Opinions on pension planning

Aylesbury_Duck

Over the Christmas break I did my annual check of our pension provision, and I’d welcome people’s thoughts on our initial thinking.  I appreciate no one can give investment advice.

I'm 52 years old this year (edited), salary c.£100k but likely to drop to £70k later this year.

Two deferred DC schemes with £317k aggregate value plus a small SIPP of £9k

DB scheme (deferred) which will pay £3k p.a. from aged 65

LGPS currently set to pay £11k p.a. from 67 and growing by about £2k p.a. 

LGPS-linked AVC £144k – adding £2k p.m. to this at the moment.

I'm maximising my pension allowance at the moment, have no unused allowance from previous years.  I'm on target for the full state pension at 67.

 

My wife turns 52 years old this year (edited).  Part-time salary of £30k.

SIPP £67k

DB scheme which will pay £2k p.a. from aged 60 plus a cash sum of £6k

LGPS currently set to pay £10k p.a. from 67 and growing by about £600 p.a.

LGPS-linked AVC £62k – adding £1k p.m. to this at the moment.

On target for the full state pension at 67.

 

We own our house outright, have no debts and have savings and investments of £380k, the vast majority in S&S and cash ISAs.  We’re not big spenders and don’t have grand plans for retirement but will want to help our son and daughter (both in their 20s) onto the housing ladder at some point in the next few years.  I anticipate a joint net retirement income requirement of about £50k p.a. in today’s prices.

Current thinking is that from 67 we’re sorted.  State pension plus LGPS plus 100% TFLS from the AVCs (using any excess to top up the LGPS) will give us more than enough income.  We could of course take the LGPS and AVC TFLSs earlier and have less annual income.

We are contemplating early retirement from 57 (we're just of the age where we can't access our private pensions sooner) and using savings and TFLSs and drawdown from our DC pensions plus the £5k income from the two DB schemes to bridge the gap.

Does that sound viable and sensible?  Is there any problem with what is a large imbalance in the size of our respective pension pots/plans?  I presume I’ll have to manage my drawdown carefully if I want to keep out of paying HRT, but recognise that’s a nice problem to have.

Is there any sense in moving some of our savings into my wife’s SIPP, or is that simply going to be tax-neutral and therefore not worth locking it away for five years?

incus432

Aylesbury_Duck said:

Is there any sense in moving some of our savings into my wife’s SIPP, or is that simply going to be tax-neutral and therefore not worth locking it away for five years?

It's better than tax neutral surely as you have the ability to take 25% TFC later.  This mirrors what I have been doing - adding to my wife's SIPP over some years from my surplus pension and savings (I am older). Now at 58 she has just taken the TFC and converted the rest into a fixed term annuity to bridge her to SPA at 67. Means that she doesn't feel obliged to continue working at the same level if she doesn't want to.  

Aylesbury_Duck

incus432 said:

Aylesbury_Duck said:

Is there any sense in moving some of our savings into my wife’s SIPP, or is that simply going to be tax-neutral and therefore not worth locking it away for five years?

It's better than tax neutral surely as you have the ability to take 25% TFC later.  This mirrors what I have been doing - adding to my wife's SIPP over some years from my surplus pension and savings (I am older). Now at 58 she has just taken the TFC and converted the rest into a fixed term annuity to bridge her to SPA at 67. Means that she doesn't feel obliged to continue working at the same level if she doesn't want to.  

Thank you.  Sometimes you need someone to point out something you've missed yourself!   I will look into investing some of our monthly disposable income into my wife's SIPP instead of adding it all to our ISAs.

AlanP_2

I can't see why you are waiting until 57 if the financial aspects are the main criteria.

Assuming you can access your DC pensions & SIPPs from 55 it looks to me that you have more than enough to generate £50k net between you. Putting all the pots / access dates etc.in a spreadsheet against planned withdrawals would evidence that and would be a sensible double check.

Sarahspangles

There is a niche scenario, which has affected us, which may be worth looking out for. A TFLS or PCLS may generate significant interest which exceeds the nil rate band for savings, incurring tax at 20% or 40%. Sadly - and this clearly can’t be planned for - inherited cash may be received at the same time.

If one partner is still working, some may be contributed to a SIPP, and there may also be headroom in ISAs and Premium Bonds.

If a retired partner can limit their DC pension income to the personal allowance, they can then use the starter savings band to pay no tax using the additional £5k personal savings allowance. We will be using this tactic for a couple of years as it saves an additional £1k tax each year.

Aylesbury_Duck

AlanP_2 said:

I can't see why you are waiting until 57 if the financial aspects are the main criteria.

Assuming you can access your DC pensions & SIPPs from 55 it looks to me that you have more than enough to generate £50k net between you. Putting all the pots / access dates etc.in a spreadsheet against planned withdrawals would evidence that and would be a sensible double check.

Thank you. My original post was a little misleading (which I'll correct).  I meant to say that we both turn 52 this year.  Our birthdays are after April 5th so I think I'm correct in saying we will be among the first people unable to access our private pensions until we're 57.  That's why I planned to that date.

I'm working on a spreadsheet now, thank you.  As you say, I think there's enough there already, even if we just financially tread water for a few years now, so early retirement seems viable using savings to bridge any gap before 57.  We're not desperate to stop working but equally, we see little point in accumulating more wealth we're unlikely to need and there are voluntary things we'd like to do in due course.  We are fortunate that our children are financially independent and once we've helped them onto the property ladder, we can pass any of our inheritance from our parents straight to them, so they should be well set up.

DRS1

I know nothing about the LGPS which I assume you belong to at the moment but if your salary is going to drop from £100k to £70K will that impact the LGPS benefits?  ie they may not be as high as currently projected?

Aylesbury_Duck

DRS1 said:

I know nothing about the LGPS which I assume you belong to at the moment but if your salary is going to drop from £100k to £70K will that impact the LGPS benefits?  ie they may not be as high as currently projected?

Thanks for commenting.   I'm on the CARE (Career Average Revalued Earnings) scheme with no final salary element.  As I understand it, to date I've built a pension entitlement of £11k and it's growing by about £2k p.a. (plus any cost of living adjustment).  If my salary halved, it would only grow by £1k p.a.  The entitlement I've built to date is secure, it just wouldn't go on increasing at the same rate if my salary dropped.

AlanP_2

Aylesbury_Duck said:

AlanP_2 said:

I can't see why you are waiting until 57 if the financial aspects are the main criteria.

Assuming you can access your DC pensions & SIPPs from 55 it looks to me that you have more than enough to generate £50k net between you. Putting all the pots / access dates etc.in a spreadsheet against planned withdrawals would evidence that and would be a sensible double check.

Thank you. My original post was a little misleading (which I'll correct).  I meant to say that we both turn 52 this year.  Our birthdays are after April 5th so I think I'm correct in saying we will be among the first people unable to access our private pensions until we're 57.  That's why I planned to that date.

I'm working on a spreadsheet now, thank you.  As you say, I think there's enough there already, even if we just financially tread water for a few years now, so early retirement seems viable using savings to bridge any gap before 57.  We're not desperate to stop working but equally, we see little point in accumulating more wealth we're unlikely to need and there are voluntary things we'd like to do in due course.  We are fortunate that our children are financially independent and once we've helped them onto the property ladder, we can pass any of our inheritance from our parents straight to them, so they should be well set up.

Check with your DC pension providers as some schemes have a preserved 55 age and some don't.

Not totally clear on why but related to the exact wording in the trust document along the lines of whether a fixed age is specified or if is relative to state pension age.

crv1963

Your CARE scheme once you leave employment does the assured income grow at a lower rate than whilst in employment? NHS give 1.5% plus inflation whilst employed but if you leave the scheme the increase is simply the rate of inflation.

If both enjoying work is there the opportunity to ease into retirement over a period of years? As in go part time for several years and build up interests/ activities that appeal once retired? It is important to know what you are retiring to. I have retired and returned as has my wife and many of my colleagues, quite a few are part time only 2-3 days a week.

Aylesbury_Duck

crv1963 said:

Your CARE scheme once you leave employment does the assured income grow at a lower rate than whilst in employment? NHS give 1.5% plus inflation whilst employed but if you leave the scheme the increase is simply the rate of inflation.

If both enjoying work is there the opportunity to ease into retirement over a period of years? As in go part time for several years and build up interests/ activities that appeal once retired? It is important to know what you are retiring to. I have retired and returned as has my wife and many of my colleagues, quite a few are part time only 2-3 days a week.

I don’t believe so, no. I can’t see anything in the scheme terms that says that’s that case.

Yes, easing into retirement may be a good middle ground.  You’re right that it’s important to know what we’re going to do and to be honest, we haven’t fully thought that through yet.  There are some causes we want to volunteer for but that would only be part time or casual.