Early retirement - a smorgasbord of pensions

sweeter_strudel

I'm in a position of, courtesy of a "near miss" health scare a couple of years ago, contemplating early retirement, 10 years before SP age. Despite having pretty lousy employer pensions for much of my (well paid) working life with a fair smattering of different companies, I reckon I can still jump early. Being told thirty plus years ago with my first ever proper job that the folks who joined that particular company a year or two before me were in the DB scheme, whereas I was in the very much second rate DC scheme, was a god send - I was inspired to plan ahead for my own retirement more proactively and make sure I PEP'd and ISA'd in S&S every year.

Now I find myself with a tiny DB pension that would just about pay my annual heating & eleccie bill of £2k if I took it today, a couple of DC pensions that if merged would give me about £4k per annum, SIPPS with a current value of about £400k and ISAs valued at £800k.

I'm still working (employee, 40% tax payer), and decided to shovel 100% of eligible earnings into my SIPP last tax year, and am planning to do the same this tax year.

I hope to quit my job in mid 2026 and build a new modern house (one that will mean I can sit in a T-shirt rather than two fleeces when spending £2k on heating & eleccie) with a chunk of the ISA money, but am trying to work out where to start on generating an income to bridge the ten year gap before SP age. Is there a one-stop-shop for DIY research on how to make the most of my smorgasbord and keep tax to a minimum? 

Reading the various threads on this MSE Forum has got me to the point where I think I know what questions I should be asking. 

I intend to pass the new property onto the next generation with a reasonable chunk of money so that they can afford the maintenance and upkeep of it, and not have them think of it as a liability.

My current thinking is with approximately three equal sized chunks do:

an annuity - my health scare makes this look quite good cos they obviously think I'm going to drop dead shortly so give me good rates - I don't agree with their thinking (about my life expectancy, their rates are lovely)

£85k pots in a selection of easy access / fixed interest accounts

GILTS / Bonds

And take the DB pension now (just in case I do drop dead early)

I need £25k pa to have fun for the ten years. Is there a school of thought regarding the preferred / best tax efficient way of raising that - lump sums and drawdown from DC employer schemes first, then lump sums from SIPPs, ISAs on tap as and when required?

I'd stay ahead of inflation by staying invested in S&S ISAs with any funds not required for keeping me fed & clothed before SP age. Once that kicks in my requirements for still having fun are of course much reduced, so I can adjust cash, GILTS/Bonds ratios accordingly. And ideally prove the annuity actuaries horribly wrong by living for several decades.

Marcon

sweeter_strudel said:

I'm in a position of, courtesy of a "near miss" health scare a couple of years ago, contemplating early retirement, 10 years before SP age. Despite having pretty lousy employer pensions for much of my (well paid) working life with a fair smattering of different companies, I reckon I can still jump early. Being told thirty plus years ago with my first ever proper job that the folks who joined that particular company a year or two before me were in the DB scheme, whereas I was in the very much second rate DC scheme, was a god send - I was inspired to plan ahead for my own retirement more proactively and make sure I PEP'd and ISA'd in S&S every year.

Now I find myself with a tiny DB pension that would just about pay my annual heating & eleccie bill of £2k if I took it today, a couple of DC pensions that if merged would give me about £4k per annum, SIPPS with a current value of about £400k and ISAs valued at £800k.

I'm still working (employee, 40% tax payer), and decided to shovel 100% of eligible earnings into my SIPP last tax year, and am planning to do the same this tax year.

I hope to quit my job in mid 2026 and build a new modern house (one that will mean I can sit in a T-shirt rather than two fleeces when spending £2k on heating & eleccie) with a chunk of the ISA money, but am trying to work out where to start on generating an income to bridge the ten year gap before SP age. Is there a one-stop-shop for DIY research on how to make the most of my smorgasbord and keep tax to a minimum? 

Reading the various threads on this MSE Forum has got me to the point where I think I know what questions I should be asking. 

I intend to pass the new property onto the next generation with a reasonable chunk of money so that they can afford the maintenance and upkeep of it, and not have them think of it as a liability.

My current thinking is with approximately three equal sized chunks do:

an annuity - my health scare makes this look quite good cos they obviously think I'm going to drop dead shortly so give me good rates - I don't agree with their thinking (about my life expectancy, their rates are lovely)

£85k pots in a selection of easy access / fixed interest accounts

GILTS / Bonds

And take the DB pension now (just in case I do drop dead early)

I need £25k pa to have fun for the ten years. Is there a school of thought regarding the preferred / best tax efficient way of raising that - lump sums and drawdown from DC employer schemes first, then lump sums from SIPPs, ISAs on tap as and when required?

I'd stay ahead of inflation by staying invested in S&S ISAs with any funds not required for keeping me fed & clothed before SP age. Once that kicks in my requirements for still having fun are of course much reduced, so I can adjust cash, GILTS/Bonds ratios accordingly. And ideally prove the annuity actuaries horribly wrong by living for several decades.

With £800K in ISAs, surely one very good investment would be the 'one stop shop' of getting properly informed advice from an independent financial adviser? It could be one of the best investments you'll make.

Hope you do indeed prove the actuaries totally wrong!

sweeter_strudel

I've used IFAs and professional investment advisors previously, about 5, 15 and 25 years ago.

"Not impressed" is my succinct summary, although I recognise I'm judging them with the benefit of hindsight.

Albermarle

a couple of DC pensions that if merged would give me about £4k per annum, SIPPS with a current value of about £400k and ISAs valued at £800k.

Probably worth being clear that a SIPP is just another type of DC pension, just the same as your workplace ones. You can normally transfer the workplace ones into one of the SIPPs, if you want.
I have a SIPP and two ex workplace pensions. Apart for a larger choice of investments with the SIPP ( which is a double edged sword) I see them all as basically the same.

For sure when it comes to withdrawing from DC pensions, including SIPPs, it is easier to manage if you do not withdraw from multiple pensions and you will be waiting on the phone a lot less waiting for HMRC to answer !

've used IFAs and professional investment advisors previously, about 5, 15 and 25 years ago.

It is generally acknowledged that accumulating pension pots and ISAs etc is easier than having a coherent tax efficient plan for withdrawing from them. Also for managing the frequent changes in legislation in this area. Although of course whether you want to engage someone or not is still a personal decision.

 Is there a one-stop-shop for DIY research on how to make the most of my smorgasbord and keep tax to a minimum? 
With posting on this forum you have probably landed in a good a place as any for doing this.
Similar scenarios are discussed regularly, so a long scroll through the forum would probably be beneficial for you.

Triumph13

I usually recommend starting from your position at state pension age and working backwards.  You want £25k to spend, so that's £28k pa pre tax.

I'm going to pluck some numbers out of the air, and assume you have £80k in your work DC schemes, so £480k overall, and that you are being quoted a 5% indexed annuity rate due to your health conditions.  Feel free to adjust for the actual numbers.

TFLS on £480k is £120k - which just happens to be equal to 10 years of state pension, so I'd plan to use it to bridge that gap.  There should be some left over as your SP will be taxable, but consider that an inflation hedge.  I'd be holiding it in term deposit accounts or a bond ladder myself - you plan to spend it in the next 10 years which is a bit of a tight timescale to have much of it in stocks.

Take the remaining £360k and use it to buy an annuity.  If they are offering 5% that's £18k pa.  Add £12k from the SP and £2k from the DB gets you to £32k pa which is £28k pa.  That's over your £25k target, so you're laughing and any part of your ISA not needed for your housebuild is jam.