Yup exactly. Time and taxes the two biggest influences upon your wealth.
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Yup exactly. Time and taxes the two biggest influences upon your wealth.
You can lead a horse ........
Sorry Andy, you clearly don’t get it at all. You’ve essentially turned what would have been tax free money, into probably taxable money in the future. Keep saying you didn’t need it is irrelevant (you could have put it in the same funds as your pension is in via an ISA or other vehicle). Whoever advised you to miss out on it has done a poor job and if you didn’t take advice, you should have in all honesty. Posters are just trying to help you.
Just out of interest, I have no pension as of such bar property. What type of monthly income do you guys aim to achieve via your pensions upon the appropriate drawdown age? Cheers..will
I have no job and therefore no income. I retired 3 years ago. So the only money I would have would be from the SIPP, cash reserves or flogging assets.
You cannot draw down from the SIPP and then put the back into your SIPP, especially when you expect HMRC to then give you an additional 20%. Trust me it was discussed and ruled out. Plus I was already on the limit of my LTA hence putting an extra 40k would have opened that element up to 55% tax.
I have using the same IFA for nearly 20 years, so forgive me if I put more trust in his POV than a few people on an Internet forum.
Surely this is simple to understand?
Not for the hard of understanding.
Andy, you are confusing income from your pension with contributions to your pension. This is a fundamental misunderstanding.
Your one shot at redemption would have been to tell us you had some other taxable income during the last three years and that, therefore, your personal income tax allowance was already fully utilised.
But you just told us you didn’t....
Anyway, I give up. Hopefully, someone other than Andy will read, understand and benefit from all the explanations that have been made.
Andy, every year you get to earn 12,500 without paying a penny of tax on it from earned income.
Money coming out your pension after the initial 25% tax free is treated as earned income.
You will have to take money out of your pension eventually and when you do it will incur income tax at the normal rate.
You can invest money in exactly the same funds your pension is currently in within an ISA. The 1% you have talked about is cash ISA, you can have a stocks and shares ISA with exactly the same funds as your pension.
You could have taken 12,500 each year out of the pension and put it into the ISA, without paying a penny of tax, and would have exactly the same potential of gains etc as if it was in your pension.
So in future you'll likely have to pay tax on the £37,500 you didn't take out over the past three years, which could have been tax free for life within the ISA.
Enjoy the retirement either way.
I for one have benefitted from this thread. I plan to retire next year and was going to live off savings as long as I could before drawing down my pension. That would have been a big mistake! I'll start drawing down up to my personal allowance and top up with savings. Thanks!
If you have a spouse it’s worth looking at pension planning for them as well as that means there’s 25k of allowances that can be utilised annually between two of you - that’s quite a bit of tax free usable income. Historically many families have had the pension for the bread winner, but that has changed drastically over recent years. Even if a spouse doesn’t have an income they can still pay £2,880 net into a pension which grossed up is £3,600. Do that for a number of years and there’s a lot of annual income allowances that can be taken out free of tax. With the state pension age increasing (and probably even more so in light of our current situation) that’s a lot of years of efficient retirement planning that can be had if retiring early. Obviously take advice as there may be reasons like higher rate tax relief, or reducing income to say 50k for child benefit etc for keeping pension planning to one person. I will say though, that the majority of people who can afford to utilise pension allowances for couples tend to as it’s a bit of a no brainer.
Andy clearly hasn’t got the first clue about this. But I just can’t believe a legitimate IFA would have screwed this up... it really is the first line of “pension planning for dummies 101”. No doubt he was advised of this no-brainer tax efficiency and ignored it (don’t need the money / I know best etc etc).
I guess we should all be thanking you really - the state sure needs the extra tax money!!!
Devonian, thanks for the spouse info. Very useful. My wife plans to carry on working part time up to her personal allowance but something to look into when she does give up!
I received a small inheritance a couple of years ago. There's about 70k. At the moment it's sitting in premium bonds between Mrs D and myself. I'm planning on taking advice when this is over as i'm not really itk about finance.
Honesty I get it. I could have taken out £12,500 from my SIPP (generating about 4% growth) and placed it in a ISA generating 1%, in order to save a bit of tax in approx 13 year time, when my Tax Free allowance will run out, based upon my current spending predictions.
What I could not have done is put that money back into my SIPP as some luminaries suggested. Plus the profits made on investments outside of an ISA would be subject to tax.
But just a couple of other points.
1) People are assuming I have not already maxed my ISA allowance.
2) My son starts uni this year and not having an income in 2018/19 means he can apply for the maximum grant/loans available.
Interesting discussion. Can I ask a dumb question
Is it therefore tax efficient to draw down the whole 25% tax free element + £12.5k in the first year of retirement? If I took the 25% over more than one tax year wouldn’t I be losing the tax free allowance for each of those years.
I’m probably missing something obvious here
Thanks
Casper
Most isas on a platform will be able to invest in the same holdings as your sipp so investment performance should be broadly the same - you would have had 4 yrs allowance in isas that you could draw tax free flexible income from when it suited you. It was a missed opportunity I’m afraid.
Edit. I see you mention your isa allowance being fully used already, so you should automatically seek to put it into other tax free investments.
It’s difficult to give you definitive advice without a full factfind which your current IFA will have. If you have used your isas then has your wife used hers?
After reading about the complexities of pensions on this thread I have to say I'm glad for the relative simplicity of the NHS and Teachers Pension schemes. I haven't the biggest of pensions, but the only decision I had to make when I retired at 58 was whether to start taking a reduced pension early or wait until my normal retirement age. I took the money!
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My wife started taking her nhs pension last summer at 55. She agonized over taking it early to start with, but I pointed out that although she'll only get 75% or whatever it worked out at she'd have it for five years longer. She doesn't regret taking it at all once the decision was made.
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Work is looking to reduce office staff by 1 in 4 by November, and EoI (Expression of Interest) for voluntary redundancy opens shortly.
I’m fully paid up long serving employee so can walk away with 2 years salary plus 3 months notice, plus start my very good final salary pension at 55 with only a 15% reduction.
I paid off the mortgage but have a couple of kids to get through university. I know they can take the debt.
I’m sorely tempted, but actually enjoy my job and it is pretty stress free (I’m a professional engineer with no pesky line managerial responsibility crap).
Also lockdown had not given me a warm fuzzy feeling of spending long winters without work. I always envisaged I would keep my hand in by doing a little consultancy work, but Covid has put paid to that.
I’m 51 and it feels a little early to retire, but I’m sorely tempted.
I’m OK to work longer, but we have been told that our redundancy terms versus our peers is first quartile, and we have been served the required 12 month notice that the redundancy terms will be revised for the worse.
Effectively they are providing encouragement saying these are the best terms you will ever get, and they are set to get worse.
Im retiring next week, as it goes!
I am 60 now , I cant wait! Ive been doing shift work for the last 28 years (train driver)...so I cant wait to finish....I will get nowhere near, some of the figures being bandied about on this thread...but importantly, what I do get will be fine for me!
The major benefit , ( for me!) is being able to do what I want, when I want, not have to worry about going to work and all that entails at stupid o clock, and of course finishing at stupid o clock!
I "intended", to spend September to December in Thailand, then home for Christmas, then back to Thailand from January until early April.......
Of course! Covid has put paid to my September trip this year...hopefully though, I will be able to get out there for the new year.
No matter how much money you may have/will get etc...
There is only one thing you cant buy.
That of course is time.
Excellent - good luck you!
I’ would take the money. Two reasons:
1) when the redundancies start there seldom is only one round of people being let go, so you’re still at risk. The redundancy packages tend to be less and less generous though the more rounds there are.
2) could you not do some form of freelance/consultancy, still enjoy your type of work in one form or another? Covid will not be around forever hopefully...
noTAGlove, we work for the same company! reimagine your future...
Don't know yet tbh. Still small amount of mortgage left and a 7 year old but the numbers work so could effectively chuck it in and be fine until I can access the dB pension which will be converted to CETV and drawn down. Only 47.5 but a health scare in 2017 has focused my mind. I am looking at permanent home working so want that approved then need to model the differentials between various scenarios. You?
If you bail now, just four years short of full retirement, on a job you actually enjoy, you should consult a psychiatrist! For the next 30 to 40 years, you will kick yourself for giving up that 15% retirement pension each year. Further, a 51 year-old guy is young...since you enjoy your job you obviously like the mental challenges it presents you. How are you going to fulfill that need for the next 10 or 15 years?
It seems clear that you should keep enjoying your job and profession, and start planning for how you will successfully transition into retirement at 55, perhaps with consulting that you could line up before you retire, or some other interesting endeavor.
What were your retirement plans ahead of this? Were you contemplating going at 55 anyway (in which case this feels like a no brainer). Or were you always planning to continue in your current job on into your 60s?
We don't have all the details you do of course, but it feels like from a purely financial view it may lean towards being a very good offer. I know the redundancy offers at Rolls Royce for the engineers going now are not that good at all.
I know the industry isn't exactly flourishing at the moment for another job or consultancy work but you've got a few years to see if anything suits you. And worst case scenario is you use some extra saving for the other two years ahead of retirement, which doesn't sound too onerous.
Happy retirement!
I have circa 3-years to go until I pull the trigger. Not long but also not soon enough as it’s definitely lost the novelty value, work that is.
Out of interest has COVID-19 impacted anyone’s plans or are they still on track?
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Don't forget that if you stay and they cut 25% of staff they're not going to cut 25% of the workload. I wouldn't want to be waiting for that mess to come down the pipe. Poo rolls downhill.
I was the same age as you back in 2016 when the last round of redundancies happened, so can understand your position, and that it may be a little early for you. It was for me back then.
Similarly I had a big (c) health scare back in 2006, but that now is not fresh in my mind and doesn’t seem to be influencing my decision.
I’m a level G so have until September to make my final decision, so will give it more thought over the next few weeks and maybe scupper my <my profile>, lol.
Obviously, no guarantee they will agree you taking the package, and that my biggest worry, if I put my heart and soul into to leaving.
When the banks got rid of loads of staff at age 50 (back when they could get their pensions at 50), they then realised they had overdone redundancies and within a year many of them were working for other banks on similar money than before, yet had had their TFLS and redundancy pay and were also getting their pensions. Many of them did really well. Any chance that your industry could pick up again in the future and your level of experience would be in demand again?
Two years salary is an excellent pay off, would that go on living until 55 or would you look for other work?
I reduced my workload at around 47 (due to a scare as well) and have been doing less and less - 3 to 4 days a week and 8 weeks holidays, with the intention now I’ve hit 50 to do 2 to 3 days max. Lockdown has proven to me I’m just not ready. I missed work. I know that this environment has been strange but I kind of realised I need to keep my mind focused on work.
Well deserved, enjoy every minute :-)
For me it depends if I can get home working approved, if I can then will probably stay on if I can't then will most likely EOI. It's a good test to see if they approve the remote working implies they want to keep me hence got some longevity. If it's not approved then need to decide on whether to EOI or not. It's tough as we don't know what roles could be or even if we want to work in the new organisation. I'm a subsurface professional but currently in digital advising (grade G too) so have until September to decide whether to EOI or not. Yes a c diagnosis and 4 months in Ari has changed my outlook somewhat. I've got 15 years service so the package is not unsubstantial. How long you got there?
You seem to be on my wavelength with respect to my attitude to work.
Yes, I really enjoy my job and the challenges it presents. It is the bureaucratical crap and management bullsh1t that really riles me now I am in my 50s, like it didn’t do when I was in my 40s.
Actually, full retirement at unreduced pension is age 60 for me. I am 8 and a bit years away from that.
If you are termed a good leaver (that comes with redundancy) it means you can take a reduced pension at 55 (15% discount). Those privileges do are not available if you are a bad leaver, i.e. if I leave without being made redundant.
Hence the reason why redundancy is so attractive.