Slap bang in the middle of my attempt to work out a plan to pump up my S&S ISA enough to let me stop work at 60 the Chancellor throws a spanner in the works by reworking defined contribution pensions.
Pensions are the one part of financial planning that I've never really had to plan. I'm a public sector worker with a final salary (soon to be career average) defined benefit scheme that (along with my state pension, rent from our small flat and what's left of the savings) will be enough to let me live comfortably at age 66 (it should be around £12,000 if I manage to keep it intact.) Salary sacrifice, annuties, SIPP's, PPs and stakeholders - all things that I haven't needed to concern myself with. I've only needed to know how LGPS works and what I can expect it to do for me.
However these last few days have been full of "all things pension" as I've had to start reading up and researching due to the changes introduced in the budget last week. Where once personal pension planning was just something that only applied to other people, it now promises to be an opportunity to help me with my early retirement plan.
Actually, I haven't always been totally faithful to my DB pension. Eighteen years ago when I had just started back at work on a part-time basis after spending 10 years at home looking after the kids, the Co-Op men came on their yearly visit. (We are northerners with the kind of backgrounds that mean that, if we were going to do financial business with anyone, it would be the CO-OP). They sold us a Platinum Bond (we had just come into a small inheritance) and, for the lady, a FSAVC. Whether they should have done this is up for debate (and in fact I'm not sure that they would be allowed to do so now considering that I was a Local Authority worker with a final salary scheme which I could have been paying extra into instead), but I'm jolly glad they did.
I've never stopped paying my small monthly sub and it is now worth about £16,000 (predicted £22,000 by 2019 when I can draw it) and it can be taken when I'm 60. The tax-free lump sum already figured in my calculations to buy me free time between 60 and 66 but now it looks as if I will be able to up my payments and use the whole lot during those years. An incredible opportunity, especially given that anything I put in will have a further 20% added to it by the taxman.
In the course of just one week the value of that small monthly payment has increased dramatically. From being worth about £5,000 when I needed it and then £450 pa when I didn't, it has now gone up to £22,000 that can be used exactly when I want it with the added benefit that putting more in gives me even more gain. It just goes to show that the "value" of money and the time that it is needed are woven closely together, they form a whole and are virtually meaningless in isolation. How can you possibly know how much money you need if you haven't plotted your income against your timeline?
Plan B Arrives
After some careful calculations as to what is the optimum amount to put in (around £250 per month I think) I have decided to beef up my payments into the FSAVC to the level that I will have enough at 60 be able to draw just the right amount each year to keep my taxable income below the threshold, and take the rest of what I need to live on from the ISA.
Just to be sure that this is the right thing to do I've spent the weekend researching whether I would be better transferring it into a personal pension as it is one of those rather difficult to understand "with profits" creatures. However from my reading it seems to be invested in a CIS fund that isn't performing too badly at the moment, it's low volatility and not charged too steeply. I've decided to wait for my annual statement which is due any day and maybe ask a few questions but then hopefully be able to avoid the fees associated with moving it anywhere else, up my monthly payments and forget about it (just like I have for the last 18 years).
Sometimes inertia does seem to pay.