Should I start a pension?

Possiblyretired

Can anyone help me figure out what to do? I feel a bit out if my depth and although I'm planning on booking in with a local IFA to see what they might suggest, I thought I'd try to learn a bit first.

Through a combination of savings and business sale, my husband (64) & I (54) find ourselves mortgage free, a commercial property with a yearly rental income of £9000 and £700000 currently sitting in a 4.8% savings account. I imagine we shall sell the commercial property for approx £120000 within the next ten years or so.

Husband state pension has 35 paid years and mine has 24 paid years. We have no private pensions and know nothing about pensions.

Neither of us are looking to start another business and currently both happy not working. We have no family or dependents and are quite happy to run our savings down. We currently spend approx £35000 a year and would like to continue doing so. I've run the figures through a few calculators and it seems to me that we can stop working and maintain current spending with inflation. Of course I might be using the wrong calculators.

Should we open some kind of pension scheme, or isa or something? Or do nothing? My worries center around interest rates falling on our savings and not maximising available tax advantages.

Any advice much appreciated. 

Dazed_and_C0nfused

With such little non savings non dividend income you could both get £720/year in relief at source pension tax relief by opening a personal pension or SIPP and contributing £2,880.

Also, you are both under transitional rules for the new State Pension so having 35 years isn't relevant.  You need to actually check your forecasts (in full) on gov.uk to understand what you might need to do to achieve the standard £203.85/week.

dunstonh

Should I start a pension?

It may have been a better idea to look at this before you sold the business.   The tax advantages would have been better in many cases.  Especially if it was a limited company.  You could have been looking at tens of thousands of pounds of tax saved.   You don't have a tardis but if the transactions haven't finalised yet (of if it was sole trader/partnership) then there may still be some scope here to get some tax efficiency out of it.

Husband state pension has 35 paid years and mine has 24 paid years. 

Forget number of years.  That doesn't mean anything unless you are a teenager currently.

I've run the figures through a few calculators and it seems to me that we can stop working and maintain current spending with inflation. Of course I might be using the wrong calculators.

That is a good observation as online calculators are usually basic and can use assumptions that are unrealistic or unsuitable.  They often use averaging for things like inflation and returns (if they include inflation at all) and that can lead to a false sense of security.      Knowing what the assumptions are and whether they are suitable or not is important.

Should we open some kind of pension scheme, or isa or something?

Almost certainly yes.

My worries center around interest rates falling on our savings and not maximising available tax advantages.

Cash is never a good way to provide a long term income.  It will have its moments for an odd year or two but it can actually be higher risk to use cash for income than a sensible spread of investments.

xylophone

Have you both obtained State Pension Forecasts?

https://www.gov.uk/check-state-pension

What exactly do they show at estimate to 5/4/23?

Do either of you have  any "relevant earnings" for the current tax year?

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100

Assuming that the £700,000 is in a joint account and the interest rate did not change, you would each be required to advise HMRC of

 your income via Self Assessment (you may already be in SA).

https://www.gov.uk/apply-tax-free-interest-on-savings

Your IFA will advise but you may wish to consider an annuity with part of your capital.

Below might help with finding IFA.

https://adviserbook.co.uk/

Tick "confirmed independent" and other options required when the menu comes up.

Possiblyretired

Thank you all.

So we can each open a personal pension or SIPP and contribute £2,880 to get £720/year in relief. That's where we shall start.

I did check the forecasts in full and husband will receive £175 and I will receive £135. To be honest I have little faith in the system being in place for myself so was kind of discounting mine.

The business was a partnership. We do SA. No earnings apart from interest for the current tax year.

The figures I used for the calculations were 700000 getting 4.5% over 25 years with a monthly withdrawal of £2500 and an annual withdrawal inflation rate of 4%. It left an approx pot of £48000.
Of course I'm kind of driving myself mad with the calculations ( who knew 1% could have such an impact!) because it feels like complete guesswork. If I could somehow make it less guesswork I'd be happier.

squirrelpie

As well as starting pensions, you should each be putting £20,000 a year into ISAs to reduce tax. I would choose stocks and shares in preference to cash, but the choice is yours.

As neither of you have full state pensions you should both be voluntarily making NI payments to increase your entitlement. Look at whether you have any incomplete past years, and/or simply contribute going forward.

Possiblyretired

So -
Open a personal pension or SIPP and contribute £2,880 to get £720/year in relief.
Each put £20,000 a year into ISAs.
Voluntarily make NI payments.
Figure out what a sensible spread of investments means is the bit I will struggle with. My current thinking is that if we put aside two years of income in a separate account I will have a better chance of sleeping at night.

af1963

If you need £35K a year, two *full* state pensions would get you to about £21K of that, inflation protected.  You're both a bit below the full state pension (currently about £16K total)  but can increase your entitlement by over £5/week each ( about £300/year for life) for each "missing" year or future year that you can buy (for about £900), up to retirement age.  Buying these years is usually a pretty good deal.  Buying all your missing/future years would cost (at most ) a one off £16000 and would "buy" £5k per year for life.

 (Even better if you're entitled to make Class 2 contributions which are much cheaper) 

eastcorkram

Just curious. If you're currently spending £35,000 a year, and not working, where does that come from? 

Possiblyretired

I understand this bit - 
You can increase your entitlement by over £5/week each ( about £300/year for life) for each "missing" year or future year that you can buy (for about £900), up to retirement age. 

But not this bit - 
Buying all your missing/future years would cost (at most ) a one off £16000 and would "buy" £5k per year for life

How can both be correct?

Possiblyretired

eastcorkram said:

Just curious. If you're currently spending £35,000 a year, and not working, where does that come from? 

The £35000 figure is another one of my guesswork figures but based on very real average historical spending. I tend to over estimate spending to be on the safe side.
We sold the business last June and had 32000 in a current account, now about 20000. There is some interest earned in that account but quite low rate.