Sipp advice

[rambo1]

Hi (Robert) lol, thought I'd address it to you. I'm planning on retiring at 55, not got an awful lot of pension for the 60 benefits though. As I understand it to drawer my pensions early it'd be 5% cut per year, so respectively, 50 and 25 % for each section. Now I have a plan to start investing £10k per yr into a sipp, mainly for the 20% tax relief, for ten yrs till I can draw on it at 55, I just make it in time before it goes to 57. My intention is to not drawer my royal mail pensions till 60 and 65 to not take the big cut, and bridge the gap by drawing down my sipp hopefully worth around £150k+. Does this seem a good idea? If I drawer down £12k yr I would not pay tax either and it would easily bridge to me being 65. What do you think, I'd be interested, thanks.

[RobertT]

Hi.
I’m planning on doing basically the same as you, although I’m using a personal pension that I’ve had for a number of years rather than a SIPP. Ultimately retirement is a financial decision, so if you can save enough money over the years to achieve your aim, then I’d say go for it.

Here’s a few points to consider:

a. Don’t forget you also have options via RM pensions. If you put in as much into AVC’s(currently) or the new DC pension from April 2018(assuming it’s introduced) to stay with the limits for PSE you’ll get tax relief at 20% and ‘NI relief’ at 12%. Meaning each £1 gross contribution will only cost you £0.68. Everything else could then go into your SIPP.

b. The personal tax allowance is currently £11,000 per annum, rising to £11,500 from April of this year. There are no definite plans to increase it further as far as I know, but by the time you get to 55 there’s a decent chance it will be higher.

c. Factor in your state pension age, which I assume from what you’ve said, will be 67, and what your state pension amount is likely to be. More info: https://www.gov.uk/check-state-pension" onclick="window.open(this.href);return false;

d. Consider whether you can afford to live off your state pension and your RM pensions combined from SPA.

[rambo1]

Many thanks Robert for your reply. As a matter of interest, what is the max I can put in as avc currently and how do you envisage this changing post 2018? Thanks.

[RobertT]

You can currently put in virtually all your available wages into your AVC’s if you want to, although if you put too much in, you’ll effectively be opting yourself out of PSE.
There’s already a thread on the matter here: http://www.royalmailchat.co.uk/communit ... 27&t=76631" onclick="window.open(this.href);return false;
And all the PSE info is here: http://www.myroyalmail.com/node/6791" onclick="window.open(this.href);return false;

The proposal post 2018 is that AVC’s will stop but you will be able to continue paying extra into the new DC arrangement. It’s mentioned in the Q&A’s here: http://www.royalmailchat.co.uk/communit ... 27&t=77960" onclick="window.open(this.href);return false;

[heapsy]

I'm doing the same thing. I have a stake holder pension with a retirement age of 60. Currently worth just short of £30k. There is also part of a frozen private pension I was unable to transfer to RM, with an NRA of 65, currently worth about £18k. I'm also investing in a stocks and shares ISA, fast approaching the £15k mark. I will use this to provide the bulk of my lump sum. With about a month short of 20 years in the NRA60 pension, section C, I am reluctant to take a lump sum from this. Around £38k. The exception will be my AVCs, currently worth just under £1500. Will be contacting pensions today to increase, (yet again) my contributions to this. I also have about £30k of assorted shares in a share account, I will sell these as and when conditions and share prices are right, and use the money as cash. There is also a decent size pot in a cash ISA, in excess of £25k. I've been putting all overtime over 10 hours into a separate bank account for this purpose. Due to divorce, I was reluctant to put more away into my pension, as this was my financial undoing back then. In some ways, the changing pension situation may prove to be a blessing. I could end up with more the 25% of my overall pension pot as cash. I intend to leave the pensions until the relevant retirement ages, therefore taking them in stages. Not sure if this is relevant, but it might give some a few ideas as to how to manage their own situation. There does seem to be a number of people who haven't got 30 years plus service with RM, and therefore might have a similar situation as mine, but with little idea as to what to do or when.

[Aquarius]

Great minds think alike - same idea for the SIPP.

I decided to wait a while and use AVC/salary sacrifice (£60pw rise to £100pw soon)before that option was ended/altered next year.

Then start making SIPP/AVC payments

I simply don't understand why more people don't make use of AVC/salary sacrifice right now - it's a no-brainer.

[RobertT]

Great minds think alike - same idea for the SIPP.
I decided to wait a while and use AVC/salary sacrifice (£60pw rise to £100pw soon)before that option was ended/altered next year.
Then start making SIPP/AVC payments

The proposals from April 2018 are that any additional pension savings you want to make on top of the basic percentage amount, will go into the new DC pension scheme instead of the current AVC’s. So assuming RM continue to offer salary sacrifice(PSE), it will still make sense to utilise it.

I simply don't understand why more people don't make use of AVC/salary sacrifice right now - it's a no-brainer.

I totally agree! Where else can you save £68 and get another £32 given to you for nothing?

[rambo1]

One point to make, does the salary sacrifice in effect lower the contributions and therefore the end pension amount for the state pension (if we all live that long to draw it) lol. Thanks for all the advice by the way.

[RobertT]

One point to make, does the salary sacrifice in effect lower the contributions and therefore the end pension amount for the state pension (if we all live that long to draw it) lol. Thanks for all the advice by the way.

To get any state pension you need to have a National Insurance record.
If you earn less than £112 per week you won’t be adding to your NI record at all. If your income is between £112 and £156 per week you’re adding to your record but not actually paying NIC’s. It’s only after earning over £156 that you actually start paying NIC’s.

So as long as you’re earning over £112 per week for a full tax year after salary sacrifice has been taken into account then you will get a qualifying year for your state pension. It doesn’t really matter whether you’re a postie or a footballer on £200k per week, as long as you’re over that threshold amount, you’ll be building up your state pension at the same rate.

You can check to see whether you’ve got any missing NI years here: https://www.gov.uk/check-national-insurance-record" onclick="window.open(this.href);return false;

Or if you check your state pension amount online using the link in my previous post, that will give you your NI record aswell.

[heapsy]

Great minds think alike - same idea for the SIPP.
I decided to wait a while and use AVC/salary sacrifice (£60pw rise to £100pw soon)before that option was ended/altered next year.
Then start making SIPP/AVC payments

The proposals from April 2018 are that any additional pension savings you want to make on top of the basic percentage amount, will go into the new DC pension scheme instead of the current AVC’s. So assuming RM continue to offer salary sacrifice(PSE), it will still make sense to utilise it.

I simply don't understand why more people don't make use of AVC/salary sacrifice right now - it's a no-brainer.

I totally agree! Where else can you save £68 and get another £32 given to you for nothing?

In an earlier post, I mentioned the NRA of the new scheme, assuming it will be 65. You posted a reply that it would not be 65, and that you would be able to take it when you liked. If this IS the case, then surely it wouldn't make any difference regarding the AVCs situation, ie, being able to take future AVCs, paid after the start of the new pension, at 60, instead of 65, as RM are saying. Have you or I, or both of us got mixed up here? Cheers.

[RobertT]

In an earlier post, I mentioned the NRA of the new scheme, assuming it will be 65. You posted a reply that it would not be 65, and that you would be able to take it when you liked. If this IS the case, then surely it wouldn't make any difference regarding the AVCs situation, ie, being able to take future AVCs, paid after the start of the new pension, at 60, instead of 65, as RM are saying. Have you or I, or both of us got mixed up here? Cheers.

RM are not saying that!

RM have given illustrations as to the amount of pension we may get at 60 or 65, there is no implication that they are the Normal Retirement Age/s for the DC scheme. Infact on page 9 of the proposal booklet it clearly says, ‘you would be able to take money from your DC pension from the minimum pension age(currently 55)’.

Under the proposals, any additional payments you make after April 2018 would go into your new RM DC pot alongside the basic contributions from yourself and RM. Therefore they can’t be accessed separately from each other as such. But under current legislation you can access that total pot any time after age 55.

There are some DC pensions, mainly from 20-30 years ago which have Guaranteed Annuity Rates(GAR’s) that offer incomes which are much higher than you can get today and so are very valuable things to have. These often have Normal Retirement Ages(NRA’s) so you have to take them at that age or you lose the GAR.
Most, if not all other DC schemes do not have either GAR's or NRA’s so can currently be accessed from age 55.

Current AVC’s (Flexiplan & Bonusplan) will be treated the same as now. So will continue to either fund the tax free lump when taking your main RMPP benefits. Or can be accessed from 55 under flexibility rules introduced in 2015(with probable tax implications).

[heapsy]

In an earlier post, I mentioned the NRA of the new scheme, assuming it will be 65. You posted a reply that it would not be 65, and that you would be able to take it when you liked. If this IS the case, then surely it wouldn't make any difference regarding the AVCs situation, ie, being able to take future AVCs, paid after the start of the new pension, at 60, instead of 65, as RM are saying. Have you or I, or both of us got mixed up here? Cheers.

RM are not saying that!

RM have given illustrations as to the amount of pension we may get at 60 or 65, there is no implication that they are the Normal Retirement Age/s for the DC scheme. Infact on page 9 of the proposal booklet it clearly says, ‘you would be able to take money from your DC pension from the minimum pension age(currently 55)’.

Under the proposals, any additional payments you make after April 2018 would go into your new RM DC pot alongside the basic contributions from yourself and RM. Therefore they can’t be accessed separately from each other as such. But under current legislation you can access that total pot any time after age 55.

There are some DC pensions, mainly from 20-30 years ago which have Guaranteed Annuity Rates(GAR’s) that offer incomes which are much higher than you can get today and so are very valuable things to have. These often have Normal Retirement Ages(NRA’s) so you have to take them at that age or you lose the GAR.
Most, if not all other DC schemes do not have either GAR's or NRA’s so can currently be accessed from age 55.

Current AVC’s (Flexiplan & Bonusplan) will be treated the same as now. So will continue to either fund the tax free lump when taking your main RMPP benefits. Or can be accessed from 55 under flexibility rules introduced in 2015(with probable tax implications).

I've just spoken with someone on the pension proposal helpline and asked the following questions. If I continue to pay AVCs would I still be able to elect a retirement age of 60 and still take the AVC contributions (post pension changes) at the same time as those made BEFORE the changes. Question two was, is there a definitive retirement age to the new DC scheme, ie 65?
The answers to both questions were that nobody knows yet, as a decision hasn't been made. It looks likely that the post change AVCs contributions may well go into a separate account, with a different retirement age. I'm expecting a phone call back, sometime next week so will post any info I receive on here.

[RobertT]

I've just spoken with someone on the pension proposal helpline and asked the following questions. If I continue to pay AVCs would I still be able to elect a retirement age of 60 and still take the AVC contributions (post pension changes) at the same time as those made BEFORE the changes. Question two was, is there a definitive retirement age to the new DC scheme, ie 65?
The answers to both questions were that nobody knows yet, as a decision hasn't been made. It looks likely that the post change AVCs contributions may well go into a separate account, with a different retirement age. I'm expecting a phone call back, sometime next week so will post any info I receive on here.

It’s true, we don’t yet know exactly what will happen because they are just proposals.

Those proposals detailed in the booklet we all received are that any additional payments into Flexiplan that we currently make will from April 2018, go into the same pot as the standard contributions from ourselves and RM – it’s covered on page 15. Addplan & Bonusplan will stop. I would assume we will be able to change the additional amounts we save as and when we want to, as we can now.

Also the proposals state that we will be able to access the DC pension from 55 which is currently the legal minimum age. There is no mention of any other age at which we can access them. And as DC pensions are just pots of money dependant on contributions and investment returns, they generally don’t have definitive retirement ages anyway, unless they have GAR’s as mentioned in my previous post. Therefore I see no reason why the legal minimum(55) wouldn’t apply. When you then chose to actually access your pot is then obviously up to you.

I don’t expect the pension that’s introduced to vary too much from the proposals.

[heapsy]

I've just spoken with someone on the pension proposal helpline and asked the following questions. If I continue to pay AVCs would I still be able to elect a retirement age of 60 and still take the AVC contributions (post pension changes) at the same time as those made BEFORE the changes. Question two was, is there a definitive retirement age to the new DC scheme, ie 65?
The answers to both questions were that nobody knows yet, as a decision hasn't been made. It looks likely that the post change AVCs contributions may well go into a separate account, with a different retirement age. I'm expecting a phone call back, sometime next week so will post any info I receive on here.

It’s true, we don’t yet know exactly what will happen because they are just proposals.

Those proposals detailed in the booklet we all received are that any additional payments into Flexiplan that we currently make will from April 2018, go into the same pot as the standard contributions from ourselves and RM – it’s covered on page 15. Addplan & Bonusplan will stop. I would assume we will be able to change the additional amounts we save as and when we want to, as we can now.

Also the proposals state that we will be able to access the DC pension from 55 which is currently the legal minimum age. There is no mention of any other age at which we can access them. And as DC pensions are just pots of money dependant on contributions and investment returns, they generally don’t have definitive retirement ages anyway, unless they have GAR’s as mentioned in my previous post. Therefore I see no reason why the legal minimum(55) wouldn’t apply. When you then chose to actually access your pot is then obviously up to you.

I don’t expect the pension that’s introduced to vary too much from the proposals.

Received a phone call within 30 minutes of my call. Bloke told me that it was highly likely that there would be an NRA of 65. Reduction for early payments. AVCs he believes would be similar. Will just have to see if there are any new developments. I was hoping the AVCs after changes, could be accessed at 60, but this seems unlikely, unless you opt for a reduced amount for early payment.

[RobertT]

Received a phone call within 30 minutes of my call. Bloke told me that it was highly likely that there would be an NRA of 65. Reduction for early payments. AVCs he believes would be similar. Will just have to see if there are any new developments. I was hoping the AVCs after changes, could be accessed at 60, but this seems unlikely, unless you opt for a reduced amount for early payment.

Based on a DC scheme being implemented, the bloke you spoke to is obviously clueless!

What does he think is going to be reduced for early payment?

If you’re planning on buying an annuity with your DC pot, then obviously the earlier you do that, the less you’re going to get, in monthly income terms. So if you have a 60 and a 65 year old with the same amount in their pot and buying the same type of annuity, then the 60 year old will obviously get less because based on average life expectancy his money will need to last 5 years longer.

Or is your bloke is suggesting your DC pot will be reduced by an x amount if you take it before a certain age. If so, then that’s just complete nonsense.

The proposals are in black and white in the booklet we all received!