Retirement Planning Help

LittleGoose

I'm in the fortunate position of receiving a final salary pension from 63.  I also have sufficient savings in cash, ISAs and premium bonds. 

I'm currently 51 and wish to retire at 55.  I have been paying into a private pension to close the gap from 55 until my final salary pension kicks in at 63.

I stopped contributions into my private pension in July of this year as due to high inflation I will exceed the pension allowance in the current and at least the next tax year (even when using the three year carry forward) and I want to keep some headroom from the lifetime allowance to allow for investment growth.  

At 55, I expect my private pension to be worth around £300k.  It is currently invested with Scottish Widows in five funds from moderate to high risk.  

My question is what should I be doing between now and 55?  Should I transfer to just one pension fund to make drawdowns at 55 and onwards easier.  Please can you give examples of the types of funds I should be considering so that I can research these.  Also, how much should I draw down each year to remain tax efficient as my only income until 63 will be from my private pension?  

Thanks in advice for any advice.  I do intend to seek advice from an IFA but want to be prepared.

Simon11

We don't have the full picture but from what you have described, why not consider retiring earlier than 55 and enjoying life or taking on an easier job?

Linton

Are you sure you have enough in DC pensions and savings etc to easily cover the periods from 55 to 63 when you will have no other income, and from 63 to 67 before your State Pension starts, plus any extra you will needlong term in addition to the DB pension??

For the period from 55 to 63 I think it would be prudent to have say 5 years expenditure in cash or perhaps very low risk investments by the time you reach 53.  This will avoid a crash upsetting your plans.  Generally having a 5 years (or more) cash buffer is a great reassurance during troubled times.

It would be sensible to at least use up your tax allowance by drawing down your DC pension from 55 until you cannot avoid becoming a tax payer.  You can always put the money into an S&S ISA if you dont want to spend it. Any chance you could be a higher rate tax payer in retirement?

You have not mentioned a spouse.  Clearly if you have one you need to ensure their tax allowance iand pension opportunities are fully used.

How your structure your investments for the long term from the time your retire is another major subject which deserves a thread on its own.

Marcon

LittleGoose said:

I'm in the fortunate position of receiving a final salary pension from 63.  I also have sufficient savings in cash, ISAs and premium bonds. 

I'm currently 51 and wish to retire at 55.  I have been paying into a private pension to close the gap from 55 until my final salary pension kicks in at 63.

I stopped contributions into my private pension in July of this year as due to high inflation I will exceed the pension allowance in the current and at least the next tax year (even when using the three year carry forward) and I want to keep some headroom from the lifetime allowance to allow for investment growth.  

At 55, I expect my private pension to be worth around £300k.  It is currently invested with Scottish Widows in five funds from moderate to high risk.  

My question is what should I be doing between now and 55?  Should I transfer to just one pension fund to make drawdowns at 55 and onwards easier.  Please can you give examples of the types of funds I should be considering so that I can research these.  

Without knowing how much your DB pension will pay when you reach 63, what non-pension savings you have, your attitude to risk, how much income you need in retirement to maintain the standard of living you would like etc etc, it's impossible to give any well-informed suggestions because so much basic information is missing. All of these will have a direct bearing on what you should be doing/the type of funds to research - otherwise any answer is just going to be vague generalisations (or personal hobby horses!).

LittleGoose said:

Also, how much should I draw down each year to remain tax efficient as my only income until 63 will be from my private pension?  

Thanks in advice for any advice.  I do intend to seek advice from an IFA but want to be prepared.

Depends what you mean by 'tax efficient'. Ensuring you use up your personal allowance for the year is certainly a good starting point, but I wonder if you had anything else in mind as well?

Albermarle

My question is what should I be doing between now and 55?  Should I transfer to just one pension fund to make drawdowns at 55 and onwards easier.

There is no practical/admin reason why you can not draw down from five funds in a pension.

If you had pensions with five different providers, it can make things simpler to reduce the number in drawdown, but that does not apply here.

Marcon

Albermarle said:

My question is what should I be doing between now and 55?  Should I transfer to just one pension fund to make drawdowns at 55 and onwards easier.

There is no practical/admin reason why you can not draw down from five funds in a pension.

If you had pensions with five different providers, it can make things simpler to reduce the number in drawdown, but that does not apply here.

...but you might get five lots of charges, depending on the fee structures of your different providers.

LittleGoose

Thanks for the comments so far.  To provide further information, my DB should pay around £1,500 net per month from 63 and I will be entitled to a full state pension at 67 or 68.  My DB would also pay a cash lump sum of around £80k I believe at 63. My cash and ISAs should also provide enough cover for any additional cash needs post 63.  On retirement at 55, I should also receive a redundancy payment of c.£80k net.  

I feel comfortable that post 63 I will have more than sufficient income for my needs as I live a fairly modest life style.  I am married and my husband has similar investments (DB, DC, ISAs and premium bonds).  We are mortgage free and have no loans or credit.  My ISA risk has been fairly high (Vanguard lifestyle 80%) and I continue to invest in this fund each month but I'm thinking I should de-risk my DC pension as I near 55.

I'm just not sure how to use my DC pot from 55 to 63 to allow myself to retire early.  It could be as simple as dividing my £300k pot by 8 years, giving a draw down of roughly £37,500 gross per annum.  I then come back to the question as to what fund I should transfer this to for drawdown.  I had thought one pot would be better than five to reduce drawdown costs.

El_Torro

£300k over 8 years (£37.5k per year as you say) should give you about £2,700 per month after tax. If you only need £1,500 per month then it looks like you'll be OK. You'll want to think carefully about how your pension is invested (you may even want to keep it all / almost all of it in cash) to avoid a stock market crash scuppering your plans. 

You will want to look at which platform would be best suited to this, so that you can avoid excessive charges. I'm very far away from drawing anything down from my pension so can't give tips on this. For platforms without dealing charges it probably doesn't matter how many funds you have, just makes it more complicated when selling units every month / year.

Qyburn

LittleGoose said:

On retirement at 55, I should also receive a redundancy payment of c.£80k net. 

Out of interest is that a permanent voluntary redundancy scheme?  It seems a bit strange, most organisations want to retain staff not give them an incentive to leave. Are there any strings attached?  I presume this is public sector. Incidentally if that's really a redundancy payment, it shouldn't be taxed.

sheslookinhot

Qyburn said:

LittleGoose said:

On retirement at 55, I should also receive a redundancy payment of c.£80k net. 

Out of interest is that a permanent voluntary redundancy scheme?  It seems a bit strange, most organisations want to retain staff not give them an incentive to leave. Are there any strings attached?  I presume this is public sector. Incidentally if that's really a redundancy payment, it shouldn't be taxed.

Only first 30k of a redundancy payment is not taxed.

Albermarle

For platforms without dealing charges it probably doesn't matter how many funds you have, just makes it more complicated when selling units every month / year.

As it is a Scottish Widows pension ( as opposed to a SIPP) then this is very likely to be the case i.e no dealing charges or extra costs for holding multiple funds. Maybe they will even sell the funds themselves in some kind of prescribed order?