'Retirement' at 55 - then 2nd career

Wonka_2

Good morning all

I realise I'm in a good position compared to many but in the MSE spirit I'm still looking to be efficient.

After a 34yr career with same company I'm looking to retire at 55 (2yrs time) and am starting to put in plans for another 5yrs of working in a completely different area.

My current projection will give me a lump sum close to 3yrs gross salary and then an annual pension which will already push me into higher tax rate.

In an ideal world I'd be happy to take the lump sum and defer the annual payments to the future but this isn't an option.

Before I start to engage a financial advisor what (safe) options are there likely to be to invest the annual pension income in a tax efficient way to ensure my (significantly lower) new salary is not all subject to higher rate tax ? Or at this early stage am I living in cloud cuckoo land ?

El_Torro

Why do you need to access the pension at all? Is it because your pension is DB and those are the rules? Or because you need the lump sum to live on? Or some other reason? 

Assuming you do need to access your current pension at 55 you can continue to pay into another pension, as long as you have enough income. Also you are limited to paying in £10k per year into a pension, regardless of how much your income is. 

You can also put some of your lump sum into a Stocks & Shares ISA, £20k per year. This won't stop your income from being taxed but it will mean you don't pay tax on the growth in the ISA. 

Albermarle

Assuming you do need to access your current pension at 55 you can continue to pay into another pension, as long as you have enough income. Also you are limited to paying in £10k per year into a pension, regardless of how much your income is. 

If the pension being taken is a DB pension ( and it sounds like it is ) then taking it does not trigger the MPAA limit of £10K.

The amount of pension contributions going forward may be subject to recycling rules. OP there are some rules to stop people recycling a tax free lump sum back into a pension again, to effectively get a double bite of tax relief. the rules of what you are and are not allowed to do are quite complicated.

Recycling of tax-free cash - Royal London for advisers

You can also search the forum for threads on the subject.

Marcon

Wonka_2 said:

Good morning all

I realise I'm in a good position compared to many but in the MSE spirit I'm still looking to be efficient.

After a 34yr career with same company I'm looking to retire at 55 (2yrs time) and am starting to put in plans for another 5yrs of working in a completely different area.

My current projection will give me a lump sum close to 3yrs gross salary and then an annual pension which will already push me into higher tax rate.

In an ideal world I'd be happy to take the lump sum and defer the annual payments to the future but this isn't an option.

Before I start to engage a financial advisor what (safe) options are there likely to be to invest the annual pension income in a tax efficient way to ensure my (significantly lower) new salary is not all subject to higher rate tax ? Or at this early stage am I living in cloud cuckoo land ?

Easy way is surely to put off drawing your pension if you can afford to live on your lower salary...?

I wonder if the driver for taking your pension at 55 is that you'll get a better early retirement reduction factor if you draw your pension at the same time as you leave active membership of that scheme? Even if you do, the tax position might mean putting it off would still be to your advantage - and of course the reduction factor would be lower because you're that much closer to the scheme's normal retirement age.

Wonka_2

@El_Torro @Marcon yes it's a DB scheme. The initial reason for leaving/drawing at that time is that if I want to be classed as a company 'pensioner' rather than 'leaver' I need to to draw the pension - as opposed to leaving/deferring. I now need to do some calculations on the benefit of being a 'pensioner' (some shares/continued private medical benefit/other local benefits) vs being defined as a 'leaver'

As I've paid in since 18 (inc a couple of non-contributory years in the '90's due to scheme surplus and continued AVC's) my normal age is 60 and optimum is currently between 57/58 so I'm not far from that but concerned waiting till then starts to reduce future work opportunities - at least in areas I'd like to look at

Given length of tenure you can probably see I'm fairly risk-averse lol