Redundancy/Early Retirement.

Cacran

My husband is 55. He has been hankering after redundancy from the company where he has worked for almost 24 years. He does not want to work full time anymore as his family all died young and he has a 'thing' about it! In fact I am not sure that he even wants a part time job, just wants to do things around the house and in his allotment, I think. Yesterday his wish was granted. He has only three weeks more to work but gets paid for 90 days. He has opted to have a lumpsum from his pension and about £90 per week and of course he will get his redundancy pay out. I only earn £250 a month so there is not enough to live off but with interest from the bank from his payout and our savings, we should come through, if we take care not to go silly. Then why am I worried???? Am I being irrational?
We have no debts, not even a mortgage and I work out that we need about £1000 a month to actually manage, that's not allowing for extras. If he does not work when his three months pay expires what would he need to do about his national insurance stamp, or would he have enough after working all his life, so far, to qualify for full old age pension? Are there any pitfalls that I have not thought of? I am not sure if I will have enough paid on Natioanl Insurance stamps to qualify for full pension either. I know the rules have been changed. I worked from age 15 to 29 paying full stamp then I had child benefit from 1984 to 2004 as I had two children, my jobs earnings do not add up to enough to pay NI. We will have to wait 10 years to get my husbands state pension and 12 years to get mine.
I couldn't sleep last night for worrying.

Optimist

If you log on to the the pension service website and register it will tell you if you/your husband has enough stamps and what the projected pension would be when you/he reaches pension age
http://www.thepensionservice.gov.uk/

jamesd

Ask the Pension Service. I found them very helpful on the phone and they even told me my earnings that counted each year of my life and which years counted. You can pay contributions for missed years going back to 1996 at the moment so it's very likely that you're both going to be able to get a 100% basic state pension, which takes only 30 years counted to qualify for it for people of your ages.

Living on savings accounts is not appropriate long term. After allowing for inflation you'll only be able to get about 1% of the capital as income. And if you don't allow for inflation you'll find that your capital and income halves about every 10-15 years. Not good when you can expect to live for 30 more years.

You should probably go to unbiased.co.uk and seek assistance from an IFA about how to invest the money to produce a sufficient long term income. You'll need to accept about 20% variation in capital value year on year because of normal stock market ups and downs, though it's likely that a fair bit of the money wouldn't be invested inthe stock market but instead into corporate (company) bonds and government bonds. With this sort of use of the money you could reasonably expect to get 5-6% of the capital value to live on each year and also see the capital value grow with inflation so that you don't get poorer over time. That's perhaps 4-5 times the after inflation income available from savings accounts.

The first step would be putting the corporate bond portion into stocks and shares ISAs to use up to both of your allowances each year until all of the money is inside the ISA tax protection.

While you should seek assistance from an IFA, if you were doing it on your own you might consider looking at these options:

BlackRock UK Absolute Alpha, over 6 years if last year repeated, 91% growth.
CF Arch Cru Investment Portfolio (see details), over 6 years if last year repeated, 62% growth.

They don't lock you in but do provide nice stable growth. Neither is primarily based on standard stock market investing.

Add in something like Invesco Perpetual Income and Neptune Global Equity to provide more stock market growth if things go well and rely on the first to to protect the capital if the markets do terribly. For example, you might consider:

30% BlackRock UK Absolute Alpha
20% Cru Investment Portfolio
20% Invesco Perpetual Monthly Income Plus
20% Invesco Perpetual Income
10% Neptune Global Equity

The chart shows how the volatilities differ and why so much is in the more stable ones (colors are red, blue (almost straight line), yellow, green, gray/blue (upper line lots of ups and downs) in fund order).

That's just a fairly simple example to show you how you set the proportions of the different investments so that the stable growth ones mean you won't lose capital if the less stable ones lose all of their money (which is really unlikely - those two examples are some of the best around). You can vary the proportions at any time to reflect how you think the stock markets look and how much protection you want. An IFA can be expected to do a job that's better tuned to your own tolerance for up and down movement each year.

EdInvestor

Cacran wrote: »

He has opted to have a lumpsum from his pension and about £90 per week.

Do you know if his company pension scheme is contracted in or out of SERPS ( the second state pension)?

If he does not work when his three months pay expires what would he need to do about his national insurance stamp, or would he have enough after working all his life, so far, to qualify for full old age pension?

Almost certainly already qualified for the full basic under the new 30 year rule.
Both of you need to check how much you will get from the second state pension (on top of the basic) aka S2P, formerly SERPS.

I worked from age 15 to 29 paying full stamp

You should be entitled to both basic and S2P pension for these years, and if hubby's scheme is contracted in to the 2nd state pension, he too would be entitled .

Talk to the people here:

www.thepensionservice.gov.uk

They may not be able to give you a proper forecast until October, but should be able to explain the issues now, so at least you have an idea.

Does your husband have any other pensions from earlier jobs before he took his current one at 32?Pensions can be taken from the age of 50, including 25% tax free cash, so this may be worth looking into.

Cacran

Thankyou for all your advice, I think we will need to pay for some professional advice as it sounds too complex for us to deal with.