Clearance at last to begin the Final Approach to early retirement

The birds are singing in the air, the sun is shining and the blackthorn is in bloom before the leaves come out.

Blackthorn in bloom - before the leaves appear
[audio:|titles=Birds singing including Woody Woodpecker]

Birds recorded in the cemetery on the way into town. I love the sonorous resonance of Woody Woodpecker 🙂

About three times a year The Firm invites staff to apply for voluntary redundancy. There’s usually an incentive of up to a year’s salary redundancy money, and I’ve put my hand up enough times in the last couple of years.

This time the stars are in alignment, it seems, and I have clearance to begin the final approach for the exit. HR spent a lot of time spitting bricks about that everybody has to be out by the 31st of March. However, I have a unique skillset for the Olympics work, and local management found a way to extend my leaving date to the end of June.

Which I’m absolutely cool with, though it confused the hell out of me when I received the confirmation with a leaving date contradicting everything else HR had said. Where there’s a will there’s a way, eh, guys 😉 Not only do I get the opportunity to finish the job, I get the opportunity of getting the year bonus just as I leave, I will only have earned half a tax year’s money so I have less tax exposure and I get to benefit from another load of Employee share schemes and Sharesave. Thank you Mr HR and line management.

Oh and I don’t exactly have to sweat the infernal performance management system because there’s nothing to play for. It gets back to how working used to be before a bunch of American HR twunts got a hold of the system. I didn’t realise that the punk Peter Drucker who is responisble for an awful lot of things that enable Digital Taylorism was the architect of Management By Objectives. The Firm seems to have explored pretty much all the avenues listed as Limitations in the Wikipedia article on this.

It seems W Edward Deming identified the thing that The Firm did wrong – in my area, which originally had a scientific and technical skill base, management was along Deming’s lines of leadership, which worked well. Only in the last seven years did they switch to MBO, which ended up destroying the esprit de corps. Indeed, the undesired outcomes of MBO seem to be rife in capitalism at the moment, with objectives causing our CEOs and bankers to run amok chasing short-term gains and hypercomplexity at the expense of  the rest of us muppets.

Oh well. This isn’t my fight any more, though it does deeply hack me off that this damned performance management system and its abuse caused me to have the longest period off sick that I ever had in my working life.

Most people who take voluntary redundancy only get a window of about two weeks between when they hear if they’ve got it and getting to clear their desk, and to be honest that’s all I expected to have. The luxury of the extra time means I have more opportunity to set my financial affairs in order and take opportunities.

Joining the rentier class is a huge change from being an employee.

Living off capital is a massive change from living off a wage. I have always got the vast majority of my income from being an employee. This will change; my work pension is deferred pay of a little bit more than the NMW because I am a very early retiree, which fits conveniently with the aims for an increase in personal allowances from the Budget yesterday. Nevertheless, it is enough that  I will probably always be a basic rate taxpayer as a result, which eliminates many otherwise useful ways of avoiding tax.

As far as the capital is concerned, to my employee-income-attuned eyes the numbers are enormous – and this often leads people into temptation. The AVC lump sums and redundancy money plus the savings I already have add up to the largest sum of money I have ever seen in my whole life, I could easily buy my house again, cash, and furnish it better than it is 😉 A friend of ours asked if I am going to blow the redundancy money on something nice.

No. That sort of thinking is madness. For a while I am not going to change any spending in any significant way, with one exception, I may go on holiday, but along the lines of The Accumulator’s staycation rather than a permanent Gap Yah. Other than one special occasion, I haven’t been on holiday since 2008, and this was one of the harder things about locking down spending while working. I came to this conclusion myself, however, the rationale is delivered with more vim and vigour by this writer

The one thing everyone must do the moment they get fired or quit is…


Don’t do a damn thing. Nothing at all. Got that?

So why no change? After all, though my total income will be less than half of my gross salary, that’s actually a hell of a lot more than what I have been living on these last three years, because I have been saving most of my salary. I could increase my lifestyle and not touch the capital

No change for several reasons. I only gained control of my spending after I had accumulated a lot of data on what it was. My spending will inevitably change – I lose the modest work-related costs, I will probably pick up some other costs. I need to know what these are before making any strategic changes. I have no experience, only a theoretical and intellectual understanding of what it is like to live off capital. This is eased in my case by having deferred income which is significantly more than my outgoings, so there really is no rush, and I have much to learn.

A signal received at the eleventh hour…

Just over three years ago I took the initial hit that started me on this path. So I decided I wanted out, and started making the calculations. This was in February 2009, and after loading a Cash ISA I started to look at more sustainable returns from saving, splitting between financial and non-financial investments. I read this on Monevator. These were among the darker days of the financial crisis.

Points of crisis magnify the power of small actions. It was clear that I was a long way away from financial independence, and I have a very dark view of the future of Western economies. And yet, I saw that combined with the power of a 41% tax saving on going into pension contributions, there was an opportunity highlighted in that article. It was time to take a chance like a Stagecoach bus driver, but with far better odds. At the time it did look to me like there was a very real risk of the entire financial system going titsup. I did know the ‘be greedy when everyone around you is fearful’ theory before but it took that article and some desperation to stiffen the spine to actually execute it then. I continued to invest in AVCs ever since, and have just issued the sell stock market funds to convert to cash fund command, at a 20% uplift (less about 5% inflation).

The echo of the initial hit still stayed with me, and so I saw these last three years as trying to manage the slow decline of energy as I fail to live my values for the sake of money.  It is not necessarily the most motivational image, but it allowed focus. Sometimes it isn’t necessary to win, it is enough to lose less quickly.

I was ready to quit of my own without a redundancy package after August, by which time I will have run out of space to save 40% tax in my pension contributions to be able to take out as a pension commencement lump sum without having to take out an annuity, for which I am far too young. However, it was always good to roll the dice of voluntary redundancy if there’s an opportunity of a free win, and this time my number came up at the eleventh hour.

Retirement isn’t all about money, of course. I will probably not want for things to do, and the work,  community and people at the Oak Tree will mean I won’t get to see too much of the attractions of daytime TV or the Jeremy Kyle show.

Though I chose a similar aviation metaphor to Salis Grano, I reversed the direction, I see the journey to early retirement as being on the final approach, where his is one of taking off. SG probably did the planning in the way you should do it, saving over many years. I started late, already from a weakened position and anticipated the three years would be the point where I was all out of energy from the enervating performance management system.

I’ve never had any actual trouble with it after the first hit, but I associate the whole procedure with a time when I felt I was within months of being run out of The Firm, and since it happens every quarter that is a lot of stress. I did wonder if I paid for psychotherapy then it might be possible to break the power of this association. However, in my view modern performance management systems are deeply screwed up. Some things should not be equalised or accommodated, they should be destroyed or eliminated from my life.

The Tribulations of Holding Lots of Cash

While I did a pretty good job of working out how to save the most while minimising my tax exposure, what is becoming patently clear is that I didn’t really pay enough attention to working out what to do afterwards. It transpires that the total sum of my AVC savings, redundancy and existing savings is far and away my largest asset, with the possible exception of my pension itself.

And it will appear as cash, and immediately start to decay in real terms in that unappealing way that only cash does. As soon as National Savings and Investments open their doors again for index-linked savings certificates I will double up my existing 15k holding with them. That I can leave as emergency fund. Unlike that cheeky pup Monevator who would like to make a profit on his cash holdings, I don’t have any aim to make money on cash. It’s quite enough for me to find all of it still there in real terms when I come back for it, I just don’t want to have it die away quietly into the night in order to pay for some Government largesse like Tarquin and Jemima’s school fees. And I don’t want to pay tax on it, either. However, in the grand scheme of things NS&I can’t really help me very much to stave off the rust of inflation for most of the capital, because of their savings limits.

The high-level aim is to invest most of the money, somewhat along the principles described here, and carry on on the general HYP lines my existing ISA operates on. I was also planning to hold a big wodge of The Firm’s shares unwrapped. The old principles of not holding shares in my employer kind of go away when The Firm is no longer my employer. It has a decent yield, reasonable prospects and I have totally avoided the sector in my shareholdings. However, this comment implies this will cause me problems with tax again. I had hoped to avoid paying tax as a retired Ermine by using ISAs but it will take me well over a decade to finish shovelling cash into ISAs.

The general issues of how to turn savings and a pension commencement lump sum into an income don’t seem to be addressed in any UK PF blog that I’ve found so far so this is a pathless land as far as I can see. The general principles of living off investment income are dealt with well, but migrating a large lump sum into tax-sheltered funds while avoiding the cash rotting away over time is a specialised requirement. The best source of information around the topic is MSE’s forum, however it needs sifting heavily. There are some people on there who believe it is reasonable to take out a loan of £4000 to have some pictures taken of themselves…

It appears I made a mistake paying down my mortgage early rather than investing using the mortgage as a low-cost loan, which would have given me many more years of ISA allowances, discharging the mrotgage at the end with the cash lump sum.  However, I didn’t really have the brass neck for that sort of thing, so I have to eat the consequences of being risk-averse. My asset allocation and global diversification is now skewed horrendously to cash and to the UK, and it will take some time to fix that.

Retirement is about quality of life, that means hearing more of this sort of thing

[audio:|titles=Skylark at the Oak Tree LC Farm]

and less of the incessant babble of densely packed open plan offices and people talking loudly on their mobile phones in buzzword bingo phrases or the roar of datacentre cooling fans.

[audio:|titles=data rack fans]

22 thoughts on “Clearance at last to begin the Final Approach to early retirement”

  1. Looks like I’ll (hopefully) be taking your place in the world of work then. Some people struggle with the extra wedge of time left on their plate, but it doesn’t look like that’s a problem headed your way.

    As for the money, its tricky with a retirement fund at your stage because its all about protecting it, which is often the hardest thing. Not really in the position to offer much insight, all I can recommend is opting where possible for enduring peace of mind and setting up something where you can comfortably settle into retirement. Some go into retirement just to end up checking reports daily and worrying about their funds, just to get that extra percent out of it all. Unfortunately sensible isn’t always simple to find, still its one of the exciting challenges ahead (you didn’t think it would be easy did you ;)).


  2. Congratulations on hitting the jackpot after previous disappointments. That you were planning to leave without the package means, I assume, that your long term projections now have a more comfortable margin of error — must be a great feeling.

    Yes, you will find it a bit strange suddenly to receive a large wad of cash in the summer. Not much you can do, I think, other than to make sure you have the best high interest easy access account you can find to act as a temporary store. Then check out the best deals on 1, 2 3 year bonds to take *some* of the money (good idea to lock up a bit to prevent rushes of blood). Keep alive to what’s going on in the stock market and listen out for those nice NS&I people in case thay wake up again.

    Another option to consider is P2P — I’m currently realising about 5.5% gross after bad debt and fees — but you have to spend about half an hour each week checking up in order to get the best out of this.

    Yes, I’ve saved and invested longer than you, but never with your recent singlemindedness and not with Monevator’s market savvy. I should have shovelled more money into shares in 2008/9 than I actually did, but I did not know then that I would get severance and thus more replacement cash. I’m still 50% in cash excluding NS&I and still rather hopelessly waiting for another market downturn, but I suppose I’ll keep buying slowly for yield until things look outrageously frothy.

    For all the whining of the Daily Wail on behalf of retirees, I still reckon relatively low income + moderate wealth is a good place to be, tax-wise (thankyou Nick and Vince).

    You have a stronger than average position w.r.t to the non-monetary and you should definitely use your skills over the next few years to enhance this, both on the farm and at home. You need to get all the preventitive maintenance and refurb jobs done on the latter while you can: having to pay someone in twenty years time to do stuff won’t be so nice.


  3. @ermine Congrats, looks like you are about to attain a semblance of freedom. I envy my friend who, like you, continued to stick it out until he decided his job wasn’t worth it another day more, and is retired at 58.

    Unfortunately, looks like I’ll be tied to the wheel for quite a few years more, but if I persevere in sacrificing today for a freer tomorrow, I might, like you, arrive at a happy day. I hope you keep writing your blog so we can follow how it works out for you. Cheers !


  4. Congratulations Ermine! Been very inspiring watching this show unfold over the past few years, especially as I can endorse your birdsong motivation (really — the bit of London where I live has a lot of birdsong. 😉 ).

    You’re right, I for one don’t have a great handle on moving a large windfall on retirement into income producing assets. In fact, the whole area of ‘running down’ instead of ‘building up’ a retirement fund is an area under-served. So you’ve got a nice part-time job there for your retirement, sending us dispatches from the front line.

    I think the writer’s advice to do nothing is great. You haven’t got a windfall, you’ve turned one asset into another asset. It still has a job to do, and you can take your time figuring out how best it should do it.


  5. Well done, hope it works out for you. It took me three goes to get out. Then they called it VSS.
    Voluntary. You ask.
    Selected. They consider.
    Severance. They let you go.

    I was one of the lucky ones, a] joined a good Company Pension Scheme early, after listening to a wise older man at work. Who explained pensions in a way a early twenty something could understand.

    Still best of luck in your endevors. All the best, i shall continue to drop by to see how things progress.


  6. @all Thanks guys, it’s great of feel you rooting for me 🙂

    @Rob all the best with the search! Yes, it’s time for me to look towards the living intentionally side of things rather than obsessing!

    @SG yes, things changed rapidly from the first low-level form of financial independence and I valued the AVC fund only at what I put into it, which increased a lot. So a years’s salary added to that gives me a few grand extra headroom on top of that, which is a nice bonus.

    I agree aim for a low income and using the proceeds from wealth to make up the difference seems to be a good approach, indeed your story was part of what made it easier to consider drawing my pension so early and improving my tax situation.

    @g you can do it – it is a long haul, but the sun will break from the clouds eventually. It was hard a times to keep my eye on that.

    @Monevator – thanks for the inspiration, and indeed that article in the teeth of the credit crunch that stiffened the spine to consider the alternatives. I will keep the dispatches coming, as I try and work out what to do with that.

    Good to hear that not all of the birds have been priced out of the city, though the spadgers had to sell up and move on. They’ve even left my parents’ place in South London!

    @George – thanks – the goal will come!

    @Lupulco – well done on listening to that old man! VSS is more straight up than voluntary redundancy – business used to call a spade a spade before the managementspeak takeover 🙂 I too have the luck to have a pension scheme that makes this easier, and considerably derisks things 😉


  7. Whoa! You made my day!
    You did!
    You did!
    You did!

    You made my day!
    You made my day….

    Look what you did. You reduced me to blubber!


    Here’s my motivation speech printed out for my own FI/ER battles.


  8. Congratulations Ermine.

    Another one escapes! There will just be me left soon – and I only plan to be around another 2 years.

    We had the latest round of appraisal “levelling” the other week. I totally agree with you that this insidious practice has been the major contributor to the dissatisfaction and stress levels among the workforce. That and the constant uncertainty over head count reductions, and the resulting trips to the bench, there to be paid to do small projects for other areas of the business while the rest of the people in the team you just vacated have to take up the work you left behind, thus undermining their ability to do their jobs properly, while saving the firm no money at all.

    Who could possibly have come up with such a scheme and convinced others it was a good idea.

    And of course we now have the practice of “onshoring” and gradually bringing the jobs back from overseas outsourced companies. Someone probably got a big bonus for thinking that idea up. Probably the same person who introduced the offshoring in the first place!

    But as everyone is leaving, like yourself, there is actually nobody to bring the skilled jobs back to, just the call centre jobs, in the main. This last week I lost four people from my IM list, as they had departed the week before – all good guys and gals simply fed up to the teeth with the grind and the attitude in the company.

    None will be replaced, so another person’s work is squeezed out of the remaining team, and as consequence nothing is done properly anymore.

    And yet, the one thing our President (love the Americanisation of our top level job titles!) called out on his latest group call? Morale, and the great employee attitude survey scores we got recently!

    Do these people just not get it that everyone gives their manager a great score, in case they realise who is slagging them off, or because everyone knows the managers are only doing what they have to do to keep their own jobs?

    Early retirement is the only way, and the only way to early retirement is to save like crazy and invest the savings hoping there won’t be another crash the year you decide to call it a day, then hope the company pension scheme does not go bust before it starts to pay out (I’ll be retiring at 52) in 8 years time, and then that the Govmint actually gives you back some of the money you paid “in” towards the old age pension at, what, 70, by the time I get there?

    What could possibly go wrong?

    I hope you keep the blog going when you’re off, to give us the benefit of your experiences post-work.



  9. @ralaca and Surio thanks!

    @TNT top rant, it’s Q4 assessment time so some steam needs to be vented!

    Couple of things strike me about your plans. I like 52 as a leaving age 😉 However – if you are two years off, then have you considered lifestyle profiling your AVC contribs? After all, if you save into the cash fund you are saving 32 or 42 % tax on the way in. Over two years that is roughly a 20% rate of return, with zero risk, as long as you haven’t exceeded 25% of your total pension fund (=your AVCs + your FS pension at 60 * 25). There’s nowhere else you can get that rate of return from, and stock market investments are volatile and even in a good run won’t return you that much.

    If I had done this as a planned operation as opposed to a desperate run-out, I would have been 100% equities until 5 years to retirment, where I would switch 1/5 of my fund to cash and start saving 20% cash 80% equities. Then 4 years to retirement I would move the fund to be 40% cash, 60% equities and switch savings to the same proportion. 3 years I’d be 60% cash, 40% equities, then 2 years I’d either go 80% cash 20% equities or 100% cash till the out. It’s a similar philosophy to lifestyling retirement savings prior to drawing them.

    Of course, if you are deferring your pension to 60 then I guess that doesn’t apply as you’re > 5 years away from crystallising your AVC funds. The time for lifestyling is in three years time, after you’ve left. The Sharesave hopefully ought to give you a leg up this year, or in 2014 🙂

    Something I would recommend are the free W@W/JP Morgan retirement seminars organised by The Firm to encourage their old gits to think about leaving. Go for the ‘near to retirement’ option, as opposed to the general orientation option, though I think you can do both. They do run through some things which, though I’d worked them out for myself, it’s good to hear it from a different perspective. In particular the decision to draw your pension early or not is nowhere near as straightforward as it seems. I have to draw early for technical reasons, but if these didn’t apply I’d probably draw at 55 and take some actuarial reduction hit, to be able to run up ISAs using the 25% PCLS. Tax distorts the issue as you pay tax on the pension, but not on what you may be able to do with the PCLS in ISAs, though I will be shovelling cash into ISAs for years to come from my PCLS.

    Most people at The Firm feel they should defer to draw at 60. This is different for different people and depends on your family circumstances and view of risk etc but it’s not a no-brainer to delay to 60. Like all things financial you should know what the pros and cons of both options are, and take an active choice. Those JPM seminars help outline the various issues, with specific knowledge of The Firm’s pension system. Naturally you should bear in mind they are paid for by The Firm which may add a slant 😉 And the individual-specific finacial advice I don’t agree with. I fail to understand why a man with a FS pension has any need of bonds whatsover. What is his FS pension other than a fixed income investment? And the charges on their funds are remarkable. A dose of Monevator’s passive investing will see you with an instant year on year 2-3% lower charges than the W@W suggested funds.

    Anyway, chin up – 2 years is time for some serious attention to the details of the financial plans and getting your flight-path at the right orientation. All of which is aimed at getting that toxic performance management system out of your way once and for all. Choose Life… 😉


  10. Ermine,

    Your advice gets 100% mark as far as I’m concerned. I’ve just departed the Firm a whisker short of my 60th birthday with a FS pension and pretty much the max 25% lump sum.

    I’ve been doing exactly what you’re recommending. I piled money into the Firm’s AVC scheme over the last couple of years. No NI thanks to Smart AVCs, no higher-rate income tax – what’s not to like? I first got wind of this cunning plan at a Prospect seminar, then I went to hear the man from W@W explain it again. And then I did it.

    So I’d say to anyone else contemplating the big leap in the next few years: get savvy, stick as much as you can afford into the Firm’s AVC (within the annual limits blah blah) and wait for payday. It’s a lovely feeling.


  11. Ermine, Chris, thanks for the pointers re the AVCs. I’ll see about getting on an approaching retirement event.

    I must say I thought the funds available under the AVC scheme are pretty lame, though I guess the tax relief makes them worthwhile.

    I assume I get no employer’s contribution on an AVC so is there in fact any benefit over taking out a SIPP instead? This would still give me the tax relief, but also give me the option of better value and higher risk (and therefore hopefully higher return) funds, or lower charge trackers instead of the LG funds available?

    I totally agree with your point, Ermine, about bonds. At 60 I’ll have around £26k per year pension if I leave in 2 more years, assuming no AVCs. This is a great buffer to any stock market volatility before and after retirement. I have also been saving BIG time in the last 8 years or so, have effectively paid off my mortgage, have a lot of house equity, am looking to downsize house soon, and have a pretty decent equity portfolio built up. I also have a wife with a £23k pension due at 60.

    I do agree, I need to check out the maths of taking my pension at 55 instead of 60, which I had not really considered until recently. This because I am looking to live off savings between 52 and 60 before taking that £26k (plus CPI) , which I expect to fund half from income and dividends, half from capital. That means spending around £150k pf capital during the 8 years, to be partly replenished from the 25% lump sums from my own, my wife’s pensions plus my wife’s SIPP.

    I assume there might be a better approach, so the retirement seminar sounds like a good idea.



  12. @Grinning Chris Congratulations and it’s great to hear an example of the theory being battle-tested 🙂

    @TNT the value of the funds depends on your marginal tax rate, which is probably 42% in your case, and how long you have to retirement.

    There are three funds. Let’s take the worst case. The cash fund pays no interest, to a first approximation. But if you’re five years from retirement, and you put in £58, after 5 years if you take it out in your Pension Commencement Lump Sum (PCLS) you get an extra £42. ie on a capital investment of £58 on your part, you get about £8 a year. Which is effectively a 14% p.a. return on the money you have foregone. Did I mention that’s tax free? You would run, not walk, to get a cash ISA paying that. You have to ask yourself where exactly you will go to get that sort of return on cash without spending a lot of time at Her Majesty’s Pleasure 🙂 The return increases as you get closer to retirement, in your last year you are winning a tax-free return of about 72% p.a., which to my eyes it’s extremely rude to refuse. Heck, I’d take out a personal loan or use credit cards at 26% for that last year if I was making that much on what I didn’t earn in the last year.

    It is only in the last five years to actual retirement that these large returns appear, which is why AVCs only really make sense in that last run, and in particular in The Firm’s system as they are counted as part of the total pension amount, so you get to take a larger 25% PCLS. This doesn’t apply to all FS schemes, but it does in The Firm.

    It is madness to exchange real FS pension for a PCLS, which is why you have to save the 25% PCLS up front using AVCs. That >10% p.a. leg-up in those last years is what makes AVCs attractive then.

    The difference between your PCLS and SIPPs is that the proceeds of a SIPP are taxed on drawing, and indeed add to your tax burden as a retiree, bar again the 25% PCLS on the SIPP. Nothing fundamentally wrong with that, as you’re probably a 20% taxpayer as a retiree as opposed to 42% going in, but I am a greedy SOB so I prefer the no-tax option on the PCLS. Tehre isn’t anything stopping you taking your PCLS and putting it into a SIPP afterwards, though do take financial advice as there are some issues about recycling the PCLS which you’d do well to be aware of.

    There are a range of little wrinkles with doing this which mean you have to get it right. For instance, if you are thinking of an 8 year intercession and of taking VR, then you would take advantage of the spread your payment option to KO or reduce the tax liability on the amount > 30k. Whereas if you are drawing the pension immediately you’d use the increase your fund option to avoid paying tax on that residue which SYP can’t help you with, or some combination of IYF and SYP depending on your payout and the income tax thresholds at the time.

    It’s important to start understanding these issues, and taking appropriate action, a few years before you actually make your move, since there are annual restrictions on what you can contribute, both legal and practical. I have rammed my savings up against the 25% PCLS threshold, otherwise I would tell The Firm to pay all my salary bar £5k p.a. (the NI threshold) into AVCs and live off savings till I finish, to minimize tax and NI.

    These issues are complicated, and a bastard to get your head round, but it can be done. The W@W seminars do a good job of outlining the issues, and you can have a free 1:1 consultation I believe. Chris seems to indicate Prospect do something similar, and as he said, there’s something to be said for hearing it from two different standpoints. The amount of tax you can save is remarkable, let’s just say that each year for the last three years I saved a five-figure sum of tax and NI, which enabled me to greatly advance my early retirement plans. My target income is not hugely different from yours, but my pension is a much lower part of it (because I am drawing early). My investment capital will pay a return that will make up the difference, but I will hopefully not pay tax on it, whereas you will pay about £3200 tax every year. That is £3200 investment income I don’t need to make, which is a reduction in capital requirement of £64000 (to a first approximation and using a lot of handwaving). It is a more risky path; I accepted the risk because I was more desperate, I reduced my outgoings to less than my pension, but also because though I must not earn any income to avoid being taxed on it, I can add value to other projects which will improve the household income. Your risk and opportunity profile will be different. But there’s the opportunity of retiring earlier or having more money when you retire, and learning about the issues sooner rather than later helps you make the call that’s right for you.

    Sorry to bang on. In my darkest time, someone at The Firm sat me down and educated me that there were some of these options. He did me a big favour, and I owe that man some beers at my leaving do. I’m paying it forward, hopefully 🙂


  13. Thanks again. I agree, it’s very complicated. Too complicated really. So much for the government wanting to simplify pensions!

    Good point about the tax on receiving the pension. To be honest that’s been one of the reasons I have never done AVCs before, but it seems I may have misunderstood exactly how they work, so I’ll have to read up on them.

    Are you saying that by paying in a load of AVCs, up to the value of my 25% tax free lump sum, I could than take the lump sum entirely out of the AVC element, and thus get a bigger pension?

    Sounds interesting, but as you say, even more tax?

    As I mention above, the tax on the way out is why I’ve been saving in cash and share ISAs for the last 10 years. I now have nearly £90k in cash ISAs, some paying 4.1%, some paying 3.5%, plus nearly £200k in share ISAs. I plan to use these to generate extra income in retirement, and the other savings I have to bridge the gap to pension payout (be that at 55 or later, now you’ve made me think I should perhaps take it earlier).



  14. @TNT you really do need to get yourself onto one of those W@W seminars, or the union version Chris mentioned 🙂

    You can draw 25% of your pension capital value as a lump sum tax free on retirement. You’re probably Sect A/B, so you already get a lump sum of 3*your annual pension. That is roughly 12% of your pension capital (which you calculate roughly by taking your deferred pension @ 60 and multiplying by 20-25).

    You can save from pre-tax and NI income into AVCs up to 13% of the total capital, thus to a first approximation 1.5 times your gross salary (because your pension with 40 years is FS/2 and if you match the 3* pension lump sum that makes your AVC FS*3/2). You get that out tax-free when you draw your pension. If you don’t do that, there is an option to exchange some FS pension for more lump sum. NEVER do that without taking advice, the circumstances under which that is a good idea are rare.

    So put that way, it’s rude not to take advantage of a legal way to stop the Government thieving 42% of your salary 🙂 You don’t pay ANY tax on the 25% PCLS. At all, so no tax on the way out for that specific part 🙂 I am sect C which didn’t have a PCLS, so I get to save more than you in AVCs, which is how I managed to lift my savings astronomically over three years – by stopping the Government stealing nearly half of my earnings.

    You’ve done very well on the ISAs. I’ve only got three years ISAs, so I will be shovelling PCLS cash into ISAs for a good few years to come, I’ve made a mess of this because I didn’t plan ahead enough to leave early. You have done exactly what one should do there!

    Bridging the gap to pension payout is the default assumption in The Firm. All I’m saying is it is worth understanding the alternative options. It very much depends on the balance between needs and wants, your attitude to risk. I’ve done the calculation in your case and there’s not a lot in it. But I’m not an IFA and might be missing all sorts of stuff, which the W@W people will go through.

    The Firm’s pension calculator on the intranet is an excellent tool that allows you to do all sorts of what-ifs on AVC fund size and early retirement options and that lets you calculate how big an AVC fund you can have to take it all as a PCLS. They show you how that all works on the W@W seminar but you can play with it before to see what gives.


  15. Thanks again. I do understand the lump sums aspect of these raging pension but have never really looked at AVCs at all.

    I’ll try to sort out the seminar tomorrow!



  16. @TNT You _need_ a raging pension. It’s one that brings in such a barnstorming amount of money in that you just can’t spend it all 😉


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