Pension and retirement planning advice please

Summerbulbs

I am 54 years old and would like to retire at 60. I’ve been working at a university for the last 15 years and at 60 the teachers pension calculator suggests I will be able to access £18k per annum. I have £50k in cash isas and approx £100k across two Sips. I have no mortgage and a have circa £1200 a month that I have ‘spare’ each month which I would like to make work for me to enhance my pension. My magic number is £35000 by the time I am 60.  Is this possible ? where is the best place for my £1200 per month ? How do i draw down on the pensions and cash etc to maximise interest etc? Any help gratefully received… I’m not the most financially literate, thank you !

Albermarle

Normally adding more to a pension is the best way to increase your retirement pot/income due to the tax advantages.( even better if you are a higher rate taxpayer) 
You maybe able to buy extra pension income in your current scheme, but I am not sure about that and you would need to check.
Otherwise you could just add to one of your SIPP's
At first glance £35 K after tax from 60 looks like too much of a stretch, but once the state pension kicks in then you could be OK.
Some people take more from their SIPPs in the years before the state pension starts and less afterwards, but you have to be careful how you calculate the amounts without risking your money running low in later years.
It also depends on how your SIPPs are invested and well they do.

I think if you are going to manage the situation efficiently, you are going to have to address this issue ;

 I’m not the most financially literate, 

Or get some professional advice.

TheTelltaleChart

I also don't know whether buying extra teachers pension is an option at all, or a good one.

However, failing that, a SIPP is the obvious way forward. You could plan to bridge the gap before your State Pension starts (probably at age 67?) with the help of the 25% you can withdraw tax-free when you take benefits from the SIPP, while buying an index-linked annuity with the remaining 75% to provide a permanent income (to supplement the teachers & state pensions).

£1200 a month into a SIPP for 6 years would add £86.4k plus whatever tax relief is applicable. With £100k already in SIPPs, and also ignoring investment growth, that gives you £186.4k in SIPPs at age 60. The 25% tax-free lump sum would be £46.6k, and the other £139.8k could be used to buy an index-linked annuity.

That annuity would (at current rates for a 60-year-old, of c. 4.5%) pay c. £6.3k per year, increasing with inflation. Combined with £18k teachers pension, and £11.5k state pension, that's £35.8k.

That only leaves filling in the 7-year gap (from 60 to 67) until state pension begins. Before that, your pensions would only be £24.3k. So you'd need to spend about an extra £11k per year. That could be taken from the £46.6k lump sum (for 4 years or so), and then by dipping into the £50k you have in cash ISAs, depleting it to c. £20k before your state pensions kicks in.

So that was doable, if a bit tight, but then it ignored tax relief and assumed zero investment returns, so in reality it might work out a bit better. (EDIT to add: though I also ignored tax on pensions, so if you meant you want £35k after tax, that works the other way.)

Marcon

Summerbulbs said:

I am 54 years old and would like to retire at 60. I’ve been working at a university for the last 15 years and at 60 the teachers pension calculator suggests I will be able to access £18k per annum. I have £50k in cash isas and approx £100k across two Sips. I have no mortgage and a have circa £1200 a month that I have ‘spare’ each month which I would like to make work for me to enhance my pension. My magic number is £35000 by the time I am 60.  Is this possible ? where is the best place for my £1200 per month ? How do i draw down on the pensions and cash etc to maximise interest etc? Any help gratefully received… I’m not the most financially literate, thank you !

So you want to almost double your pension provision in the next 6 years and need a tutorial of how to then access those funds in a tax efficient manner, all based on a couple of lines of information...

There are no such things as magic numbers any more than there are magic money trees (although I live in hope on both counts!), but some proper financial advice is worth paying for. It could stop you making some unwise investment decisions, and maximise your chances of at least uncovering a little money bush which could get you nearer to your target than might otherwise be the case.

leosayer

Becoming literate in pensions, investments, risk and taxation takes a long time and dedication. For most on this board it is either their full time job or effectively a second job and has been for years.

You need to get moving quickly as the next few years are critically important for maximising the available opportunities but without risking what you have already accumulated.

Go and see an IFA.

Albermarle

leosayer said:

Becoming literate in pensions, investments, risk and taxation takes a long time and dedication. For most on this board it is either their full time job or effectively a second job and has been for years.

You need to get moving quickly as the next few years are critically important for maximising the available opportunities but without risking what you have already accumulated.

Go and see an IFA.

Becoming literate in pensions, investments, risk and taxation takes a long time and dedication

To learn all the finer points maybe, but a basic understanding is not that difficult. It is not rocket science.  I think it is as much about being generally interested in money matters, and being reasonably numerate.

 For most on this board it is either their full time job or effectively a second job and has been for years.

Although there are clearly some who work/have worked in the sector and a few who clearly have put the hours in, I would not say that would apply to most regular contributors.

Go and see an IFA.

Probably good advice in this particular case.

Summerbulbs

@Albermarle @leosayer Thank you, so I have taken your advice, researched some things, discussed with my IFA and a family member with a little more knowledge. 

You’re right, it seems pretty tight to retire with what I need at 60.  So I’m trying to work a plan to retire at 62 with £3k per month net income.  Here are some highlights:

• My Teacher’s pension says I would get £21,332 if I worked until 62. I already contribute the maximum for my salary band (10.5%), but there are options to enhance this with additional contributions.
• I have a SIPP containing a share of my partner’s business property, which grows by £500 per month, through the monthly rent.  The value of the SIPP is £53k excluding the property, so I assume that by age 62 it would be approx £94k.  I’m hoping maybe to access 3.5% of that p.a. safely and withdraw £3.3k pa. from age 62
• At age 67 my state pension forecast says £12k, as I have already worked the necessary 35 years
• I have £42k in another SIPP invested in a 50/50 bond/equity fund
• I have £50k in a cash ISA
• I can contribute an additional £1200 per month from my net salary to build the pot further.  But I need to decide where to put it.

One option is to put the £1200 per month for the next 7 years into an additional teacher’s pension, before tax. I think after actuarial reduction this will add £5.3k to my teacher’s pension from age 62 - but I need a detailed illustration from the teacher’s pension people to be sure.  At age 67 that means a total of £42k gross from my state pension, teacher’s pension and the property SIPP (enough to give me the £36k net).  Before age 67, I could use my ISA and 2nd SIPP to bridge the gap to state pension age (needs £60k total, so would leave me an emergency fund).  I would also have some monthly money spare now, if I contribute my £1200 per month before tax, which I could put into my 2nd SIPP or ISA.

Another option is to put the £1200 per month into my 2nd SIPP after tax, and claim the tax relief to make it £1500.   If I could get 3% growth it could be £140k extra after 7 years, giving me roughly £5k at a 3.5% withdrawal rate.  It’s less certain compared to the teacher’s pension and may be slightly less income, but it gives the chance of a pot to pass down if I don’t use it.

Also am I right in thinking that I move some of my ISA into my SIPP I can soak up any unclaimed tax relief this year?  Is this worth considering, and leaving the rest in the ISA.

Am I on the right lines and does it look realistic?

 

leosayer

So you have a business property in your SIPP and you have an IFA. Two important details you didn't mention before.

What does your IFA recommend?

QrizB

Summerbulbs said:

My Teacher’s pension says I would get £21,332 if I worked until 62.

Is that £21k pa, taking it at age 62? Or is that £21k at scheme pension age (65? 67?) and reduced if you take it at 62?

If it's worth £21k pa taken at age 72, then with that and your £12k pa state pension (from 67) you're most of the way to your £36k pa target.

Summerbulbs said:
I can contribute an additional £1200 per month from my net salary to build the pot further ... I think after actuarial reduction this will add £5.3k to my teacher’s pension from age 62

£1200 per month (£14.4k pa) for 7 years into your SIPP will give you £100k even with zero real growth. £100k at age 62 will currently buy you something more than £5k as an index-linked annuity.

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

If you get any growth there's a fair chance the SIPP will buy you a bigger pension that TPS will (noting that annuity rates do change up and down).

£21k plus £5k plus SP will see you comfortably over £36k pa from age 67, even ignoring all the other income sources you could have.

leosayer said:

What does your IFA recommend?

Agreed, this is what you pay them to do for you!

af1963

If you take £80 from your ISA and pay it into your SIPP, it will be topped up to £100 by tax relief.

But it will also be taxable when you come to draw it. Taking account of the tax free lump sum, you'd pay tax at an effective rate of 15% so it would become £85 when you withdraw it.  Overall gain of £5 on an initial amount of £80, which is 6.25%.

You can contribute up to your total earned income - that's the max you can pay in, including your existing personal contributions to work pension, and any tax relief that you get on SIPP contributions.

Summerbulbs

Thank you all, this is useful.

Leosayer, OrizB my IFA says he cannot advise on the Teacher’s Pension.  Hence I’m trying to decide myself whether to use it more or to go down the SIPP route.

OrizB that is a good question on the £21k.  I will check definitively.  I think I need a detailed illustration as a comparible to the SIPP approach.

As I understand it, my teacher’s pension is inflation-linked to the CPI, so would be a bit like a “single life, CPI-linked, no guarantee” annuity.  If they’re coming out as over £5.3K then the SIPP route is a no-brainer, but I’m not yet clear. (Thank you for the link OrizB, it’s really useful.)

When my partner started his business, his accountant advised buying his premises through a SIPP, so an IFA at the time arranged our pensions to do this.  Since then, the IFA’s company went into administration and its book was bought by a new company which was also subsequently taken over. So I don’t have a long-term advisor, just some changing people.  I agree this is the critical time, so I’m hoping to know just enough to decide what advice I need from whom.

Thank you all for your help.  I think my next step is some detailed info from the teacher’s pension people then see what my IFA says.

But the best thing is that it seems I can realistically achieve the goal !