What do you think about retirement and when will you do it?

[lazythursday]

I made a new year's resolution to try to face facts and start properly thinking about this rather than keep my head in the sand.

Today I have managed to track down all my fairly pitiful pension pots. I also have a load of savings I think would probably be better off in a pension. I think I really need to find a financial adviser to advise on that and on consolidating all the different pots - but it feels like a minefield, how do I know that whatever smarmy finance guy I speak to isn't going to give me bad advice or worse somehow steal my money?

I've also realised just how valuable the defined benefit pension I am currently paying into is. I'm on a two year contract right now, with a reasonable chance of an extension / it becoming permanent. If I can stick with this employer/scheme for the next decade, I think there's a decent chance I might be able to afford to retire at about 62-64, rather than 67. It's a bit crap though, that effectively I can't afford to move jobs now because hardly anywhere offers such a good pension.

 

[Silas Loom]

Savings are not better off in a pension, because pension income is taxed. Savings should be in an ISA.

You probably don’t need independent advice to consolidate your pots, as long as you are able to research the fees they charge and (but this is less important as it doesn’t guarantee future performance) how good they seem to be at managing funds, to help you choose which one you consolidate into. Some workplace pensions don’t let you contribute after you leave, though, and those tend to be the ones with lowest management fees.

Defined benefit pensions are gold dust. Congratulations.

 

[lazythursday]

Savings are not better off in a pension, because pension income is taxed. Savings should be in an ISA.

You probably don’t need independent advice to consolidate your pots, as long as you are able to research the fees they charge and (but this is less important as it doesn’t guarantee future performance) how good they seem to be at managing funds, to help you choose which one you consolidate into. Some workplace pensions don’t let you contribute after you leave, though, and those tend to be the ones with lowest management fees.

Defined benefit pensions are gold dust. Congratulations.

Investigating ISAs is the next thing on my list. But I'm a bit confused about what happens when you come to buy an annuity - can you use your pension pot plus any savings you have at that point? or is it just what sits under the pensions wrapper?

And is it always better to consolidate into one of your existing pots, rather than move everything into a brand new scheme?

 

[Sue]

Savings are not better off in a pension, because pension income is taxed.

They're both taxed but their treatment is different. With savings, you get taxed on interest above £1000/£500 a year. With pensions, there's 25% tax-free as a lump sum or on each withdrawal. And of course you get tax relief on contributions too. (And while it wouldn't apply here, with salary sacrifice you save on the NI as well.)

Savings should be in an ISA.

Another option but the type depends on your timeframe. A pension is generally a much better idea than an ISA though if you don't need access to the money until 55 or 57 or whatever (depending on your age) because of the tax relief on the way in.

lazythursday, might also be an idea to see whether you can make additional contributions (or whatever it's called) to your DB scheme though think that may limit your flexibility a bit? (Don't know much about this but have heard it mentioned, should be in your scheme booklet.)

And good for you, biting the bullet.

 

[smmudge]

Savings are not better off in a pension, because pension income is taxed. Savings should be in an ISA.

That depends really, sometimes it is worth making extra contributions to get the tax relief upfront, especially if you're earning in a higher tax bracket at the time you do that. And then draw out the pension at a time when you're not earning.

lazythursday just make sure any smarmy finance guy is regulated by the FCA and only advising on regulated products, they will probably not even be able to hold client money. And if they do give you bad advice you will be due compensation.

 

[Sue]

Investigating ISAs is the next thing on my list. But I'm a bit confused about what happens when you come to buy an annuity - can you use your pension pot plus any savings you have at that point? or is it just what sits under the pensions wrapper?

You don't need to buy an annuity. And quite often, that's not the best thing to do.

And is it always better to consolidate into one of your existing pots, rather than move everything into a brand new scheme?

Depends. I deliberately didn't consolidate one of mine as the charges are really low.

There's lots of useful stuff here:

https://www.moneysavingexpert.com/banking/

The retirement forum is also really helpful.

Pensions, annuities & retirement planning

For help with everything to do with pensions and retirement.

forums.moneysavingexpert.com

 

[Silas Loom]

They're both taxed but their treatment is different. With savings, you get taxed on interest above £1000/£500 a year. With pensions, there's 25% tax-free as a lump sum or on each withdrawal. And of course you get tax relief on contributions too. (And while it wouldn't apply here, with salary sacrifice you save on the NI as well.)


Another option but the type depends on your timeframe. A pension is generally a much better idea than an ISA though if you don't need access to the money until 55 or 57 or whatever (depending on your age) because of the tax relief on the way in.

lazythursday, might also be an idea to see whether you can make additional contributions (or whatever it's called) to your DB scheme though think that may limit your flexibility a bit? (Don't know much about this but have heard it mentioned, should be in your scheme booklet.)

And good for you, biting the bullet.

That’s what I was forgetting. I always think of pensions as an alternative to salary, with tax disadvantages which hit further down the line, so for me savings are always the money on which tax has already been paid, and so should be stored as tax-efficiently as possible.

Sorry lazythursday - get your advice from Sue.

 

[lazythursday]

They're both taxed but their treatment is different. With savings, you get taxed on interest above £1000/£500 a year. With pensions, there's 25% tax-free as a lump sum or on each withdrawal. And of course you get tax relief on contributions too. (And while it wouldn't apply here, with salary sacrifice you save on the NI as well.)


Another option but the type depends on your timeframe. A pension is generally a much better idea than an ISA though if you don't need access to the money until 55 or 57 or whatever (depending on your age) because of the tax relief on the way in.

lazythursday, might also be an idea to see whether you can make additional contributions (or whatever it's called) to your DB scheme though think that may limit your flexibility a bit? (Don't know much about this but have heard it mentioned, should be in your scheme booklet.)

And good for you, biting the bullet.

I don't think I can make additional contributions to my defined benefit scheme - I think any additional contributions I make goes into a separate pot that is effectively another defined contribution scheme.

Is there a max per year I can put into a pension in a lump sum if I did decide that's the best thing for my savings?

 

[Silas Loom]

I don't think I can make additional contributions to my defined benefit scheme - I think any additional contributions I make goes into a separate pot that is effectively another defined contribution scheme.

Is there a max per year I can put into a pension in a lump sum if I did decide that's the best thing for my savings?

This one I do know. £40k per year, but you can pay in retrospectively for a couple of previous years too. However, your DB contribution likely counts towards this.

Edit - no, Sue is right again, it went up from £40k to £60k last year. I’m giving up.

 

[Sue]

I don't think I can make additional contributions to my defined benefit scheme - I think any additional contributions I make goes into a separate pot that is effectively another defined contribution scheme.

Check out Additional Voluntary Contributions (AVCs) which may or may not be a good idea.

Is there a max per year I can put into a pension in a lump sum if I did decide that's the best thing for my savings?

It's £60k and you can also use carry forward from the last three tax years. But that's limited by how much you earned in those years too.

Eta It was £40k up to the end of the 2022/3 tax year. Remember as well that the annual limit includes both your and your employers contributions.

 

[UnderOpenSky]

Apparently I can make additional payments to my NHS pension. I can find calculators showing how much it will cost me. What I can't find anywhere is a calculator to show how much it will return.

 

[PursuedByBears]

I've also realised just how valuable the defined benefit pension I am currently paying into is.

It's a bit crap though, that effectively I can't afford to move jobs now because hardly anywhere offers such a good pension.

Yeah, this is me too. IIRC you also work for a university, are you in USS?

 

[lazythursday]

Yeah, this is me too. IIRC you also work for a university, are you in USS?

yep am in USS - only for just over a year so far but am definitely going to try to hold on to university employment for as long as possible!

 

[A380]

I agree wholeheartedly, but with the single caveat that (geriatric) parental care needs have the capacity to completely subvert such good intentions. I think a significant proportion of folk 'not working' are compensating for the lack of any coherent elderly adult social care in this fucking country.

Yep. Three out of four parents of Ms747 and me have dementia and we are they only carers for them. I’m also Ns 747’s for her condition. God know what we would have done if we still working. Still it’s not like our parents had worked and paid taxes for 200 odd years between them…

 

[Elpenor]

Apparently I can make additional payments to my NHS pension. I can find calculators showing how much it will cost me. What I can't find anywhere is a calculator to show how much it will return.

Does it buy additional years?

 

[Puddy_Tat]

I made a new year's resolution to try to face facts and start properly thinking about this rather than keep my head in the sand.

Today I have managed to track down all my fairly pitiful pension pots. I also have a load of savings I think would probably be better off in a pension. I think I really need to find a financial adviser to advise on that and on consolidating all the different pots - but it feels like a minefield, how do I know that whatever smarmy finance guy I speak to isn't going to give me bad advice or worse somehow steal my money?

I've also realised just how valuable the defined benefit pension I am currently paying into is. I'm on a two year contract right now, with a reasonable chance of an extension / it becoming permanent. If I can stick with this employer/scheme for the next decade, I think there's a decent chance I might be able to afford to retire at about 62-64, rather than 67. It's a bit crap though, that effectively I can't afford to move jobs now because hardly anywhere offers such a good pension.

Some random thoughts, subject to the disclaimer that I'm not a financial adviser or anything like that -

Defined contribution schemes will perform differently over time - you might consolidate in one that does better than average, you might not. Are some charging higher fees than others? Do any have fees for transferring out? Consolidating will simplify admin, and might lead to lower charges, or it might just mean you're paying X percent a year on a higher amount rather than about X percent on a few smaller amounts.

Some defined benefit schemes will allow transfers in - I went (back) in to local government a couple of years ago and the estimated (broadly guaranteed) pension at retirement on the transfer value on a few DC schemes I've picked up since I left local government was on average 40 - 50 % higher than the estimated (not guaranteed) pension if I'd left them alone, although it's possible the estimates were over-cautious and I might have done better staying with them.

Your scheme may not allow this, or may have a time limit on doing so (I think I only had the right to transfer in within a year of starting.)

Transfers in to DB schemes might 'buy service' as in will add the equivalent of X years' service to your pension calculation, it may just be that X pounds paid in will get you Y amount more pension. (the latter is how the local government scheme works now - it used to be a case of buying service, as happened when I first joined the pension scheme and transferred something else in, but that was in the early 90s.)

Some DB schemes allow additional payments in to the main scheme, either on the basis of buying service, or buying additional pension either as a lump sum or X amount per month. Some places with DB schemes offer an 'additional voluntary contributions' scheme (either only offering this, or offering it as an alternative) but this behaves like a defined contributions scheme. This may or may not be better than your current DC scheme/s and may or may not allow transfers in.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise may be worth a look.

 

[Chz]

yep am in USS - only for just over a year so far but am definitely going to try to hold on to university employment for as long as possible!

Oh, nice. Here you only get to be in USS if you were already in it before arriving. The alternative schemes are still good, to be perfectly fair, but USS is more a gold standard.

 

[smmudge]

Is there a max per year I can put into a pension in a lump sum if I did decide that's the best thing for my savings?

If you've got a sizeable lump sum to put in it is worth remembering that you will only get tax relief on contributions up to 100% of your earnings in a tax year, and that will take into account what you're already putting in. And as pension income is taxed on the way out, as we've established it's not a good idea to pay in if you don't get the tax relief with it. When you start putting in over £60k in a tax year (+any carry forward) you get a tax charge. I.e. they take the tax relief back. You can always spread it over tax years though.

As to your annuity question, there are different types of annuity. Your pension savings can buy you a pension annuity. You can buy a Purchased life annuity with a cash lump sum. The income from them is taxed differently. As Sue says though there are other options and lots of things to take into account when thinking what's right for you.

 

[petee]

i'm thinking of it, esp. since i reached "a certain age" last june. i'm mostly miserable in my work anymore, but i have a huge amount of social contact as a schoolteacher which would drop dangerously if i left. i'm earning proper money now, so am tempted to go a little monger, esp. as i spent my 30s living on stipends so i could use it, and i appear to have won the longevity bingo - my parents' average age at death was 94. will i have enough?

i won't be bored, frankly i'm champing at the bit to get to other things. that impulse may win out in the end.

1 yr later and i went a little longer. i'm more or less in the same place overall but this has got to be it, it's inconceivable that i'll be at the same workplace in september.

 

[UnderOpenSky]

Does it buy additional years?

No, that would be easy to get my head around, but apparently they don't do that anymore.

 

[brogdale]

Yep. Three out of four parents of Ms747 and me have dementia and we are they only carers for them. I’m also Ns 747’s for her condition. God know what we would have done if we still working. Still it’s not like our parents had worked and paid taxes for 200 odd years between them…

Exactly.

And, given that we all start paying tax as soon as we're allowed out to spend our pocket money, we reckon our 4 (3 left) have collectively contributed tax revenues for about 320 years.

 

[Puddy_Tat]

Apparently I can make additional payments to my NHS pension. I can find calculators showing how much it will cost me. What I can't find anywhere is a calculator to show how much it will return.

I found this (which may be the wrong thing) which seems to work - you tell it how much you want in extra pension, how old you are, whether you want to pay monthly or lump sum, and it tells you how much it will cost.

The LGPS calculator works the other way round - you tell it how much you want to put in, it tells you how much pension you'll get out of it.

I'm still in two minds whether to throw more money at it - trying to decide what to do about moving house first...

 

[UnderOpenSky]

I tr

I found this (which may be the wrong thing) which seems to work - you tell it how much you want in extra pension, how old you are, whether you want to pay monthly or lump sum, and it tells you how much it will cost.

The LGPS calculator works the other way round - you tell it how much you want to put in, it tells you how much pension you'll get out of it.

I'm still in two minds whether to throw more money at it - trying to decide what to do about moving house first...

I feel a bit daft now as I found that and totally misunderstood it (I think). Your choosing how much extra you want per year?

Just throwing some random morbid numbers in it, I'd need to live between 10 to 13 years past retirement to get back what I paid in.

 

[Puddy_Tat]

I'm still in two minds whether to throw more money at it - trying to decide what to do about moving house first...

I feel a bit daft now as I found that and totally misunderstood it (I think). Your choosing how much extra you want per year?

- that's how i understood it.

Just throwing some random morbid numbers in it, I'd need to live between 10 to 13 years past retirement to get back what I paid in.

that sounds about right - i've just had another look at the one relevant to me - looks like I need to live 13 and a bit years after retirement to gain on the deal...

hmm.

another strand to the question of whether to transfer existing DC in to DB schemes - i'm not sure what the rules are about having cash instead of pension at retirement (if you want) - think it may be easier to do it with a DC scheme than DB - i think with DC you don't have to put the money in to an annuity, with DB I don't think there's an option to take it all as cash (some schemes have lump sum and pension and with some you can have more of one and less of the other.)

i have even less idea what the implications might be for income tax, means tested benefits, or potential contributions to care fees if you take the money.

 

[Sasaferrato]

To my utter astonishment, I've now been retired for six years.

 

[UnderOpenSky]

- that's how i understood it.



that sounds about right - i've just had another look at the one relevant to me - looks like I need to live 13 and a bit years after retirement to gain on the deal...

hmm.

another strand to the question of whether to transfer existing DC in to DB schemes - i'm not sure what the rules are about having cash instead of pension at retirement (if you want) - think it may be easier to do it with a DC scheme than DB - i think with DC you don't have to put the money in to an annuity, with DB I don't think there's an option to take it all as cash (some schemes have lump sum and pension and with some you can have more of one and less of the other.)

i have even less idea what the implications might be for income tax, means tested benefit, or potential contributions to care fees if you take the money.

Hmmm. I think I'll stick with the standard NHS and any extra can keep going into SIPP. My understanding is you can take 25% of one tax free and you can do so from 57.

 

[Puddy_Tat]

Hmmm. I think I'll stick with the standard NHS and any extra can keep going into SIPP. My understanding is you can take 25% of one tax free and you can do so from 57.

I have only the faintest of ideas what a SIPP is, so that one's out of my league.

When I started in current job, I didn't consolidate my old LGPS pension, or an old employer's DB pension, as both of these allow retirement at 60, the new LGPS takes quite a reduction for early retirement.

 

[UnderOpenSky]

I have only the faintest of ideas what a SIPP is, so that one's out of my league.

When I started in current job, I didn't consolidate my old LGPS pension, or an old employer's DB pension, as both of these allow retirement at 60, the new LGPS takes quite a reduction for early retirement.

It's just a defined DC pension that you organise yourself and the same rules apply to both.

 

[smmudge]

Just throwing some random morbid numbers in it, I'd need to live between 10 to 13 years past retirement to get back what I paid in.

That's a pretty good annuity rate! Does it take into account the escalation? (I didn't look at the calculator.)

 

[Puddy_Tat]

Does it take into account the escalation?

i thought that only applied to station staff on the underground