My Pension Strategy / LGPS

Maria2512

Hi,

As a novice in finance and pensions, I stumbled upon this site a few years ago which has proved invaluable. I appreciate everyone that has taken time to respond, advise or comment.

Our situation.

I took VR on 30th June and retired aged 59. My OH has gone part time aged 57.

We have no debts and are Mortgage free and I want to bridge the gap before my state pension kicks in (or near enough). All our money is joint.

Whilst working and after paying our AVC’s we used to take home approx. 3k a month combined.

My LGPS pension is £22k PA and my AVC and Redundancy combined is £160k. My OH works PT and still pays AVC’s to reduce her taxable pay to approx. £9k a year.

My strategy is a simple one. I have already started investing some of the 160k in fixed term bonds. So far I have invested 40k in Fixed Rate bonds for 18 Months and 3 years at 4.65% and 4.9% respectively. I am waiting for my AVC lump sum before I invest in more Fixed rate bonds between 1 and 5 years. I am happy with 4%-5% returns, should I be? I have transferred all the cash into my OH’s name so there will be no tax to pay on the interest due on the savings due to PSA rules.

As there will be no tax to pay, I have opted not to invest in ISA’s as the Fixed Rate Bonds have better rates, so no need to shelter. Is that a mistake?

Out of the 160k, I will put £20400 into an easy access account and transfer £1700 per month into our joint account to supplement our monthly take home pay and top up every year when one of the bonds matures.

I have calculated that our monthly take home pay will be £4k a month, (we have a grandchild on the way!).

22k Pension = 1600 PM

£20400 drip feeding = £1700 PM

OH PT Salary = £700 PM

I have calculated that the money will run out after 6-7 years which I am happy with.

We still have a couple of old Scottish Life Pensions worth £45k which we will leave until this money/strategy runs out. My OH also has AVC’s and a deferred NHS pension not due for a few years as well as currently being in the LGPS.

My question: Is this strategy flawed? I want to keep things simple and am not chasing major returns with high risk investments but also don’t want to sell myself short.

Any comments will be greatly received.

daveyjp

Did you consider buying extra LGPS years with your AVCs?

Maria2512

https://forums.moneysavingexpert.com/discussion/comment/82063951#Comment_82063951

I did consider albeit not in great detail but did not take that route.

kermchem

Following VR and retirement you and OH are temporarily "capital rich" and aiming to generate income, ideally paying as little tax as possible, to bridge to SP at 67. I wonder if you are missing out on some planning that might make the tax system work for you.

OH is working part-time paying into an AVC, leaving an income of £9K. As a non tax-payer until SPA the savings and investments are in her name. If she has an income of £9K and you have capital then she should be paying £7200 into a SIPP, getting £2800 tax relief and working out when is most efficient to get the money back out. The SIPP can be invested or saved in similar to where she is currently saving or investing cash.

You worked and paid tax from 6 April to 30 June, and presumably took £30K redundancy tax-free but paid tax on the rest, although the tax code on your LGPS should correct any over tax on the lump sum within the tax year.. Provided that you have not taken any taxable cash from a DC pension, you can also pay 80% of your taxable income to 30 June, including the taxable part of the VR lump sum, into a SIPP, and receive 20% tax relief.

mrklaw

so you’re taking the pension now?

• income 22k - 1676pm net (let’s call it 1700)
• PT income 900pm

total 2600pm guaranteed until your wife’s situation changes. 8 years until state pension

If your current income is 3k per month I’m curious what your floor is - 2600pm might cover all essentials and give you comfort hopefully

Gap is then 1400 net per month for 8 years. When state pension comes that’s 833pm net so your gap reduces to 600pm

1400pm net is 16800pa net.
You could build a gilt ladder for 112k right now to give you 16800 per year. 4.24% yield. Honestly you could probably get that at the moment with fixed interest bonds which can be simpler but you may be tax exposed - a gilt ladder could work as no CGT except coupons

Maria2512

https://forums.moneysavingexpert.com/discussion/comment/82064656#Comment_82064656

Thanks.I put the excess (over 30k) into my AVC's in my final pay. I have not taken any cash from my Pension. I dont quite understand the SIPP scenario, if i am not paying any tax on my savings. How will i Benefit?

Maria2512

https://forums.moneysavingexpert.com/discussion/comment/82064837#Comment_82064837

https://forums.moneysavingexpert.com/discussion/comment/82064757#Comment_82064757

Thanks. I wanted 4k a month just to cover all eventualities (also grandkid on the way) Out of the 160k cash, I was going to put (12 x 1700 pm) £20400 in an easy access account and drip feed the 1700 per month to our joint account to give us approx 4k a month and recycle the fixed bonds (over various terms) when they mature until the money runs out. If I dont spend the full amount each month, I will just add the difference every year, if that makes sense and see how near I get to SP age. I will look into Gilt ladders.

AlanP_2

https://forums.moneysavingexpert.com/discussion/comment/82064837#Comment_82064837

If you paid the excess over the £30k tax free element into your AVC you won't be able t contribute it to a SIPP so n/a for you by the sounds of it.

However you would benefit as a couple if your partner contributed their salary into a SIPP as they would get tax relief even as a non-taxpayer. Then you use some of your capital to live off.

Maria2512

https://forums.moneysavingexpert.com/discussion/comment/82065861#Comment_82065861

Thanls Alan, but I don’t understand the SIPP route because no tax will be due on my OH’s part time salary and interest on savings. Am I missing something?

QrizB

Am I missing something?

Low paid people can receive relief-at-source tax relief on earnings that were not taxed in the first place.

kermchem

Absolutely everyone from birth to age 75 can contribute £2880 to a pension to which HMRC will add £720 in tax relief, even if they have not paid that tax. See, pensions are great for the low-paid, indeed even the unpaid.

https://forums.moneysavingexpert.com/discussion/5580163/paying-2880-into-pension-when-retired#latest

As your OH has income from earnings (not interest, dividends, etc.) then she can contribute 80% of her earnings to a pension and HMRC will add 20%, even if she has not paid that as tax.