Early Retirement Help

Sprinkles

I'd really appreciate a little advice. I work part time as a civil servant. I'd really like to retire at 60, I'm 58 now. Many colleagues are working on to full retirement age and think I'm foolish. But I've had enough. I don't have a lavish lifestyle, I have lots of hobbies and just don't want to work beyond 60. I'm just afraid that I won't manage. I'm constantly crunching numbers. When I take max lump sum + my savings I'll have £115,000 but will only have a pension of between £9,500 and £10,500 per year. I still have a mortgage but my contribution is only £200 per month. I do have a partner who works full time, but I don't want him to 'subsidise' me. Is there anyone who is in a similar situation or anywhere I can turn for advice. Thanks in advance.

Dazed_and_C0nfused

Sprinkles said:

I'd really appreciate a little advice. I work part time as a civil servant. I'd really like to retire at 60, I'm 58 now. Many colleagues are working on to full retirement age and think I'm foolish. But I've had enough. I don't have a lavish lifestyle, I have lots of hobbies and just don't want to work beyond 60. I'm just afraid that I won't manage. I'm constantly crunching numbers. When I take max lump sum + my savings I'll have £115,000 but will only have a pension of between £9,500 and £10,500 per year. I still have a mortgage but my contribution is only £200 per month. I do have a partner who works full time, but I don't want him to 'subsidise' me. Is there anyone who is in a similar situation or anywhere I can turn for advice. Thanks in advance.

Why so bothered about what other people think 🤔

And why take the maximum lump sum, especially at such a (relatively) young age?

Are you getting just £12 for each £1 of pension you give up?

If so remember the £12 is a one off payment. 

The £1 you lose is almost certainly inflation protected and would be payable for the rest of your life.  So that could be an incredibly expensive way to get the £12 now given you could be getting the pension for 40+ years.

Nebulous2

What is your 'number?'  Or how much money do you need a year? 

If you need £20k a year - retiring at 60 with a £10k pension, means you only need an additional £70k  (7 years x £10k) to see you through to pension age, and then with your state pension on top of your civil service pension will be enough. Then you have enough already. 

If however you need £35k a year, you will not only need to top up your pension until state pension age, but you will have a shortfall after that as well. 

I'd agree with the previous poster. I have a public sector pension scheme, and because of how it was set up I didn't have an automatic lump sum, and chose not to take one at all. I preferred to have the comfort blanket of a higher monthly payment index linked. I've had two decent rises in my pension in the last two years, and have no regrets at all about my choice. 

german_keeper

I would agree with comments above regards understanding your numbers and doing the calculations.

Just a couple of additional points that strike me.

Why don't you want your partner to "subsidise" you. Is it perhaps because you don't live together or haven't been together long. If it's not that then retirement, same as all other financial arrangements,  is a joint enterprise. A big chunk of my Classic pension lump sum ended up in my wife's DC pension. 25% tax relief added on the way in and no tax on the way out. Lovely jubbly!! If me and my wife hadn't approached it as a joint enterprise it would have cost us thousands.

And with regard to the lump sum, I have known a few people who have taken a maximum lump sum and have had good reasons for doing so. Unfortunately I have known rather more who's thought process didn't go any further than "it's tax free and I might get run over by a bus tomorrow".  

af1963

The lump sum - the full amount or a smaller lump sum - *might* be needed to help to get through to state pension age. Depends on how much the poster needs to cover annual spending from 60 to 67.

Also need to verify state pension entitlement and whether any further years of NI are needed for a full pension.

Sprinkles

Thank you both so much for your input. I was advised to take max lump sum because a) it's tax free and b) so many people, especially where I work, die early or seem to.  Excuse my ignorance, but Dazed and Confused I don't understand what you mean regarding the £12 to £1. If I'm honest, I know very little about pensions and find it all very confusing but totally appreciate your help.

Nebulous2

Sprinkles said:

Thank you both so much for your input. I was advised to take max lump sum because a) it's tax free and b) so many people, especially where I work, die early or seem to.  Excuse my ignorance, but Dazed and Confused I don't understand what you mean regarding the £12 to £1. If I'm honest, I know very little about pensions and find it all very confusing but totally appreciate your help.

Advised by who?

Public sector pension schemes have what is known as a commutation rate of 12:1. If you take £12000 in lumpsum you lose £1000 a year in pension. Slightly simplified, but if you are retiring at 60 you are losing out by the time you reach 72. Women of 60 will on average reach around 86. By that point you are considerably behind having taken the lump sum. 

There is a lot of erroneous information around public sector pension schemes. Often based on people not realising just how good the pension is. 

Generally advice would be to only take the lump sum if you really need it. 

Marcon

Sprinkles said:

Thank you both so much for your input. I was advised to take max lump sum because a) it's tax free and b) so many people, especially where I work, die early or seem to.  

That's not advice; it's ill-informed comment from people who aren't fully familiar with your financial situation. As for people 'dying early where you work' - that has absolutely no bearing on when you are going to die!

Sprinkles said:

Excuse my ignorance, but Dazed and Confused I don't understand what you mean regarding the £12 to £1. If I'm honest, I know very little about pensions and find it all very confusing but totally appreciate your help.

How much tax free cash do you get for each £1 of pension given up (a process known technically as 'commutation')? If you only get £12 in exchange for each £1 of pension permanently forgone, that's not a great deal. 

Catflap2

Do you know which Civil Service pension scheme you are in and how long have you been a member? 

The £12 and £1 refers to the ratio between pension and lump sum.  For every £1 of annual pension you give up you get £12 as a tax free lump sum. For example, you can have £5000 a year every from when you retire and this will continue to increase by inflation each year but you will have to pay income tax on any amount over your personal allowance or instead you could have £60000 tax free. You don’t have to take the max tax free lump sum, it maybe in your circumstance a smaller tax free amount and a slightly larger pension might work but you need to look at the numbers and work out exactly how much you need to live on every year

Gary1984

Are you able to tell us:
a)what your current level of savings are
b)what pension you would get if you don't take your lump sum?
c)what your lump sum commutation factor is as discussed above
d)your outstanding mortgage debt and when it should be paid off
e)how much money you want to have to live on in retirement (and whether it's before or after tax and includes or excluded your mortgage)
f) are you entitled to the full state pension?

If you can provide clear answers to these questions I think you'd get some good recommendations from the well informed people on this forum.