Critique my retirement plan

^opm^

Why I mentioned about getting an annuity at state pension age is this, at moment my pensions are in 5 different companies, my logic in past of not combining them has been , rightly or wrongly, that at least if one company goes bust, yes I know pensions are supposed to be ring fenced, but if one company does something naughty so to speak and I lost that pension at least I would still have others to fall back on.

Obviously as I get to drawing on these pensions it would be a lot less hassle if they are all in one pot. If I get older and still use drawdown I’m thinking if I get to say my 80’s etc might not be as clear in the head as when young I may struggle with this added paperwork/ administration etc so therefore in advancing years an annuity would be less hassle etc.

I realise it means paying more tax why I thought between now and state pension age to use my pension pot as much as possible.

In one way I just need clarification that I had enough money to retire at 55 in a few months and still live lifestyle I want. According to every simulation on various F.I.R.E sites I can do. Just I naturally worry that I can’t afford it when I will only be 55 and partner 50.

Sarahspangles

^opm^ said:

Lost me a bit tbh, she is part time and earns approx £1000 over the tax allowance so pays very little tax at mo. I salary sacrifice a good chunk of my wages so I only pay 20% tax ( I would still be paying 20% tax regardless though).

Say she has £13k relevant UK earnings, and ignore any pension workplace contribution. She can contribute £10,400 to a SIPP (could also be a personal pension scheme). The tax man will add 20% relief at source. She has £2,600 left outside her SIPP and £13,000 in the SIPP

Each year between retirement and State Pension she can withdraw £12,570 at 0% plus 25% on top tax free. That’s up to £16,760 tax free. Within that limit, is £13,000 that started out as £10,400. It’s a straight 25% gain.

The gain where a 20% tax payer contributes and also pays 20% tax ‘on the way out’ of the pension is 6.25%. If you contributed £10,400 after relief it would be £13k. As you already use your personal allowance, ‘on the way out’ you get £11,050.

I appreciate you want to keep your finances separate but if you expect you will be supporting her, then failing to use her allowance in any year before state pension age costs you £1,950 i.e. the difference.

^opm^

Thanks for more detailed reply, surely the fly in the ointment there is if she retires in a few months also then she or me via her will not be adding to her pension.

Albermarle

To add to the previous post, you should also consider what would happen if you were to die before your partner, especially if it was at an unexpectedly young age ( by young in this context I mean say < 70) .
How will she manage in the shorter term with little income/assets of her own, whilst your will is sorted out? Even then could she manage dealing with pensions, drawdown, ISAs, investments etc.
It is quite common for one partner to be a lot more involved in personal finances than the other ( and it is not always the man either) but that still does not really make it an ideal scenario.

I’m thinking whilst my pensions are currently split 5 ways it would be best for administration purposes, especially in later life, to combine them into one.

It would make sense to reduce from 5 probably sooner rather than later. Some things to take into account are;

1) Availability of withdrawal options. These tend to be better with more modern pensions.
2) Charges and investment choices.
3) Do any have any guaranteed rights? If so you will lose them by transferring.
4) It is much simpler to transfer uncrystallised pots ( where no withdrawals have been made)
5) Withdrawing from multiple DC pensions, will inevitably cause admin issues with HMRC/tax 

You could look at paying an IFA to do it all for you, but that is a personal choice.

Also  as this is MSE I have to point out that some pension providers offer quite good cashbacks from time to time for transferring your pension ( and ISAs)  to them. It should not be the prime reason for choosing a provider, but with some good timing and a bit of juggling about ( such as transferring pots on more than once), it can be a nice little earner for those that can be bothered. 

Albermarle

MeteredOut said:

^opm^ said:

So basically I can take £16,760 a year from my pension pots, top up to £30,000 from my ISA this runs down my pension pots as much as possible without incurring any tax, then once state pension age, which will basically use up your tax free allowance , draw a very small pension in form of annuity and pay tax on this part but the majority of my living costs will then come from my ISA money and still be tax free.

Yes, but a comment on the bit in bold.

An annuity is a specific product where you give away a pot of money in exchange for a guaranteed (taxable) income for the rest of your life (or the latter of two lives if you want to include a partner) at either a flat rate or increasing over term. You might be able to use your pension pot in drawdown to buy this.

Alternatively, you keep your pension in drawdown and each withdrawal continues to be 25% tax free, 75% taxed (assuming your state pension is effectively using up your tax free allowance).

Only if you do not take out all the 25% tax free first as many people do.
In fact with some older pensions you have to take all the 25% tax free first, before being able to take the taxable part.

Often it is a good reason to transfer out of older pensions before starting withdrawal to get more flexibility.

^opm^

The only pension out of them 5 which has a guaranteed part to it is my old CIS that was my SERPS part from when I was contracted out, this has since been took over by Royal London.

^opm^

I guess first steps are to combine them into one but it is only my latest pension with Legal and General that I still pay into via a workplace pension. 

This may be a silly question but I work for a large multi national private company so would that pension be a specially negotiated one just whilst I am employed there with respect to its annual charge etc?
once I leave are they likely to say yes you can stay in that fund but it will cost you more now?

kempiejon

^opm^ said:

We think we can do our lifestyle on approx £30,000 a year.

[...and]

In one way I just need clarification that I had enough money to retire at 55 in a few months and still live lifestyle I want. According to every simulation on various F.I.R.E sites I can do. Just I naturally worry that I can’t afford it when I will only be 55 and partner 50.

It is worth checking that £30k finger in the air figure. I recorded all my expenditure for a year or so and was able to separate my out goings into essential, good to have and indulgences. I can subsist on £12k, would like >£20k, I might end up with £40k+ if there's 10 or more years of triple lock and state pension for me and a fair wind for my investments. Once I was earning more than £12k from my investments work became optional, worth sticking at it for more indulgences in retirement.

Getting the conviction that you'll be OK is hard. I built ISAs as a priority while getting the max from my employers pensions, planning for FI before access to my pension at 55 being my objective. It is a mind set and hard to shake that worry that if you go too soon you'll never be able to recover lost earnings/investments. I know my investments can easily support £12k, adding more to my pot recording the progress makes me comfortable planning for my future financial independence. 

Albermarle

^opm^ said:

I guess first steps are to combine them into one but it is only my latest pension with Legal and General that I still pay into via a workplace pension. 

This may be a silly question but I work for a large multi national private company so would that pension be a specially negotiated one just whilst I am employed there with respect to its annual charge etc?
once I leave are they likely to say yes you can stay in that fund but it will cost you more now?

All my discounted workplace pensions continued with the same discounts after I left. AFAIK nowadays they have to.

Triumph13

Okay, quick back-of-a-fag-packet:

I'm going to assume you split your funds between a bridging fund to take the place of the state pensions until they come on line, and long term drawdown funds from which you take a conservative 3% income.  The bridging fund I assume just keeps pace with inflation.  I'll ignore the cash as an emergency fund. Assuming 13 years to your SP and 18 to your partner's I come up with the following:

Of your £350k of DC funds you can get £250k out tax free between the TFLS and 13 years of personal allowance.  That leaves £100k in drawdown.  At 3% that gives £2.4k pa of income post tax.

Adding the £250k you got out tax free from the DC to your ISA amounts gives you £830k in total you can get at tax free.  Bridging the state pensions will cost you 13 years @ (£24k - £2.4k) then 5 years @ (£24k - £2.4k - £12k) which comes to roughly £330k. That leaves you with £500k in your tax-free drawdown fund.  At 3% that's £15k pa giving you a grand total of £39k pa from now until your partner's SP and £41.4 k afterwards (£12k x 2 from SP, £2.4k from DC, £15k from ISAs).  Survivor gets nearly £30k pa after the first death.

I'd say you're hot to trot.  Have fun!