.lander_2

Thank you NedS it is capped at RPI of 3%  

Marcon

green.lander_2 said:

Thank you NedS it is capped at RPI of 3%  

Check whether a discretionary increase is awarded for 2023 - that should give you an idea of whether (a) the rules of the scheme allow it and (b) the company/trustee approach to discretionary increases at a time of high inflation. It's not a guide to future possible increases, not lease because the funding position of the scheme and the employer's profitability could vary, which would it turn impact on any such decision taking.

[Deleted User]

Option 2. Maximize no-risk, paid for life DB income.  Allows you to spend more safely because you don’t need to keep contingency to cover longevity risk. 

RPI capping is still a risk, in case long term inflation exceeds 3% but its small.

The plan looks great to me. 

billy2shots

Put down your phone/ computer.

Write resignation letter. 

Live what's left of your life. 

Linton

Deleted_User said:

Option 2. Maximize no-risk, paid for life DB income.  Allows you to spend more safely because you don’t need to keep contingency to cover longevity risk. 

RPI capping is still a risk, in case long term inflation exceeds 3% but its small.

The plan looks great to me. 

Is 3% capping such a low risk?  If capping is calculated on a separate year by year basis one year of 10% inflation will reduce your real income by 7% for the rest of your life even if the average is below 3%. Not having a DB pension I dont know how capping works.

NedS

Deleted_User said:

Option 2. Maximize no-risk, paid for life DB income.  Allows you to spend more safely because you don’t need to keep contingency to cover longevity risk. 

RPI capping is still a risk, in case long term inflation exceeds 3% but its small.

The plan looks great to me. 

Following on... is the DB pension currently deferred or are you still actively contributing to it in your current employment?
If it's a deferred DB pension, not taking it early may be beneficial whilst inflation is high (above the 3% cap), as in deferment the cap is not applied annually, but is rather applied as a compounded figure over the length of the deferment. In other words, if it's been deferred for a number of years, you are likely to still get an increase significantly above the 3% cap this year as the average RPI increases over the lifetime of the deferment are likely to have been less than 3%. Depending how inflation pans out over the next couple years, you may already have used up any slack by the time you hit 64, or you may still have some slack left in the system which would be beneficial if inflation remains above the 3% cap. Once the pension goes into payment, the 3% cap will apply annually (unless the trustees use their discretion to award an increase above the cap, as mentioned above).

Albermarle

With a DB pension of around £30K and a DC pot of £400K, you are approaching LIfetime Allowance territory.
I am not saying you have to change your plans because of this, (nice problem to have) but you should be aware of it. 

My wife works for the NHS part-time but have not included this in my thinking but she will hopefully get a full state pension as well and a small NHS. 

It is not logical to not look at financial retirement plans as a couple. Just one extra state pension can make a significant difference. Also you say hopefully she will get a full state pension. As she not checked ? It is easy and very worthwhile buying any missing NI years if possible/necessary. Check your State Pension forecast - GOV.UK (www.gov.uk)

billy2shots

You're 3 years from your DB pension starting. Until then,

3 years of drawdown from DC at £40k net will cost you =

£45,000 well just under (£12,570 personal allowance, 25% tax free then some income tax to pay. 

3 years of taking £45k will see your pot down to £265,000

You are now 65 years old. 

You now have your DB pension paying £35,000 so you need to top up back to that £45k to net you £40,000 (slightly different as my maths in my head is now saying you need to take £11k from you DC to net you £40k. 

£11k X 2 years takes your DC to £243,000

You are now 67 and get your £35k DB and £9,600 (?) State Pension. 

To get to your £40k net you need £2k from your DC pot. 

You can live this way for a further 121 years. 


I have factored in zero growth from DC pot, just keeping up with inflation. 

Your wife's wages, NHS pension, state pension and your possible £5k a year job have also not been placed as a cherry on top of your tasty cake. 

Left your savings alone. 

Your loan could be paid from those savings or take a slightly higher amount each year/month to pay it that way. 

Unless you want to live past 187 years old, congratulations you have won the game and my earlier comment stands. Retire tomorrow. 

barnstar2077

I would retire today and live off my DC pension until my DB kicked in.

Take up a few hobbies, spend time with friends and family etc.

Sounds like bliss, what are you waiting for?