Monday, 26 May 2014

A Spanner Appears

This week I had my annual appraisal at work during which I was told that my job is at risk from the current spending cuts in the public sector. Potentially I could be made redundant in the next 2 -3 years.
This was a bit of a shock as, although we all knew that the cuts were far from over (we've lost many colleagues over the last 3 years) I didn't realise that I was quite so vulnerable.

The good news is that, in the past, an offer of voluntary redundancy has been made to sections which were targeted. I have spent a lot of time this weekend thinking what this all means to me and how to prepare for what could happen.

When I did get it all down on paper I began to feel a little better. The main benefit from a VR package is that, in all previous offers at least, some people over 55 have also been given immediate access to their pension as part of the deal. This would be worth a lot to someone like myself who has a long time to go (10 years) before I can draw my pension in the normal scheme of things.

Although my pension would only be worth somewhere around £8,500 if I took it in the next couple of years rather than £10,500 (max) if I stopped work at 60 and deferred taking it (my current plan), I would able to draw it for up to 10 years longer. If I stop work at 60 and take it at 60 it will be subject to actuarial reduction. The exact level of reduction is a complex calculation due to different rules applying to different sections of the pension but it is probably around 20 - 25%. This gives me a pension of somewhere between £7,850 and £8,300. So if I have to stay till 60 and can't get at my pension early via the VR option when I actually take it will be a judgement call to get the maximum benefit/minimum reduction equation right.

However, in effect (depending on when I went) being given access to my pension as part of a VR package could be worth up to £85,000 because the bottom line is that I would need to live for 40 years post retirement in order to get this amount back at the maximum extra £2,000 a year pension I would gain by staying at work till 60.

The rough calculations for taking early retirement on my 57th (2016) birthday look something like this:

DB Pension Lump Sum - £13,500
DB AVC (can all be taken tax free) - £7,000
CIS FSAVC LS (taken tax free) - £4,500

Total tax free lump sum : £25,000

Annual Income from 2016 - 2025
DB Pension - £8,500
FAVC - CIS Pension - £2,000 (until 63, then SIPP pension)
Flat Rental - £3,500
Husband's Pension £12,000 (until 2019)

Total: £26,000pa (until 2019), £31,200 (post 2019 - my husband's state pension age)

(In addition our combined ISA fund should stand at around £78,000 which could be taken to supplement income at around £2,500 pa without hitting the capital).

Annual Income from 2025 (my state pension age)
£34,400 (I only intend to put enough into the private pensions to allow them to fund me to the personal tax allowance level up until my 66th birthday).

As I totted this up I began to think that this particular spanner would not be so unwelcome after all. I think we would be OK for income, although with £50,000 less in the ISA pot by 2019, and I would have an extra 3 years of freedom.

It all depends if the potential VR offer were to include the facility to take my pension as well as the redundancy payment. Unfortunately that's a pretty big "if"

Watch this space ....

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