Reading and Learning about Pensions

sgm61 · 13 May 2018 at 11:28PM

Hi
I am 56 yo female working part-time in NHS since 2016 (0.6fte) currently earning £10500 gross and paying 5.6% into pension (think it is DC - 2015 scheme) employer pays in 16.3% of my pensionable pay. Payment date is 2028 when I turn 67 (=SPA).
I have a deferred pension from a Bank I worked in 1981-1993 which is due to pay out on when I reach 60. Projections estimate from this pension I will receive (rounded to nearest £1000):
£11000 pa with no lump sum or
£7500pa with max lump sum £49k
(can take lesser lump sum with more pension)
Also small deferred pension from another Bank (£1500 pot) which also pays out at SPA.

I have been reading the threads here and trying to educate myself about how I can add/increase my pension income. I am waiting to get this year's P60 and when received will ask for a SP calculation.

My queries are:-

1) Is it best to take full lump sum £49k with reduced pension (I intend to continue working 3 days a week and therefore will continue to earn as above) and saving my monthly pension (say £625 gross/£500 net) into a ISA and/or SIPP
2) If take the full £49k lump sum does this mean that my MPAA is reduced to £4k pa?
3) I don't have any ISAs currently - would it be best to put some money aside here or use the SIPP to get 25% added onto my contribution (even with paying 20% tax on savings I would still be earning more than I would get in a ISA - wouldn't I?).

My thought would be that if I took the £49K, I would give my 3 children say £12k each to help them financially and keep the remainder for my own use (along with £15k savings I intend to have prior to turning 60).

I have never looked at pension planning as essential - wish I knew at 20 (when started first job) the importance of financial planning. I know i worked in a bank but personal finances were never discussed!!!!

Any suggestions/information given would be greatly appreciated but please keep your explanations as simple as possible - I don't have a great understanding yet as to what all the abbreviations mean.

Thanks

G

ermine · 13 May 2018 at 11:41PM

sgm61 wrote: »

My thought would be that if I took the £49K, I would give my 3 children say £12k each to help them financially and keep the remainder for my own use (along with £15k savings I intend to have prior to turning 60).

WTAF? You are nowhere near rich enough to featherbed your children like that. 12k each will be a drop in the ocean, whereas if you are seriously going to live on £7500 you will struggle to survive. Presumably you own your house free of a mortgage to even think this way?

Take the 11000, which is just below the tax-free personal allowance. If you really can live without £3500 then spread this among your kids - (why can't they earn their own way?) each year.

At the very least, try and live for a year on the £7500 p.a.you are condemning your future self to live on until you reach SPA. Still beats me why you should have to work work on rather than your kids - you never know how long health etc may enable that for you, whereas they should have the most human capital now.

sgm61 · 13 May 2018 at 11:56PM

Hi Ermine

I get what you say about taking the £11k pa and no lump sum. That money would certainly give me a better income - however my reasoning to give my children some money is that at their ages (mid 20s - early 30s) I would have really appreciated some financial assistance as I was setting myself up and now I'm approaching my 60s and it may be the only opportunity that I have to do this (my parents are both still alive and I know they intend to leave me something but I could be long gone before they are so am not counting on this...)

I do own my home outright (no mortgage) and a 2nd property (both bought at height of property prices and now worth 2/3rds original cost price). My husband 58yo has a NHS final salary pension due to pay out at 60 (projected approx £26kpa and lump sum £78k) and his SPA is 66. So when I get my Bank pension at 60 it will be supplementing our joint income - I would intend working on for as long as I can (3 day week with little stress - admin). My query is that I would like to put this money aside (if I don't spend any then I won't miss putting it aside) and get the best return possible from it. If it goes into the joint finances, it WILL probably be spent.

sgm61 · 14 May 2018 at 12:17AM

Am mulling over what you said Ermine and it is making sense to me,

If I want to give the children money, I could continue working on for 3/4 years - I could also take the full pension amount and over 3 years share it between them, year 4 I could save for myself and/or leave work on an increased income until my SPA - definitely something to consider further!!!! Sometimes it takes another person's perspective.....

k6chris · 14 May 2018 at 7:18AM

sgm61 wrote: »

I have never looked at pension planning as essential - wish I knew at 20 (when started first job) the importance of financial planning. I know i worked in a bank but personal finances were never discussed!!!!

Any suggestions/information given would be greatly appreciated but please keep your explanations as simple as possible - I don't have a great understanding yet as to what all the abbreviations mean.

Thanks

G

There are two sides to retirement planning, how much you will have coming in and how much you will have going out. Until you have a good (and detailed) grip on the latter, it is very difficult to make decisions on the former. Have a good look at the Numbers thread and start putting together your own 'number'. This will then help decide how much more you need to save / how much you can afford to give to children etc. Good luck.

stoozie1 · 14 May 2018 at 8:07AM

Hi.

Your NHS 2015 pension is DB (career averaged) not DC.

I agree with the advice to work out your 'number'.

Good luck!

ggmf · 14 May 2018 at 9:16AM

NHS pays in 14.3% not 16.3%, I'd also suggest that you sign up for access to the online "Total Rewards Statement" (if you have not already) so that you can see your projections.

sgm61 · 14 May 2018 at 11:51AM

Have today off on leave so have spent the last couple of hours going through the families previous 3 years spending (use YNAB - looovvvveee YNAB - since late 2014 it has changed us from living pay to pay to having a full 3 months pay buffer) to work out my number

Currently we have 1 adult child and her bf living with us (both are saving most of their salaries with aim of moving out within next 3-4 months) so I've had to estimate some costs (currently spend average £7500 pa on Food for 4 adults - so have guesstimated that for the husband and I we could easily reduce this down to £5000 and reductions also could be made in costs for car insurance, petrol etc. Well I believe I have a good estimation of £28000 net pa as being my number.

Food costs £5,000
Car/Transport costs £6,300 (includes petrol, repairs, insurance & car replacement fund £1500 pa)
Bills/Utilities £6,000 (Council tax £1,520, elect £1,300, oil £1,000 - maybe could reduce more when family size decreases to 2)
Holiday/Leisure £6,800 (I have included our personal spending monies in here along with costs for keeping husband's small boat in yearly moorings, insurance, etc)
Clothing/Cash/Xmas/Other £2,500 (really need to work on reducing Xmas/birthday costs)
Repairs/Replacements £1,000
So if need £28,000 net household income - am I right in saying that would indicate a gross retirement income of approx £30,000 to achieve same (allowing for PA and husband paying 20% tax on remainder of his pension (no NIC) and my income being under the PA). So husband's projected pension of £26k pa in 2020 with my current salary of £10500 and then late 2021 my projected pension of £11k/7.5k will provide in full for our number. Any excess will go into savings - but where to put those savings? ISA/SIPP? Which would be best?

sgm61 · 14 May 2018 at 12:22PM

Also just checked my SP forecast:
Up to April 2017 £156.76 pw - with 2 extra years NIC added before 2028 can get £164.35 pw.
Well already have 1 year added 2017-2018 and already contributing towards 2nd year i.e. 2018-2019 so my understanding is I will have a pension of £164.35 pw at SPA i.e. £8575pa (£714pm) WOW. I thought with me working part-time since 1997 I would have received less. Happy days!!!!
Must get hubby to check his - he however he paid reduced NIC as was contracted out 1982 - 2016 so I would anticipate his to be less.

kidmugsy · 14 May 2018 at 5:23PM

ggmf wrote: »

NHS pays in 14.3% not 16.3%, I'd also suggest that you sign up for access to the online "Total Rewards Statement" (if you have not already) so that you can see your projections.

If it's a DB pension then the amount the NHS pays in is a fiction: it's only there to remind everyone that DB pensions are expensive. In the end the DB pension costs the taxpayer whatever is required to satisfy the promises made to the pensioner. Rather than 14.3% it could be equivalent to 13.3% or more likely to 20.3%.

kidmugsy · 14 May 2018 at 5:30PM

sgm61 wrote: »

both bought at height of property prices and now worth 2/3rds original cost price.

Now you're just going for the Ermine sympathy vote!

Anyway: for goodness sake you own a boat. Give that to the children and cut your outgoings in one fell swoop.

Anyway again: you need never fear a further reduction in house prices. I know that because lots of people on MSE threads assure me that it is true, often adding that you can't beat BTL as an investment.

Reading and Learning about Pensions

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