Approaching retirement - best beginner tips?

WillowLeaf

I’m a novice when it comes to pensions.  Ive only ever had DB pensions but am now 55 and wondering if there is anything obvious I should or could be doing.

I’m not expecting a full IFA assessment but is there anything you would do in my position?

I have 2 x DB pensions, one retirement age is 60, other (my current employer) is 65.

I have the option of taking both now, reduced amounts, and also the option to take a further reduction with a lump sum. I understand this isn’t exactly the same as a 25% tax free lump sum that DC pensions have but the principle is close enough. Commutation rates are 24 and 18.

My employer is offering the option of me making additional contributions. My understanding is I pay in say £1k a month, but I see only a £600 reduction in take home pay.  (ive ignored NI for the example but I would benefit from that as well). I would have the choice of where this is invested but I’ve no idea what that choice would look like. Maybe just low, medium, high risk? Not sure.

If I make contributions I’m not sure when I’d receive them. When I take the DB pension or separately, whether thats early or at normal retirement age? I’m not sure whether they’d be tax free. Maybe I could take these contributions back and not need to take the lump sum with its reductions.

I also see I can go up to £60k a year. I earn about £80k so, assuming that £60k is pre-tax, I could max it out? I have savings to live off of, cash isas and normal savings.

Also I could open a private pension (SIPP?) myself and just put net pay money in and claim the tax myself somehow? No idea how, or whether it’s better for the employer to do it all. Is opening a pension an easy thing, like opening a bank account? I'd have to pick a platform of some sort I guess.

I can’t see any mention of my employers fees. I do see lots of pics in their brochure of silver haired golden oldies on beaches, so I know they’re selling something, which makes me suspicious.

If you do have any ‘if I were you’ suggestions that I can look in to that’s be very helpful.  I guess some would be to ask my employer, but if I can do my own thing privately with no difference, and can choose my own investments, perhaps that’s preferable.

I am constantly impressed when I see questions answered about the most tax-efficient way to draw pensions. Probably one for a different thread down the line but if there were a list of the best approaches that’d be helpful. I’ve no idea how you experts know all this stuff especially if it’s not your profession. A super-spreadsheet or website where you could enter all your income and allowances and it spits out the best scenario with suggestions would be perfect.

Thanks in advance.

hara____

One popular option is to contribute enough to bring your taxable pay down to below the 40% threshold. That way, if you can pay only 20% income tax when drawing the pension, it's very tax efficient. All depends, of course, on how much DB you will be getting?

You would also have to learn about 'pension input amounts' for your active DB scheme. That, plus any contributions to a DC pension, need to be kept within the annual allowance, or any excess covered by carry forward from previous years. This is one awkward aspect of making DB and DC contributions in parallel.

WillowLeaf

Thank you, I had forgotten to consider the reduction in taxable pay, which matters as I'm paying tax on my savings.

If I were to take the DB pensions today with no lump sum the total would be £30k.

Albermarle

So to clarify;

You have a DB pension with your employer ( is this a public sector employer, if it would help if you say which scheme it is as probably some posters will be familiar with it) They have offered you the possibility to contribute to a DC pension organised by them ( sometimes referred to as an AVC pension) .

Sometimes AVCs can be linked to the DB scheme in an advantageous way, where there is the possibility of extracting more tax free cash. Sometimes they are not linked and in that case are no different to having a separate DC pension unconnected with the employer. Do you know what the arrangement is?

I can’t see any mention of my employers fees. I do see lots of pics in their brochure of silver haired golden oldies on beaches, so I know they’re selling something, which makes me suspicious.

Your employer will not have any fees, but the provider of the pension will have. Fees in general have reduced a lot in recent years but still something to keep an eye on . Pretty much all pension marketing literature features 60 somethings on world cruises etc so I would not read anything into that.

Also I could open a private pension (SIPP?) myself and just put net pay money in and claim the tax myself somehow? No idea how, or whether it’s better for the employer to do it all. Is opening a pension an easy thing, like opening a bank account? I'd have to pick a platform of some sort I guess.

If you open a SIPP instead, the provider will add basic rate tax relief. then you have to claim any higher rate relief due from HMRC. It is easy nowadays to open a new pension online, but the one on offer from your employer maybe fine.

WillowLeaf

Employer is a high street bank, I can't see anything mentioning whether it's linked to the DB pension. It's light on detail, it's basically 'invest your salary, gain on not paying tax, pick how to invest, book your world cruise'

Thanks for the HMRC higher rate claiming verdict, one less scary thing to worry about.

I'm working through various threads own the boards and can see jedi-levels of pension contribution and tax considerations. A long way to go !

squirrelpie

You've said you're working, and you've said you could take your pensions now, but you haven't said how you feel about your work. Do you love your work, or do you hate it? Or something in between? Do you have any circumstances that make you want to retire, or carry on? Do you have plans for what to do in retirement?

If you're prepared to say which bank you work for, there may well be somebody here who also works for them and who understands their pension scheme.

WillowLeaf

It's Natwest. I do have an inbuilt aversion to saying anything public about myself but I reckon I can still keep my anonymity with that declared :)

I certainly don't love my work. I wouldn't go so far as to say I hate it, it pays pretty well and I have a good boss, but I would definitely like to retire sooner rather than later. I've worked since I was 16, and am just tired with it all.

Similar to a lot of posters on here, its not the job necessarily or the people, it's the time it uses up and the corporate BS we have to tolerate that grinds me down. One parent dying and the other in poor health makes me aware of my own mortality and how time is precious.

I'd like to help my son get on the housing ladder at some point soon so that is really the main financial consideration. I can get by on not very much, but don't want to struggle if I need car repairs or worry about the heating bill.

SacredStephan

Have you checked your state pension forecast, using your personal tax account / Govt Gateway?

WillowLeaf

Yes it says £12k at age 67, which seems to be the full amount.

DT2001

Start with a budget for retirement. Then work backwards from SPA when hopefully you will have a full entitlement. You can then work out how to fill the gap from retiring to that date - maybe your ISAs and cash savings. He can then see if it’s possible to retire now without, as you say worrying about unexpected bills etc. If you can’t you can then roll your forecast on 1 year at a time until you are comfortable with the results.
As sacredstaphan suggests do check your state pension forecast as you will probably have been contracted out of SERPS so may need more years contributions than some others.
I’d also check the terms of your first pension as it may have a GMP element. If so you need to know what happens with that if the pension is taken before NPA - I worked for Barclays in the 80’s and 90’s and I learnt each scheme has its own minor rule differences. Posters on here helped me to understand everything better.

kempiejon

It be an idea to start with when do you want/intend to stop working? A budget is a good starting point. As one approaches 55 unsheltered savings/investment spend that down to put the maximum allowable into pensions/SIPPs for a couple of years for tax efficiencies looks the better tax advantage. Being at lower rate of income in withdrawl and the 25% tax free can be manipulated. Plans change but I still think that's an efficient way to leverage the tax to your max advantage.

That's if continuing to work and not take the DB pension. As noticed salary sacrifice is another good way, if you can get further below higher rate then tax on savings and dividends are reduced too. You can sal sac and SIPP.