Life's swerve ball - need to plan differently!

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  • Thanks Irmine...

    I need to tell you I'm sitting here looking at your response and laughing to myself because I can't understand what your saying...not because it's not written well or meaningful, but because it's...:-)

    I'm going to re-read several times and try to get my head to work in another dimension!...I'll be back!
  • dunstonh
    dunstonh Posts: 116,030
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    You have to ask the IFA about his fee structure and how much commission he gets, it is less of an issue now than it used to be.

    There is no commission.

    Is an IFA more likely to advise annuities because its safer and they get a commission somehow?

    There is no commission
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • ermine
    ermine Posts: 757
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    I need to tell you I'm sitting here looking at your response and laughing to myself because I can't understand what your saying...not because it's not written well or meaningful, but because it's...:-)

    I'm going to re-read several times and try to get my head to work in another dimension!...I'll be back!

    This is why you hire an IFA, to explain the issues more clearly and in terms, metaphors and symbolism you can understand. From dunstonh's post above, there is no commission these days - you pay the guy for his time nowadays.

    It is likely that you can take the resources you have and deploy them to give you more cash for your lifestyle than a fully paid off res property and a fully paid off BTL. I have a fully paid off house, and came to the conclusion that in some ways that was an irrational decision for someone who retired early pre 55. But I also hit my pension very very hard in the years leading up to my early retirement. I've seen pension savings and salary sacrifice work for me firsthand. I would have done better to have not paid down the mortgage, but I was fearful and believed I had a weaker hand than I actually had.

    Getting 20% of the personal finance scene right does 80% of the heavy lifting, redeeming my mortgage was a mistake I could afford.

    You have a great set of cards in your hand. You can play them better, but you don't have to. I would suggest a good financial adviser could help you understand that, what the issues were and live larger and/or leave more to your heirs. If it concerns you, an annuity and drawdown is not an either/or decision, you can mix and match as your risk profile changes as you age.

    Inform yourself before you go see him. Establish if your works pension savings are salary sacrifice, and what type of works pension you are saving into (defined contribution or - unlikely - defined benefit). All these things will help you both qualify what your risks and opportunities are. Collect payslips and your last P60. If you can determine what your outgoings are that is also good and helps build a picture. Collect information about your wife's pensions and resources, an IFA can help you maximise your combined income.

    The average Brit retires with a DC pension capital of £90k. You are a long way ahead of that...
  • AnotherJoe
    AnotherJoe Posts: 19,622
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    Is an IFA more likely to advise annuities because its safer and they get a commission somehow?

    Very much the opposite if you were that cynical. Once you've bought an annuity thats it, nothing more for the FA to do.If you go with drawdown then you have funds that need management and a potential job for them to do.

    You may do that yourself or you may ask (pay :D ) an FA to do that.

    However since an IFA will have to explain their reasoning for their recommendations that would in any case be a tough thing to do, eg convince you you should take an annuity (that most likely paid put 1/2 or less what drawdown would.) unless you yourself were so risk averse that you would take that trade-off. (this is outside the 'outlier' reasons such as limited life expectancy)

    As said anyway, it doesn't have to be one or the other. You could start with drawdown, move to an annuity when much older, or have part annuity part drawdown.
  • Apodemus
    Apodemus Posts: 3,384
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    ermine wrote: »
    The average Brit retires with a DC pension capital of £90k. You are a long way ahead of that...

    ...the average Brit who buys an annuity through one particular provider! The article doesn't appear to give actual average figures for all retirees in U.K.
  • Again, many thanks to all....it's just great to be able to gain this kind of information.

    I'm sure that the pension contributions are Salary Sacrifice, but will check.

    So, if I've understood correctly.
    I could Sal' Sac' as much as I want to into my pension, to bring it down below HRT (just realised what that acronym was!), and then I'd be paying less tax on my general income but surely I would'nt be eligible for 40% tax relief on the pension ?....

    I'm not actually sure I'm getting the 40% relief anyway...how best to check?

    What is the difference between Salary Sacrifice and pension payments?
    "I've seen pension savings and salary sacrifice work for me firsthand"

    Understand that I can choose to mix and match on annuities and drawdown.

    Again, thanks.
  • Triumph13
    Triumph13 Posts: 1,730
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    Also, is the deduction on mine as 'Sal ScrPens' normal...are there other ways of it being done that are better?
    As has been said, Salary Sacrifice is by far the best way to be making your pension contributions, but it makes me question the original assumptions on the amount you are actually putting in each month. If the £1167 per month you say you are contributing is the amount that is shown on your payslip as 'Sal ScrPens' then that is the amount of your PRE-TAX pay that you are contributing and so there will be no tax relief due as no tax has been paid.
    That changes the overall calculations a bit, but they still look very healthy indeed even before the other good suggestions people have given you.
    If we assume that there is indeed no further tax relief due on that £1,167 then 4% pa average real return would get your pot to approx. £580k at age 60. Take 25% of that as tax free cash and put the rest into drawdown at 4% pa. You'll need about £46k of that tax free cash to replace your state pension for the 7 years until you get it at age 67, but that leaves you nearly £100k spare which can either be invested for more income, or give you a nice little fund for any big one-off expenses such as holidays-of-a-lifetime. The drawdown on the rest plus 2 state pensions and £7k pa from the rental property gives you a post tax income of about £37k pa, dropping to about £30k for the surviving spouse after the first death.
    Bottom line is you are well set for a very comfortable retirement at 60. If you don't want a big cash buffer and are happy with a smaller income, then using all your 25% lump sum, plus your wife's pension fund (which I ignored in the age 60 model) to cover the years until state pensions are in place would support spending of about £33k pa if you retired at 55 instead.
  • Thanks for chipping in Triumph.
    Yes, there is a total of £1201 against 'Sal Sac EE Pen'...(sorry - not £1167 as previously thought) and this is in 'Payments' section which I understand as before any tax is applied.

    And when I look at the Deduction section, it shows as 'zero' against EE Pen.

    So does this mean, as you suggest, that my tax relief (40%) is automatically being applied to my pension because tax is not being deducted on the EE pen?

    I know there were some deductions on EE Pen some time ago because I can see an entry of £907 in Cumulatives on a payslip dated March 2017. So something must have changed

    Where you say.."You'll need about £46k of that tax free cash to replace your state pension for the 7 years until you get it at age 67"...

    That would provide approx £6500/pa...plus the rental income £7000...plus my better half's pension £7500...giving me approx £21K, which is a bit behind what we thought for the period 60-67...unless I'm missing something pretty obvious, which wouldn't shock me!
  • That would provide approx £6500/pa...plus the rental income £7000...plus my better half's pension £7500...giving me approx £21K, which is a bit behind what we thought for the period 60-67...unless I'm missing something pretty obvious, which wouldn't shock me!

    yes, the 4% drawdown on the remaining of your DC pension, which adds about £17k pa before tax :)
    "For every complicated problem, there is always a simple, wrong answer"
  • michaels
    michaels Posts: 27,949
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    Edit: cross post with k6chris

    I think the 46k (plus interest) was to give the 8k pa that your state pension will give you when you are 67/8.

    Then the remaining pension pot could be used to give additional income from your retirement date as long as is needed and the '4%' bit of the calculation is how much per annum the rest of your pension pot would give you if taken from your age 60 retirement date.

    Ie from age 60 you get £7k rental plus 2x approx 8k state pension using 46k of your tax free lump sum as a baseline = 23k pa. Plus 4% of your remaining pension pot 'for ever' going forward to give the total per annum of 37k so the pension payment is 14k pa (37-14).
    I think....
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