Retirement – Evaluation of Your Plans

Lots of my cousins have done it. The more wealthy spend summer in Ireland and winters in Portugal.

I’m currently a 55% income tax payer as repay child benefit on 3 kids.  So I’m currently dumping loads into pension and drawing down savings to fund it.  I’m 51 so could get the pension cash in under 6 years if I needed it so it feels more like a 5 year Savings vehicle than a ‘lock away forever ‘ as pension used to.

With 3 young kids (9, 7, 4) I don’t expect to retire very early though.  I’ll likely be forced to work until my pension income is into high rate tax bracket,  but with getting 25% tax free and the kids being older, tax on the way out would be closer to 40% or less, rather than the 55% relief going in.

As well as the sipp I’ve just started to build,  I’ve Civil Service db pensions, one I can get at 60 without reduction,  the other 67. My hope is the sipp and first pension allow me to go before 67, using the sipp to tied over until that second db pension comes.

Now…recycling.  recycling is allowed for within small limits,  so I think I might take the 25% tax free lump from the sipp at 57 and recycle while 57-60, getting 55% boost again. Then at 60 the first db pension kicks out the lump sum and I recycle that over the next 3 or 4 years…. i think this…no..I hope this will make me enough to then retire at 63ish, not64 -65.  I’ve lots of sums to do around all this… what to pay in,  what to recycle and remain within limits,  and when to start drawing the second db pension.  Also need to consider if I should fund some sipp for my wife who currently looks after the kids and doesn’t earn.   A few £k for a sipp for her doesn’t feel as attractive as she’d just get basic rate relief going in,  but would pay no tax when drawing it…. but she’s also 7 years younger than me so couldn’t access it until much later.

All these sums are also made more complicated by the error the government made when it closed the classic pension (available at 60) and moved us to alpha (available at 67).  The McCloud judgement and Remedy solution means I’ll get to choose,  on first retirement  (ie, when I access the classic pension at 60)  where 6ish years of pension is.. 6 more years in classic or 6 more in alpha (not available until 67, but worth more then).

Probably ought to pay an IFA to do all these sums for me and talk me through the scenarios.

I know I’ve a good pension… but feel envious of those of you talking of retirement in your 50s!

Much speculation on budget tax changes and how pensions might be affected. One that wasn’t mentioned is the potential for taking 25% tax free triggering the reduced annual allowance of £10k. This only happens if you take draw down income. If you leave the remainder untouched, the higher allowance is still retained. Would be easy to trigger the lower allowance on taking the initial tax-free lump sum, regardless.

if they remove the allowance completely, I’ll probably retire.  But that would be such a huge change to the long-term financial planning for millions, it won’t happen. It will of course be subject to fiscal drag.

But on the plus side everything you put into your pension is increased by your highest tax rate

You’re  replaying back what IanC and me just said!

DOH, also I’ve just remembered the fourth and main reason I don’t use savings to live on and then dump more of my take-home into my pension…… I’m already paying everything above the high rate tax threshold into my pension anyway. So the saving would only be 33% rather than 53%

As you say Tired, lots of speculation Reeves will raid pensions in some way.  I hope not,  but something seems likely.   Any changes reduce incentives to save and too few save enough anyway.  As you also point out,  changes will make many just retire which isn’t what is wanted,  particularly if it’s the likes of consultants.