Is retiring at 55 doable with this plan?

hildosaver

NoMore said:

Usually the reduction is actuarially neutral so that’s not a problem but even if you don’t want to do that you could still save into a sipp or other pension and get the tax efficiency and take it at 57. You really are paying a lot more tax than you have to because of your fixation on isa. 

Would you suggest I increase my monthly contribution to my NHS pension or would I be better off opening a new SIPP and pay the excess into that instead?

NoMore

hildosaver said:

NoMore said:

Usually the reduction is actuarially neutral so that’s not a problem but even if you don’t want to do that you could still save into a sipp or other pension and get the tax efficiency and take it at 57. You really are paying a lot more tax than you have to because of your fixation on isa. 

Would you suggest I increase my monthly contribution to my NHS pension or would I be better off opening a new SIPP and pay the excess into that instead?

I’m no expert on the nhs pension so can’t really say but  increasing pension over isa in some way is likely going to be the best option. 

hildosaver

JayRitchie said:

hildosaver said:

JayRitchie said:

hildosaver said:

JayRitchie said:

Why so much into ISAs rather than the NHS AVC scheme or a SIPP? Did you have any pensions before joining the NHS scheme?

I do have a pension prior to NHS scheme and it currently is estimating an annuity of around £4500 per year which I can access at 65. I am focusing now on building funds to enable me to bridge from retirement at 55 till I can access pension/state pension. Although I acknowledge that it may make sense to pay more into my pension or a SIPP, that won't help me in the years I'll need the income between 55 and 68 and that is what I'm trying to plan for. 

Is the £4,500 a year in a DB scheme or DC? It sounds like a DB scheme but its good to check.

I think you may have a slight misunderstanding about accessing private pension scheme money - at present you can draw from pensions at 57 (based on your age) - so could use that money between 57 and 68.

It's also in a DB scheme. No I know I can access the pensions at 57 but the annuity at that point would be reduced by around 60% - I'll do some sums and see about accessing it earlier but I would want to keep most of it - I think the earliest I'd be willing to access it would be 60-62 depending on the calculations - I'm going to have a 1:1 pension meeting next month so I should have a better idea of how much I would have at each age and can decide from there.

I think others have cleared up the benefits of putting money into an AVC scheme or SIPP above an ISA.

I think there are some things to consider which would require a little more background:

- does the rental income go through your tax return or your wife's or a split between the two? Which of you pays tax on rental 3 (being the one you would retain into retirement?

- how old is your wife and would she retire at the same time as you?

- how much joint, post tax money would you look to spend each year between 55 and 68 in current prices on top of the rental income from the one remaining property? When you note £25-30k a year is that on top of the rental income?

- have you checked how many years you would each need for full state pension entitlement?

- does the rental income go through your tax return or your wife's or a split between the two? Which of you pays tax on rental 3 (being the one you would retain into retirement? Split between us - rental 3 is between us as well

- how old is your wife and would she retire at the same time as you? She is 46, 47 in June. I'd say she will likely keep working for a few years although possibly part-time.

- how much joint, post tax money would you look to spend each year between 55 and 68 in current prices on top of the rental income from the one remaining property? When you note £25-30k a year is that on top of the rental income? £25-£30k is target income which would include rental income. I'd say to cover bills and general day to day living it's currently around £14k but obviously with inflation that will increase over time.

- have you checked how many years you would each need for full state pension entitlement? Yes - I have currently 27 full years of national insurance paid (until 2023-24 tax year so by 55 I'll have 35 years in total and I can pay for an additional year (which I will do) before April just to be sure.

Yorkie1

Don't forget to consider whether you would wish to provide support to your child if they wanted to go to university, for example. If you're 48 and they're 3 now, then you'd be about 63 when they reach 18. 

You might decide that you wouldn't have the spare funds to support them, which of course is entirely your choice, but it might be worth pondering that before you make any final assessments about funds, cash flow and timing.

hildosaver

Thanks everybody for commenting - so I have done a little more research into the pension situation. From what I can see I can do two things right now.

1: I can pay extra into my pension to enable me to access my pension 2 years earlier than is currently possible (57 at present) - to do this I would contribute an additional 2.88% from my salary for the next 7 years till I am 55. This works out as £145 pm extra

2: I can pay extra into my pension with an annual maximum of £5000 which works out at £416 pm extra.

So for an additional £561 per month into my pension in theory I could access it at 55 (although this could change to 56 with further changes to SP age) and I'd be increasing my overall input into the DB pension by £35000 over the 7 years. What I need to find out now is how much that additional £35k would increase my annuity by.

I'll try to find that out this week.

Do you think this would be a smart move?

I could afford this and I'd likely reduce my planned savings by £500 pm but I would still intend to pay the maximum into an ISA every year.

dharm999

Do you split the profit from the rental properties equally between yourself and your wife, if so, have you looked at changing the split so that your wife gets more?  Something else to think about alongside the extra pension contributions, to reduce the amount of tax you pay between the two of you.

hildosaver

dharm999 said:

Do you split the profit from the rental properties equally between yourself and your wife, if so, have you looked at changing the split so that your wife gets more?  Something else to think about alongside the extra pension contributions, to reduce the amount of tax you pay between the two of you.

We do split them yes - currently 50/50. To be honest I hadn't realised I could split it more favorably towards my wife and if I can do that then this is definitely something I'll look into. Thanks.

QrizB

hildosaver said:

1: I can pay extra into my pension to enable me to access my pension 2 years earlier than is currently possible (57 at present) - to do this I would contribute an additional 2.88% from my salary for the next 7 years till I am 55.

I don't think that's possible?

Your earliest pension access age is 57, and (unless you've already got a pension with preserved rights to draw or earlier than that) it would take an Act of Parliament to change it?

hildosaver

QrizB said:

hildosaver said:

1: I can pay extra into my pension to enable me to access my pension 2 years earlier than is currently possible (57 at present) - to do this I would contribute an additional 2.88% from my salary for the next 7 years till I am 55.

I don't think that's possible?

Your earliest pension access age is 57, and (unless you've already got a pension with preserved rights to draw or earlier than that) it would take an Act of Parliament to change it?

Oh heck you are quite right  I just read it again and it says 'The agreement can be for early retirement 1, 2 or 3 years before your NPA but no earlier than age 65.' so that is no use to me - thanks for pointing that out!

I can however still pay £5000 per year extra into the pension and that is something I'll likely do.

QrizB

hildosaver said:

QrizB said:

hildosaver said:

1: I can pay extra into my pension to enable me to access my pension 2 years earlier than is currently possible (57 at present) - to do this I would contribute an additional 2.88% from my salary for the next 7 years till I am 55.

I don't think that's possible?

Your earliest pension access age is 57, and (unless you've already got a pension with preserved rights to draw or earlier than that) it would take an Act of Parliament to change it?

Oh heck you are quite right  I just read it again and it says 'The agreement can be for early retirement 1, 2 or 3 years before your NPA but no earlier than age 65.' so that is no use to me - thanks for pointing that out!
I can however still pay £5000 per year extra into the pension and that is something I'll likely do.

No worries, we all do that from time to time!

Re. the £5k a year, £35k at 57 would buy you something like £1350 a year as an RPI-linked annuity.

See example rates here:

https://www.hl.co.uk/retirement/annuities/best-buy-rates

HL aren't currently publishing prices for age 57 in that summary table but they'll be in-between ages 55 and 60.