Retirement, how much?

[PaulSB]

To highlight the benefit of a quality IFA. I took 25% of my pension pot five years ago, if I add back this sum, without growth, my pot today is worth more than the day I retired. Our capital has grown by £11,000 in the past six months and is well above pre-pandemic levels. Our capital is far from large.

I realise I'm in danger of banging on about IFAs and their importance. Just to expand the above; on retirement I took 25% tax free from pension pot, four years of drawdown to the relevant tax threshold and when adding back the lump sum the value is still higher than when I retired. I couldn't make investments which give this level of growth without professional help and I doubt many here could.

The other point is after taking a lump sum the only way to get cash out of pension pot without paying tax is via drawdown. It's always sensible to take drawdown to bring one's income up to the tax threshold.

I wouldn't consider buying an annuity as it's a great way to walk straight in to a tax bill after reaching SP age.

 

[numbnuts]

• I do not understand how people afford rent in retirement. I couldn't.

I have no choice, pay rent or park bench it is as easy as that.
I pay £553.92 per month, but I get £243.4 housing benefit so not too bad and with my state pension of £717,76 pm, plus my lousy works pension of £38.7 pm, but I do get retirement disability benefit of £219.48pm so things ain't too bad.

 

[Landsurfer]

State pension for Jules and I, Military Pension (28 years pensionable service), 25 years of works pension and sale of my shares in the business at 75% of value...
Gives us an income just about the same as we have now .... even though currently i’m working full time .... sort of ...

 

[cougie uk]

I realise I'm in danger of banging on about IFAs and their importance. Just to expand the above; on retirement I took 25% tax free from pension pot, four years of drawdown to the relevant tax threshold and when adding back the lump sum the value is still higher than when I retired. I couldn't make investments which give this level of growth without professional help and I doubt many here could.

The other point is after taking a lump sum the only way to get cash out of pension pot without paying tax is via drawdown. It's always sensible to take drawdown to bring one's income up to the tax threshold.

I wouldn't consider buying an annuity as it's a great way to walk straight in to a tax bill after reaching SP age.

How did you find your IFA Paul - it seems like a tricky one to find someone you can trust.
Thanks.

 

[Dave7]

How did you find your IFA Paul - it seems like a tricky one to find someone you can trust.
Thanks.

Might be of no use to you but......
My bank is TSB. They offered free FA and because we had over a certain amount they were obliged to make that IFA.
Sure enough their top FA travelled to see me, gave me good advice (which I acted on) and all worked out well.

Maybe your bank has something similar??

 

[ColinJ]

Understand current outgoings. There seems to be a lot of "I reckon" in here and it can be misleading. Banking and credit card information can easily provide a 12 month history of one's spending. Grab this information put it in to Excel to fully understand your spending. Include everything and be accurate - no estimates.

All of my spending is from my Halifax account. I looked at every transaction over the past 5 years so I know exactly what I spend! Inflation and especially coming fuel price increases will probably bump the total up by 10% next year but that shouldn't be a problem.

Understand where unnecessary expenses are incurred and how to reduce or eliminate these. Before retiring our newspaper bill was £884pa, today it is £364 - and we still have enough paper left to light the fire!!!!!!!

I walk or cycle to the station to pick up a free Metro on weekdays, and I pay £2 a month to the Guardian for using their website so I only pay £24 p.a.! I will increase the payment to the Guardian to (say) £120 p.a. once I get my pension.

After resurrecting this thread and with my pension looming, I find that my mindset is already shifting from 'poverty mode' to 'thrift mode'! I bought a pair of trainers yesterday for £40 because my old ones started falling apart just as I walked past a footwear stall at our local market. That is more than my weekly shopping budget has been for the past 2 or 3 years! I wouldn't have done it if I hadn't known that a pension payment will soon be appearing in my account.

I will still have to be careful with money but no longer obsessive about it. Spending 20 hours researching to save £20 on online purchases was absolutely no fun whatsoever!

 

[Ming the Merciless]

This page is useful for understanding the Basic Stare Pension and NI contribution years.

https://www.gov.uk/new-state-pension/how-its-calculated

 

[PaulSB]

How did you find your IFA Paul - it seems like a tricky one to find someone you can trust.
Thanks.

In my case luck. She started to work for her father's business perhaps 20 years ago when she would have been around 25. Her father had sold us an endowment policy and my first small pension - £44/month contribution. She asked to come and see me regarding pensions and returned every year until I took a new policy. She continued to visit every 12 months. I was impressed by the annual service for very small returns for the business but more importantly I was very impressed by her as an individual, a decent person. In those years I didn't have the knowledge to properly judge if the products were right for me. I trusted my instinct that this was a very decent young woman who wouldn't pull a fast one. I was right.

My advice would be to decide if the FA you hope to work with is a decent, open and honest person. Not easy but most of us should be capable of this. If he or she is then I feel one can be confident in the quality of the advice. I pay an annual fee of £400 for one annual review lasting two hours plus as much text, phone and email support as I need. +/- £2000pa is paid to her business from my pension fund.

It is entirely due to the advice from my IFA that I'm enjoying a relaxed and happy retirement. I'm not wealthy, just an ordinary bloke.

Today my IFA owns and runs the business which she has developed enormously and now has four offices, three in the northwest and one in London. She still finds two hours to sit down with me in return for £2400. As I said, a decent person. That is crucial.

 

[oldfatfool]

I realise I'm in danger of banging on about IFAs and their importance. Just to expand the above; on retirement I took 25% tax free from pension pot, four years of drawdown to the relevant tax threshold and when adding back the lump sum the value is still higher than when I retired. I couldn't make investments which give this level of growth without professional help and I doubt many here could.

The other point is after taking a lump sum the only way to get cash out of pension pot without paying tax is via drawdown. It's always sensible to take drawdown to bring one's income up to the tax threshold.

I wouldn't consider buying an annuity as it's a great way to walk straight in to a tax bill after reaching SP age.

Taking 25% lump sum early is still a gamble that the pension investment will do worse than interest earned elsewhere. Whilst ever you are confident of living long enough drawing down your allowance + 33% each year ie app 16,750pa atm wil be tax free leaving a larger pot in your pension to grow and the growth earning 25% tax free as opposed to chrytalising all your pot to start with and any further growth being subject to potential tax.

 

[PaulSB]

Taking 25% lump sum early is still a gamble that the pension investment will do worse than interest earned elsewhere. Whilst ever you are confident of living long enough drawing down your allowance + 33% each year ie app 16,750pa atm wil be tax free leaving a larger pot in your pension to grow and the growth earning 25% tax free as opposed to chrytalising all your pot to start with and any further growth being subject to potential tax.

To be honest I'm not sure I understand your post. I think you're saying it's better to leave the tax free lump sum in the pension pot, drawdown to the tax threshold and to this one can add 33% without paying tax? Where does this 33% come from? How do you know the growth is 25%?

 

[cougie uk]

Taking 25% lump sum early is still a gamble that the pension investment will do worse than interest earned elsewhere. Whilst ever you are confident of living long enough drawing down your allowance + 33% each year ie app 16,750pa atm wil be tax free leaving a larger pot in your pension to grow and the growth earning 25% tax free as opposed to chrytalising all your pot to start with and any further growth being subject to potential tax.

Or perhaps people are spending the cash on something they need to do ? After all there's no pockets in a shroud.

 

[cougie uk]

In my case luck. She started to work for her father's business perhaps 20 years ago when she would have been around 25. Her father had sold us an endowment policy and my first small pension - £44/month contribution. She asked to come and see me regarding pensions and returned every year until I took a new policy. She continued to visit every 12 months. I was impressed by the annual service for very small returns for the business but more importantly I was very impressed by her as an individual, a decent person. In those years I didn't have the knowledge to properly judge if the products were right for me. I trusted my instinct that this was a very decent young woman who wouldn't pull a fast one. I was right.

My advice would be to decide if the FA you hope to work with is a decent, open and honest person. Not easy but most of us should be capable of this. If he or she is then I feel one can be confident in the quality of the advice. I pay an annual fee of £400 for one annual review lasting two hours plus as much text, phone and email support as I need. +/- £2000pa is paid to her business from my pension fund.

It is entirely due to the advice from my IFA that I'm enjoying a relaxed and happy retirement. I'm not wealthy, just an ordinary bloke.

Today my IFA owns and runs the business which she has developed enormously and now has four offices, three in the northwest and one in London. She still finds two hours to sit down with me in return for £2400. As I said, a decent person. That is crucial.

Thanks Paul. Am I reading that right though ? £1200 an hour ? Do your funds move around a lot in the year under her care ?

I mean if you're getting a great return then £2400 a year might be a great deal.

 

[oldfatfool]

To be honest I'm not sure I understand your post. I think you're saying it's better to leave the tax free lump sum in the pension pot, drawdown to the tax threshold and to this one can add 33% without paying tax? Where does this 33% come from? How do you know the growth is 25%?

If your tax threshold ie personal allowance is £12.5 k per annum (and you have not taken any lump sum), you can take £16,666 from your pension tax free, ie £12.5 + 33% is 16,666. Withdrawing £16,666 from your pension each year is the same as taking £4166 tax free lump sum and £12.5k personal allowance, BUT all the money left in your pot is still subject to your 25% tax free allowance.

Once a lump sum allowance as been withdrawn for an amount then the balance remaining or gains made therefrom is subject to tax. So if you have a pot of 200k and withdraw 50k as a lump sum tax free then even if the 150k remaining increases in value to 1million you would still have no further tax free money to withdraw. If however you withdrew 16.666 from your pot with 12.5k being taxable (but no tax payable as it is your annual allowance) then only the tax free amount due on 16,666 would have been withdrawn so the remaining £183, 334 would still be eligible for 25% tax free, if this pot then grew to 1m then your tax free allocation would be £250k.

So if you don't need the cash lump sum immediately, and you are confident your pension returns will exceed other investment then it makes sense to leave money in your pension as gains will then benefit from a 25% tax free allowance. This of course mainly applies to defined contribution schemes in drawdown which also benefit from the fact that the money left in them at death is bequeathable so isn't lost.
Disclaimer, I am not an ifa and nothing I post in anyway constitutes financial advice.

https://www.pensionbee.com/pensions-explained/pension-types/what-is-a-crystallised-pension

 

[PaulSB]

@oldfatfool - thanks. Very clear.

 

[DCLane]

@oldfatfool that's my intention with the non-teaching pensions I have. The Teacher's Pension comes with a lump sum, as does SWMBO's NHS pension.