Retired at 55 from NHS and looking to boost pension/savings

Lallybrook

Hi everyone, 
This is my first post after devouring all the relevant info I could find about this but would greatly value your thoughts. BSC has only only just sent out my decision letter.
I'm 55 and retiring at the end of August. Took early retirement due to absolute burnout with no intention of ever returning or working elsewhere ever again!
I'm opting for the standard pension;
1995 - £5581.86
2015- £6630.43
plus £18952.21 lump sum

as opposed to McCloud;
1995 - £9201.77
2015 - 1664.84
plus lump sum £31242.97.

Everything I have read indicates it would make financial sense to take the bigger pension - am I right?

I have no debts/mortgage/dependants and am due to receive full state pension at 67. I initially planned to supplement my NHS pension from my savings using £10000 a year until I'm 67. However, now that I'm away from my substantive post, the thought of returning to work is more palatable but on a 'bank' basis. Not sure if I have the stomach to do that for the 12 years it'll take my state pension to kick in though.

I have £80 000 in cash ISAs £40000 in a stock and shares ISA and about £80000 in savings and guaranteed growth bond. How can I best use that £80000? I spoke to IFA about a fixed term annuity to bridge the gap to state pension but they advised against. However, I had read that the fixed rate annuities are the 'unsung heroes of retirement' and would putting, say, £50 000 in an annuity over 10 years give me a better 'return' then reinvesting in a guaranteed growth fund on an annual basis? 

I know that I would get a better return on stocks or shares but my anxiety around the potential for financial losses would stop me from taking that option.

However, I am now considering returning to work minimally in the NHS (until I'm 60 ) with an estimated annual income of £8000 - £10 000and plan to rejoin the 2015 scheme - I'm assuming this is a 'no-brainer'? 
Is it worth while returning or will my earnings just be eaten up by tax? 
My rationale for returning would be to supplement my pension from earnings and therefore reduce what I need to use from my savings. 

I would be so grateful for your thoughts and thank you in advance

Marcon

Lallybrook said:

Hi everyone, 
This is my first post after devouring all the relevant info I could find about this but would greatly value your thoughts. BSC has only only just sent out my decision letter.
I'm 55 and retiring at the end of August. Took early retirement due to absolute burnout with no intention of ever returning or working elsewhere ever again!
I'm opting for the standard pension;
1995 - £5581.86
2015- £6630.43
plus £18952.21 lump sum

as opposed to McCloud;
1995 - £9201.77
2015 - 1664.84
plus lump sum £31242.97.

Everything I have read indicates it would make financial sense to take the bigger pension - am I right?

I have no debts/mortgage/dependants and am due to receive full state pension at 67. I initially planned to supplement my NHS pension from my savings using £10000 a year until I'm 67. However, now that I'm away from my substantive post, the thought of returning to work is more palatable but on a 'bank' basis. Not sure if I have the stomach to do that for the 12 years it'll take my state pension to kick in though.

I have £80 000 in cash ISAs £40000 in a stock and shares ISA and about £80000 in savings and guaranteed growth bond. How can I best use that £80000? I spoke to IFA about a fixed term annuity to bridge the gap to state pension but they advised against. However, I had read that the fixed rate annuities are the 'unsung heroes of retirement' and would putting, say, £50 000 in an annuity over 10 years give me a better 'return' then reinvesting in a guaranteed growth fund on an annual basis? 

I know that I would get a better return on stocks or shares but my anxiety around the potential for financial losses would stop me from taking that option.

However, I am now considering returning to work minimally in the NHS (until I'm 60 ) with an estimated annual income of £8000 - £10 000and plan to rejoin the 2015 scheme - I'm assuming this is a 'no-brainer'? 
Is it worth while returning or will my earnings just be eaten up by tax? 
My rationale for returning would be to supplement my pension from earnings and therefore reduce what I need to use from my savings. 

I would be so grateful for your thoughts and thank you in advance

So you've spoken to an IFA but rather than listening to what they've advised (presumably with reasons), you'd sooner base your decisions on the views of people who know next to nothing about you bar the few paragraphs above? Where's the logic in that, assuming you took proper (full) advice on a paid for basis, not just a random natter over a pint in the pub/tea in the teashop or wherever?

Wouldn't it make more sense to go back to someone who has done a full fact find and put your ideas to them, especially around fixed term annuities if you are attracted by those?

Dazed_and_C0nfused

As you don't appear to have a non NhS pension how do you plan on buying an annuity?

There is a niche option known as purchased life annuities but I'm not sure they are anything other than for life, a fixed term option may not be option with PLA's.

Your NHS pension income is roughly the same as your Personal Allowance so you can expect  any new employment to be taxed at 20% (unless you are Scottish resident for tax purposes).

And yes, being in the NHS pension scheme is a no brainer!

Lallybrook

Dazed_and_C0nfused said:

As you don't appear to have a non NhS pension how do you plan on buying an annuity?

There is a niche option known as purchased life annuities but I'm not sure they are anything other than for life, a fixed term option may not be option with PLA's.

Your NHS pension income is roughly the same as your Personal Allowance so you can expect  any new employment to be taxed at 20% (unless you are Scottish resident for tax purposes).

And yes, being in the NHS pension scheme is a no brainer!

Thanks for responding - the IFA didn’t explain how annuities work at all and that I need to have a non NHS pension to avail; I was just shut me down when I asked and simply told it’s not worth it. The only suggestion offered was to purchase stocks and shares. 

Dazed_and_C0nfused

Lallybrook said:

Dazed_and_C0nfused said:

As you don't appear to have a non NhS pension how do you plan on buying an annuity?

There is a niche option known as purchased life annuities but I'm not sure they are anything other than for life, a fixed term option may not be option with PLA's.

Your NHS pension income is roughly the same as your Personal Allowance so you can expect  any new employment to be taxed at 20% (unless you are Scottish resident for tax purposes).

And yes, being in the NHS pension scheme is a no brainer!

Thanks for responding - the IFA didn’t explain how annuities work at all and that I need to have a non NHS pension to avail; I was just shut me down when I asked and simply told it’s not worth it. The only suggestion offered was to purchase stocks and shares. 

You could easily start to build up a personal pension in this tax year but the amount you can contribute and get tax relief will be limited, certainly not going to be the sort of amounts that make an annuity a viable proposition really.

I would say using it as a bridge between full retirement and your State Pension starting is more realistic.  You could build up a pot over the next few years and then take that over say 3-4 years from 63/64 to 67.

BrilliantButScary

Have you worked out how much you need to live on in retirement? No point in returning to work, if you don't actually need the money. Don't forget that you will also continue to pay NI, if you earn above the LEL of £6500. Will you also have to continue to pay professional fees/union fees or complete revalidation?

You could earn £7,500 tax free, by renting a room out in your home. 

https://www.gov.uk/rent-room-in-your-home/your-lodgers-tenancy-type

I would also check your state pension forecast, if you have not already done so.

https://www.gov.uk/check-state-pension

Weeshakylegs

As you have a decent level of capital, it makes sense to take the higher income option and reduced tax free cash.  Your pension income will also increase each year to help with the rising cost of living. 

You can have a fixed term purchase life annuity given the available capital that you have and these can also be called Guaranteed Fixed Term Income Plans.  The reason annuities have been in news recently is the higher gilt rates, due to what's going on with Government debt and borrowings plus higher interest rates, so they are now better value for money.

A Purchased Life Annuity/Guaranteed Fixed Term Income Plan does not need to be sourced from Pension funds it can be funded from capital and is not completely taxed on the amount you receive, as part will be classed as capital return and the interest part will be taxable.  So this is an option if you weren't going back to work but bear in mind that you are not guaranteed to receive your full capital back at the end of the fixed term.  If you were looking at this option the Insurance Company would usually give a projection of what you might get back at the end of the fixed term, but its not a guarantee and you are best to speak to a financial adviser that isn't just focused on investing assets, usually these advisers will offer a fee for advice or commission offset from the Insurance Company which can also affect the level of income you receive so I would ask the adviser to provide a comparison of both options. 

As you have now decided to go back to work,  I would park that option for the time being.

As someone previously mentioned you need to think about how much money you need for a comfortable retirement.  You also need to consider what you need for additional capital expenditure per annum and what you need for cash reserves in terms of unexpected expenditure.

It is definitely worth looking at your state pension forecast,  as you have been in the NHS you're likely contracted out for the majority of your working career, you may have a deduction to your state pension to represent the contracted out pension equivalent, known as COPE and this would be deducted from the flat rate state pension amount. Contracted Out meant you paid less national insurance contributions and this ended in 2016 when the new flat rate pension came into place. Your Pension Administrator should be able to tell you the amount of COPE that would deducted from your state pension.

So for example the current new state pension is £230.25 per week.  If your COPE was £30 you would receive £200.25 per week when you retire.

If you currently have the full 35 years and continue to work and pay NI contributions then you could reduce the amount of COPE as the additional NI contributions would reduce it.  The amount of COPE used to be shown as an estimate on your state pension forecast however this has been removed, my understanding is your state pension forecast should factor this in so I would definitely look at that if you have not already done so.  You can access this on the Government Website. 

As for taxation, I don't know if you are a Scottish taxpayer or elsewhere in UK but your retirement and additional £10k of earned income should keep you below the higher rate tax threshold for the UK. You also have £1,000 savings allowance for bank interest as a basic rate tax payer (for now anyway).

As for pension contributions, joining the 2015 scheme is a career average earnings scheme and given the lower earnings and short time span of work, I would urge you to look to see if there is a benefit calculator which will show you what you are likely to get at age 60 v making personal pension contributions that could be possibly be drawn down between age 60 and 67 to fill the gap.  Although the 2015 scheme provides a guaranteed level of income you need to consider if the actual amount received on a lower salary over a short time scale and level of tax free cash enhances your retirement income.

Also consider maximising your ISA allowance from available capital to build a decent size pot that could give you tax free withdrawals to enhance your retirement income. 

Ideally you should speak to a Financial Adviser who would do a personalised cashflow report for you taking account of your pension income, state pension forecast, capital and retirement needs.  They could create a couple of scenarios for you, for example:  Purchase Life Annuity/Guaranteed Fixed Term Income Plan v Capital withdrawals.  Occupational pension contributions v personal pension.  They would look at your attitude to risk to assume growth returns and factor in inflation.  You could factor in capital expenditures for holidays and other things that you want to do and how long your capital will last. You would pay a fee for this report but it would be worth it and lead you to the best financial outcome for when you fully retire. 

Hope this helps and you enjoy your retirement.

Pat38493

Lallybrook said:

Hi everyone, 
This is my first post after devouring all the relevant info I could find about this but would greatly value your thoughts. BSC has only only just sent out my decision letter.
I'm 55 and retiring at the end of August. Took early retirement due to absolute burnout with no intention of ever returning or working elsewhere ever again!
I'm opting for the standard pension;
1995 - £5581.86
2015- £6630.43
plus £18952.21 lump sum

as opposed to McCloud;
1995 - £9201.77
2015 - 1664.84
plus lump sum £31242.97.

Everything I have read indicates it would make financial sense to take the bigger pension - am I right?

I have no debts/mortgage/dependants and am due to receive full state pension at 67. I initially planned to supplement my NHS pension from my savings using £10000 a year until I'm 67. However, now that I'm away from my substantive post, the thought of returning to work is more palatable but on a 'bank' basis. Not sure if I have the stomach to do that for the 12 years it'll take my state pension to kick in though.

I have £80 000 in cash ISAs £40000 in a stock and shares ISA and about £80000 in savings and guaranteed growth bond. How can I best use that £80000? I spoke to IFA about a fixed term annuity to bridge the gap to state pension but they advised against. However, I had read that the fixed rate annuities are the 'unsung heroes of retirement' and would putting, say, £50 000 in an annuity over 10 years give me a better 'return' then reinvesting in a guaranteed growth fund on an annual basis? 

I know that I would get a better return on stocks or shares but my anxiety around the potential for financial losses would stop me from taking that option.

However, I am now considering returning to work minimally in the NHS (until I'm 60 ) with an estimated annual income of £8000 - £10 000and plan to rejoin the 2015 scheme - I'm assuming this is a 'no-brainer'? 
Is it worth while returning or will my earnings just be eaten up by tax? 
My rationale for returning would be to supplement my pension from earnings and therefore reduce what I need to use from my savings. 

I would be so grateful for your thoughts and thank you in advance

Did you actually hire an IFA to look after your finances overall (or do a one of full review), or were you only trying to engage an IFA to buy an annuity without them knowing anything about the rest of your finances?  I am guessing not because given the size of assets you are quoting and your NHS pensions, I would guess that a lot of IFAs would say you will be wasting your money by paying them several thousand pounds to become their client.

As others have said, it’s quite unusual to want to buy an annuity from funds that are not in a pension, so it’s probably unlikely that this would be a good option for you.

Regarding which NHS pension to take - if the IFA did a full review of your finances, they should advise you which one is best based on your circumstances.

Looks like you are getting an extra 1359 per year for losing 12290 in lump sum.  You would have to live for 9 years to make that money back on a rough calculation.  In reality it will be a bit less because the extra 1359 is index linked.

I am assuming that the increases to the pension in payment are the same in both cases - for NHS pensions you usually get the full RPI indexed inflation increase with no cap.

Returning to work - with about 12K NHS pensions income already in place, your pension will use almost all of your tax free allowance, so any future money you earn from the NHS will be taxed at 20% (plus NI contributions as well).  You will also be able to rejoin the pension scheme which provides a bit of extra benefit I would think.  so no your earnings won’t all be used by tax but you will pay 20% tax on everything.

If you want to get clever about it, you could pay your entire NHS salary into a separate SIPP pension that you could open, and live off your savings - this will probably reduce the amount of tax you end up paying in the long term.

Lallybrook

Thanks Weeshakeylegs and Pat38483.
I really appreciate the information and different perspectives. I was speaking to my financial adviser of 5 years who knows my circumstances and did advise the standard pension which I will be taking. I simply wanted to explore if there were 'safer' alternatives to stocks and shares that might give me a better return than savings. I am parking the annuity idea.
I think I'm experiencing 'transitional adjustments' and moving from focusing on saving as much as I can to now having to spend those savings. Plus it's scary knowing that you'll no longer have your full pay every month, if that makes sense. 
Thanks again

ali_bear

When your advisor was talking about stocks and shares I think he probably meant investment funds of some sort - not individual S&S. There are many types of managed investment funds with different levels of risk, target growth etc. They are not something to be afraid of, and he should be able to make some recommendations. HTH.