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  • FIRST POST
    • Ceme3000
    • By Ceme3000 12th Jun 18, 10:04 PM
    • 13Posts
    • 5Thanks
    Ceme3000
    Redundancy at 52, retire now?
    • #1
    • 12th Jun 18, 10:04 PM
    Redundancy at 52, retire now? 12th Jun 18 at 10:04 PM
    Hi All, So here is my story….
    I am a 52 year old single bloke, no kids, basic rate tax payer, and for a number of years have been saving hard aiming to retire at 55. A couple of weeks ago I found out that I am going to be made redundant in September.

    I am now trying to work out if I can retire now, or at least be in a position to choose to work part-time if I want to, and what is the best way of taking an income. I don’t live an extravagant lifestyle, my monthly expenditure for council tax, utilities, insurance, food and running my 12 year old car is £600 per month. I currently spend an additional 1K per annum on short UK breaks and estimate I would like 15K per annum to live comfortably (but 18K would be nice!).

    In retirement I would like to take more short breaks, and am interested in buying a motorhome at some point in the future.

    My home is mortgage free and I own a second property also mortgage free that I have been letting out. The BTL has just been put on the market. After CGT and sales expenses I expect to have about 260K from the sale.

    I have 170K in a Hargreaves Lansdown ISA all invested in equity funds. My redundancy will be 40K after tax and I have 10K savings in the bank.

    After the redundancy and house sale I will have 480K at my disposal.

    Now for pensions…
    SIPP – 70K invested with HL.
    Defined Benefit 1 – With former employer. Have been advised this would pay £1600pa. I was entitled to take this from age 50 without penalty but chose not to.

    Defined Benefit 2 – Deferred with current employer. Recent quotes obtained say the pension payable at age 65 would be 22K, at 60 it would be 17K, and at 55 it would be 13K. This assumes no tax free lump taken which would otherwise reduce the DB pension.

    Defined Contribution – With current employer and is “linked” to the final salary fund so that I can use all of this for a tax free lump sum subject to 25% limit. Currently contains 31K.

    Here is what I am proposing to do;
    1. Use my unused pension carry-forward allowance, plus this years allowance which should mean I can contribute 90K net into pensions, this would be £112500 gross. I would put 20K net into DC employer pot and the rest into the SIPP. This should take the DC to 56K and the SIPP to £157500.
    2. The remaining 170K from the house sale will be invested with HL. 20K will go into the ISA account each year and the rest invested in a fund account.
    3. Keep 50K (the redundancy and cash savings) in the bank and use this to live off until I reach 55.
    4. This leaves me with £157K in the SIPP, £340K Invested with HL and £50K in cash.
    5. At 55 I would then take an annual pension (DB estimated to 2018 values not age 55) DB1 £1600 + DB2 £11700 + SIPP Drawdown £5000 (increasing with inflation) = Total £18300. I calculate the SIPP would run out in my late70’s assuming a 3% return and a 2.5% annual increase.
    6. At 55 I would also take tax free the DC pot of £56K + £39K from the SIPP = £95000. This would pay for the motorhome, and a newer car, and leave me with the 340K invested with HL.
    7. At 67 state penion would start, taking my pension to 25K until the drawdown runs out.

    So here are my questions;

    1. Does my plan seem to make sense? The numbers appear OK to me, but it feels like I am taking a leap into the unknown.
    2. Would I be better using the SIPP as a “bridging pension” and delay taking the DB pension.
    3. Is it better to take more tax free from the DB fund and accept a lower pension.
    4. Is keeping all 50K in cash to cover me until age 55 excessive? Am I missing an investment opportunity? My logic for keeping it in cash is because if there is a stock market correction then I don’t have to take money from the fund while the markets are depressed. But I could put it into a lower risk bond fund instead.
    5. If I am not earning for 3 years then my personal allowance won’t be used. If I take an income from the HL non ISA fund then can I receive £5000 plus my personal allowance without paying tax.

    Any advice and suggestions appreciated. Sorry for the long post!
    Thanks all.
Page 2
    • BLB53
    • By BLB53 13th Jun 18, 9:53 AM
    • 1,348 Posts
    • 1,125 Thanks
    BLB53
    1. Does my plan seem to make sense? The numbers appear OK to me, but it feels like I am taking a leap into the unknown.
    Yes, and you seem to be savvy with money so I guess it is just a matter of making the decision to go for it. Certainly try things out for a year and see how it goes.

    Just be careful of the higher charges with HL which will may cause some drag if you are mainly funds. There are other platforms which would be lower cost and spread the risk.

    Have a look through the DIY Investor article on drawdown
    http://diyinvestoruk.blogspot.com/2016/08/a-look-at-sustainable-drawdown.html
    If you choose index funds you can never outperform the market.
    If you choose managed funds there's a high probability you will underperform index funds.
    • Triumph13
    • By Triumph13 13th Jun 18, 11:22 AM
    • 1,272 Posts
    • 1,605 Thanks
    Triumph13
    Stop fretting - you are absolutely laughing as regards being able to retire now.
    I would strongly recommend leaving the DBs until normal retirement age to give you a solid, guaranteed income.
    If you start at state pension age and work backwards you see:
    - Income at 66 = £1,600 DB1 + £22k DB2 + £8,500 SP = £32k pre tax / £28k post tax.
    - To have £28k pa spending from now until then assuming DB1 taken immediately and DB2 @ 65 would cost about £350k in total including paying voluntary NICs to get the full SP.
    -You have £480k outside pensions and £100k inside (all of which you could get out tax free)

    You therefore have not £18k pa but £28k pa absolutely nailed on. What you should be asking is what to do with your spare £230k?
    • Ceme3000
    • By Ceme3000 13th Jun 18, 11:30 AM
    • 13 Posts
    • 5 Thanks
    Ceme3000
    Yes, I've seen it discussed here before. Ordinary BTL rents are not earnings for pension purposes, holiday home rents are. (I suppose the reason is the amount of work that has to be put into a holiday home, especially the regular cleaning and laundry.)
    Originally posted by kidmugsy
    So taking BTL out of the equation, that just leaves my employment income. Would it be correct to say that if I wait until I get my P45 in Sept the total amount I can contribute to a pension this year will be the total taxable pay (max 40K). So after Sept I take my P45 taxable gross, deduct the employee and employer contributions already made, and what is left is the lump sum I can pay into the fund?

    For the carry forward I do the same calculation using my P60 taxable gross for the last 3 tax years?
    • Triumph13
    • By Triumph13 13th Jun 18, 11:44 AM
    • 1,272 Posts
    • 1,605 Thanks
    Triumph13
    So taking BTL out of the equation, that just leaves my employment income. Would it be correct to say that if I wait until I get my P45 in Sept the total amount I can contribute to a pension this year will be the total taxable pay (max 40K). So after Sept I take my P45 taxable gross, deduct the employee and employer contributions already made, and what is left is the lump sum I can pay into the fund?

    For the carry forward I do the same calculation using my P60 taxable gross for the last 3 tax years?
    Originally posted by Ceme3000
    You can calculate the lower of a) your taxable income as bolded above; or b) your annual allowance plus carry forward. In your case a is going to be lower than b so that will be your limit.
    • Robin9
    • By Robin9 13th Jun 18, 11:47 AM
    • 2,960 Posts
    • 1,961 Thanks
    Robin9
    I don't think any of the responses have mentioned it - have you a will or are you leaving it all to the taxman?
    Never pay on an estimated bill
  • jamesd
    Would it be correct to say that if I wait until I get my P45 in Sept the total amount I can contribute to a pension this year will be the total taxable pay (max 40K). So after Sept I take my P45 taxable gross, deduct the employee and employer contributions already made, and what is left is the lump sum I can pay into the fund?

    For the carry forward I do the same calculation using my P60 taxable gross for the last 3 tax years?
    Originally posted by Ceme3000
    To calculate the available carry-forward from the previous three years use 3 * 40k - gross pension contributions from you and employer. If you need more, there may be some from 2015 using its extra rules. HMRC has a calculator for this.

    For the pay, the total gross amount that can go into the pension this tax year is P45 gross pay plus gross employer contributions already made.

    Then compare that to this year's allowance plus carry-forward and if that's higher you can use the pay calculation as your limit.

    It isn't a big deal if you put in more than the pay limit. You just tell the pension company and they pay you a "refund of excess contributions lump sum". Going over the annual allowance plus carry forward is more hassle because of the annual allowance charge that you'd have to pay HMRC instead, which is calculated to get them back the tax relief, while the money stays in the pension. You don't need to tell HMRC that you have used carry-forward.
    Last edited by jamesd; 13-06-2018 at 12:45 PM.
    • Ceme3000
    • By Ceme3000 13th Jun 18, 1:53 PM
    • 13 Posts
    • 5 Thanks
    Ceme3000
    For the pay, the total gross amount that can go into the pension this tax year is P45 gross pay plus gross employer contributions already made.
    Originally posted by jamesd
    Thanks's the penny has finally dropped for me on the carry-forward and I suspect I simply won't earn enough this tax year to make use of it. I do though need to make full use of what I can contribute in the current tax year. My contributions are currently 10% employee and 12% employer. My own contribution is through salary sacrifice. Does salary sacrifice make a difference at all?
  • jamesd
    Salary sacrifice contributions come from the employer. You can pay in on top of that a gross amount equal to your gross after sacrifice pay.

    Assuming annual allowance is available.

    If your employer is willing, increasing the sacrifice to take your pay down to minimum wage will save you useful NI as well, that makes it cheaper than you doing it yourself.
    • kidmugsy
    • By kidmugsy 13th Jun 18, 3:10 PM
    • 11,400 Posts
    • 7,931 Thanks
    kidmugsy
    About what to invest in: here's a good piece that, among other things, warns against investing in bonds at current yields (and also contains a fine rant against official views of risk).
    https://www.johnkay.com/2018/01/22/risk-retail-investor-disastrous-new-rules/

    If you find him persuasive then you might decide that your best bond-like investment might be to defer DB2 until the scheme's normal retirement age.

    The problem of the moment is that return-seeking investments - equities - are highly priced, especially in the US, while risk-mitigating investments - e.g. bonds - give rotten returns and are thereby possibly not going to defend you from financial risks anyway.

    It's the dreaded ZIRP at work - the zero interest rate policy pursued by so many central banks/governments. It may be that investors are looking at quite a few years of dismal returns. Or maybe not - nobody knows.
    Free the dunston one next time too.
    • michaels
    • By michaels 13th Jun 18, 3:25 PM
    • 21,144 Posts
    • 97,803 Thanks
    michaels
    Salary sacrifice contributions come from the employer. You can pay in on top of that a gross amount equal to your gross after sacrifice pay.

    Assuming annual allowance is available.

    If your employer is willing, increasing the sacrifice to take your pay down to minimum wage will save you useful NI as well, that makes it cheaper than you doing it yourself.
    Originally posted by jamesd
    Don't forget you still tax tax relief on any additional contributions you make even when it takes your total income below the income tax threshold thus you get relief for tax you never even paid in the first place
    Cool heads and compromise
    • Triumph13
    • By Triumph13 13th Jun 18, 3:33 PM
    • 1,272 Posts
    • 1,605 Thanks
    Triumph13
    Don't forget you still tax tax relief on any additional contributions you make even when it takes your total income below the income tax threshold thus you get relief for tax you never even paid in the first place
    Originally posted by michaels
    So the optimum solution (could be too late to achieve now) is to salary sacrifice down to the point where your remaining taxable earnings for the part year you are working just come to the personal allowance. (If you went below that, you wouldn't be getting tax relief on the last bit.) You then contribute those remaining earnings to a SIPP / PP to get tax relief on them too. Simples!
    • xylophone
    • By xylophone 13th Jun 18, 6:00 PM
    • 26,139 Posts
    • 15,496 Thanks
    xylophone
    Have you obtained a new state pension statement?

    https://www.gov.uk/check-state-pension
    • Ceme3000
    • By Ceme3000 13th Jun 18, 6:20 PM
    • 13 Posts
    • 5 Thanks
    Ceme3000
    Have you obtained a new state pension statement?
    Originally posted by xylophone
    My statement says based on my NI record to 5th April 18 I can have £140.53 per week but with another 6 years of contributions it would be £164.35.
    I already have 35 years of contributions, but mostly contracted out hence the reduction. If I am not working will I be able to buy the extra 6 years in the future, even though I already have 35 years?
    • Ceme3000
    • By Ceme3000 13th Jun 18, 8:11 PM
    • 13 Posts
    • 5 Thanks
    Ceme3000
    You're planning to keep a SIPP, and ISAs, and a dealing account all at HL. In your shoes I'd be very keen to diversify providers. If HL get in the soup - even just the IT soup - you'd be very vulnerable.
    Originally posted by kidmugsy
    I hadn't thought of that, thanks for pointing that out.

    As for all equities: is that wise? Once you are "deccumulating" rather than accumulating surely there's a strong argument for diversifying investments? Your current plans to replace a BTL by equities goes in the opposite direction. In your shoes I'd think of DB pensions as being like very superior bonds and ask myself whether I was happy with my equity:bond ratio. (There was an old US rule of thumb %bonds = your age. If so you should have about 50% in bonds.) Other diversification assets: gold, commodities, property, cash inc FX.
    Originally posted by kidmugsy
    It's not wise! I know I have taken a gamble so far with equities but with money in BTL I thought the diversification with property was sufficient. When I sell the BTL I will invest the cash much more responsibly and balance the portfolio accordingly. A thought though! The idea of de-risking closer to retirement or "lifestyling"- was that approach not aimed at a time when you had to buy an annuity? Surely at 52 with potentially 30+ years exposure to the stock market through draw down, can you not take a more adventurous approach?

    But I'm puzzled that you are not intending to draw DB1 immediately. Why not? Is it growing in deferral?
    Originally posted by kidmugsy
    Yes it is growing. I was told £1470 a couple of years ago, now it is over £1600.

    Thanks for the other suggestions and the links to a bit more reading.
    • Terron
    • By Terron 13th Jun 18, 8:51 PM
    • 276 Posts
    • 235 Thanks
    Terron
    Yes, I've seen it discussed here before. Ordinary BTL rents are not earnings for pension purposes, holiday home rents are. (I suppose the reason is the amount of work that has to be put into a holiday home, especially the regular cleaning and laundry.)
    Originally posted by kidmugsy

    Rental incomes does not count unless it is from a holiday letting business. If you own the property through a comany though it can pay you a director's pension.
    The reason is probably the feeling some people have that rents aren't earned income.
    • safestored4
    • By safestored4 13th Jun 18, 9:51 PM
    • 446 Posts
    • 423 Thanks
    safestored4
    When I was young an older person at work said to me “A year before 60 is worth two after it” I always remembered this and retired at 52, 22 years ago. The best thing I ever did, go for it.
    • Triumph13
    • By Triumph13 13th Jun 18, 10:10 PM
    • 1,272 Posts
    • 1,605 Thanks
    Triumph13
    My statement says based on my NI record to 5th April 18 I can have £140.53 per week but with another 6 years of contributions it would be £164.35.
    I already have 35 years of contributions, but mostly contracted out hence the reduction. If I am not working will I be able to buy the extra 6 years in the future, even though I already have 35 years?
    Originally posted by Ceme3000
    It's only worth buying an extra 5 years not 6. Each year is worth 1/35 of the total, so £4.70 a week, and costs about £750 to buy so a fantastic bargain. 5 years gets you so close to the maximum that the sixth year would only get you an extra 34p a week - so that one's not such a good deal!
    • kidmugsy
    • By kidmugsy 13th Jun 18, 11:31 PM
    • 11,400 Posts
    • 7,931 Thanks
    kidmugsy
    The idea of de-risking closer to retirement or "lifestyling"- was that approach not aimed at a time when you had to buy an annuity? Surely at 52 with potentially 30+ years exposure to the stock market through draw down, can you not take a more adventurous approach?
    Originally posted by Ceme3000
    That must indeed be a large part of it. Another part is that you will no longer have much opportunity to repair an investment disaster by advancing your career earnings.

    Perhaps a good low-risk investment policy would be to rely on taking the DB pensions, and State Pension, later and using the other assets earlier. In which case a 30+ year horizon would be too long. I would want to spread some of my other assets out of equities. Probably not to bonds, though.

    In a way you have "won" the investment game, to use an American expression. The art now is to preserve your winnings. I'd ask "what future liabilities can I insure myself against, using my heap of capital"?
    Last edited by kidmugsy; 13-06-2018 at 11:42 PM.
    Free the dunston one next time too.
    • kidmugsy
    • By kidmugsy 13th Jun 18, 11:40 PM
    • 11,400 Posts
    • 7,931 Thanks
    kidmugsy
    You have £480k outside pensions and £100k inside (all of which you could get out tax free)
    Originally posted by Triumph13
    Good point: then there's a good case for doing the SIPP-money-go-round from 19/20 onwards.

    You therefore have not £18k pa but £28k pa absolutely nailed on. What you should be asking is what to do with your spare £230k?
    Originally posted by Triumph13
    Do Tesla do motorhomes?
    Free the dunston one next time too.
    • Ceme3000
    • By Ceme3000 14th Jun 18, 12:36 AM
    • 13 Posts
    • 5 Thanks
    Ceme3000
    -You have £480k outside pensions and £100k inside (all of which you could get out tax free)
    Originally posted by Triumph13
    What strategy would you use to get it all out tax free?
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