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Saving enough to stop work

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This document is a presentation by David Joy of First Actuarial LLP on saving enough to stop working. It discusses calculating how much income is needed in retirement by estimating spending reductions and increases. It also covers sources of retirement income like the state pension and private pensions, using an example of a 45 year old named Danni earning £25,000. Danni estimates needing £16,000 annually in retirement based on her spending. The presentation outlines calculating projections of income from the state pension and Danni's CIPP pension plan to determine if she will meet her retirement income target. It stresses the importance of understanding all retirement income sources when planning.

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First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Saving enough to stop work Delivered to CIPP tutors, 9 July 2016 David Joy Founder, First Actuarial LLP david.joy@firstactuarial.co.uk 0780 389 2266 www.firstactuarial.co.uk
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY This presentation belongs to First Actuarial LLP. Our mission to is to help improve financial literacy and we think a really good way to do this is through the workplace. If your company is interested in financial education please do get in contact with us to find out how we can help you to help your colleagues. We want to spread our message. But it takes time to come up with good ideas for delivering effective financial education. So if you do wish to use the slides or ideas in this presentation, that’s fine too, all we ask is that you always acknowledge First Actuarial LLP as the original source. Thank you, and enjoy the presentation. David Joy Founder, First Actuarial LLP david.joy@firstactuarial.co.uk 0780 389 2266
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY 3 Saving enough to stop work Who am I? Help you think about your pensions and savings Not a salesperson Independent
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Tax doesn’t need to be taxing… Warm up1
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY £25,000 Salary NI 12% Tax 20% NI 12% Tax 20% Tax at 0% Tax at 0% Salary £25,000 Salary Salary £25,000 Salary Salary Tax 20%Tax at 0% £0 £8,060 £11,000 £43,000 Nat’l Ins 2% Tax 40% What you take home Salary £25,000 Tax of £2,800 NI of £2,033 Nat’l Ins 12% Take-home of £20,167 Nat’l Ins 0% How tax works on your salary… Income tax Nat Ins
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY £25,000 Salary Tax at 0% Nat’l Ins 2% Tax 40% What you take home Take-home of £20,167 NI £6 £50 £50£50 NI £6 Tax £10 NI £6 Tax £10 NI £6 £34 Nat’l Ins 12% Tax 20% Nat’l Ins 0% How tax works on £50 of your salary… £0 £8,060 £11,000 £43,000 Salary £25,000 Income tax Nat Ins
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY £25,000 Pension Tax 20% Tax 20%Tax at 0% Tax at 0% Pension £25,000 Pension £25,000 Pension Tax 20%Tax at 0% £0 £8,060 £11,000 £43,000 Nat’l Ins 2% Tax 40% What you take home Pension £25,000 Tax of £2,800 Nat’l Ins 12% Take-home of £22,200 Nat’l Ins 0% Income tax Nat Ins How tax works on your salary…pension…
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Do I need to worry about inflation…? Warm up2
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY What am I saving for?
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Why we save Do I need to worry about inflation? Need to worry? No Probably Definitely Price of pizza from leading take away Today? 1 year? 5 years? 15 years?
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Saving enough to stop work What are we going to talk about? Closing the gap Having enough money to stop work What money are you building up? Action plan
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY • Lots of research – 50% to 75% of your current salary – This is a large range – What is right for you? – Think this through with your partner 12 How much money will I need to stop work?
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY 13 Holidays Long term care (you or parents) Leisure Heating No mortgage Children finally left home No National Insurance to pay Don’t have to save for retirement Spending might reduce Spending might increase Having enough money to stop working
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Hello, my name is Danni I am 45 (1970) and have been in the CIPP NEST DC scheme for 2 years My salary is £25,000 I’ll show you how I’m going to work out how much I need to stop work. This will help you do the same…
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Extra 2 holidays £3,000 pa Use house for care £0 Extra Leisure £1,000 pa Extra heating £1,000 pa Save mortgage £6,000 pa 1 Child £5,000 pa No NI £2,000 pa Save pension conts £1,000 pa Spending might reduce Spending might increase Danni - £25,000 pa TOTAL £14,000 TOTAL £5,000 TOTAL REDUCTION = £9,000 TARGET INCOME = £16,000
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY How much for Danni - £16,000
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Saving enough to stop work What are we going to talk about? Closing the gap Having enough money to stop work What money are you building up? Action plan
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY What money are you building up? Other savings Cash, shares ISAs Other sources Inheritance, buy-to-let, own home CIPP NEST pension State pension CIPP contribution plus what you pay Other pensions Basic State Pension New State Pension From other employments
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY What money are you building up? State Pension
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Background to State Pensions 2015 position New from 2016 Basic State Pension - £6,029 a year 30 qualifying years - NI contributions - Child benefit years to age 12 Better of own and 60% spouse’s State Second Pension (S2P) Complicated formula “New State Pension”- £8,000 a year 35 qualifying years No use of spouse’s Need at least 10 years to get any BR19 form can be useful if you have complicated employment history
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY State Pension – what has Danni built up Built up to date State pension date Forecast at SPA
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY 22 Going forward, SPA linked with studies of life expectancy State Pension - when you might get it Danni born 1970 so SPA 67 but will be 68
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY How Danni is working to her target
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Your CIPP Pension What money are you building up?
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY CIPP NEST Scheme Individual pot that builds up You pay 1% plus whatever you can afford You can choose how it is invested CIPP pays 1% of salary There is a default fund in case you cannot decide
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY CIPP Scheme- what Danni will build up 26 = £1,000 a year in today’s terms, payable from age 65 £1,000 per year
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY How Danni is working to her target
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY What income will you build up? Other Pensions
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Other pensions - defined benefit 1. An up to date deferred benefit statement showing the accrued pension including revaluation from my date of leaving to now. 2. Confirmation that the accrued revalued pension calculated above will continue to be revalued between now and my retirement age. 3. The earliest age at which all of my pension can be taken without reduction. Example:
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Sample letter for defined contribution pension To: the Trustees of the XYZ Pension Scheme <<Date>> Dear Sirs Name: John Smith National Insurance Number: AB123456C Date of Birth: 1 January 1960 Please can you send me the following information about my deferred pension in the scheme: 1. An up to date pension statement showing the most recent fund value. 2. A projection of what this might be worth at age 65, in today’s terms based on standard assumptions. 3. Details of the funds in which it is invested 4. The annual management charge being applied 5. Any other charges being applied Yours faithfully Other pensions - defined contribution 1. An up to date benefit statement showing the most recent fund value. 2. A projection of what this might be worth as a pension at age 65, in today’s terms assuming standard assumptions. 3. A summary of the investment funds being used. 4. Confirmation of the annual management charge that applies to each of the funds. 5. Any other charges that apply. Example
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY How Danni is working to her target
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY • So, you have saved incredibly hard and have £200,000 in your all your pension pots after taking your tax free lump sum • You’ve decided not to buy an annuity • You’ve even heard you can take it all in one go… • So should you…? A word of warning…
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Don’t let the freedoms free you from your cash First Actuarial’s Tax muppetometer
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Don’t let the freedoms free you from your cash First Actuarial’s Tax muppetometer
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Don’t let the freedoms free you from your cash First Actuarial’s Tax muppetometer
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY The small print We have used 2015/2016 tax allowances, ignored investment returns and inflation and not tried to predict how HMRC might bend the rules in the future, which they undoubtedly will. Allowing for these might change the numbers a bit, but would also make the model less user friendly although we doubt the underlying messages would change. Namely, spreading your DC pot over a number years will, for most people, mean paying less tax. Don’t let the freedoms free you from your cash First Actuarial’s Tax muppetometer
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Other savings What money are you building up?
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Other savings: 38 Unilever share schemes Stocks and Shares ISA Cash ISA Shares held personally Cash Other savings Total current value of long-term savings Current value of other savings You Your Partner
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Other savings: income? What income might this produce when you want to stop work? Assume a retirement of 25 years from age 65. So divide your total assets by say 25. Danni has £50,000 from all sources, so around £2,000 a year.
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY How Danni is working to her target Gap
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Saving enough to stop work What are we going to talk about? Closing the gap Having enough money to stop work What money are you building up? Action plan
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY How Danni is working to her target Gap
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Closing the gap • Options 1. Pay more 2. Work longer/retire later 3. Accept lower standard of living in retirement
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Putting £34 of net pay into CIPP NEST DC Scheme Basic rate taxpayer Net cost to you Tax and NI Saving Total amount to be invested Get back after tax (basic rate taxpayer in retirement) Ordinary contributions £34 £8 £42 £36 Salary sacrifice contributions £34 £16 £50 £42 Closing the gap: Paying more How tax works on different forms of savings: the figures So, ISA or Pension? ISA £34 - £34 £34 55 LISA £34 £8 £42 £42
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY But what about debt…? Nearly there…
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Type of borrowing Typical long term APR Mortgage 2% - 5% Student loan 1.5% - 7% Personal loan 3% - 10% Agreed bank overdraft 20% Credit card/Store card 20% - 30% Spreading insurance 35% Bloke with a big dog An arm and a leg Payday loans 1500%* Closing the gap What if I also have debts? Borrow £5,000 over 5 years Per month Total paid Interest paid 5% APR £94 £5,640 £640 20% APR £128 £7,680 £2,680 Payday loan 1500% APR £1,300 £78,000 £73,780 £2,000 more £73,000 more vs 5% APR 0% deals?
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY 0-4 months of salary/ in control/low interest Consider best savings options 5-8 months of salary/ interest increasing Avoid building up further debt Focus on reducing debts with highest APR 9+ months of salary and in arrears/out of control Pay priority debts (rent/mortgage) Seek advice from Citizens Advice or Step Change Amount of debt Action Closing the gap What if I also have debts?
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY How Danni is working to her target
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Closing the gap: retiring later Other pensions- what Danni will build up = £1,000 a year in today’s terms, payable from age 65 = £?,??? a year in today’s terms, payable from age 68 £1,150 a Rule of thumb: If not paying in anymore, each year earlier/later changes amount by 5% Earlier: -5% a year Later: +5% a year So in Danni’s case – 65 to 68 means 3 years later: So 3 x +5% = +15% So £1,000 x 1.15% = £1,150 pa £1,000 per year at 65
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY How Danni is working to her target
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Closing the gap • Options 1. Pay more 2. Work longer/retire later 3. Accept lower standard of living in retirement • Reality 1. Do a bit of all 3 options…?
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Saving enough to stop work What are we going to talk about? Closing the gap Having enough money to stop work What money are you building up? Action plan
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Action Plan • Work out some broad figures – What income you might need – What you’re already building up – Involve your partner • How can you close the gap? – Make sure expensive debt is addressed – Consider features of different savings areas • Review on regular basis • Take some action
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Disclaimers and warnings • This material has been prepared by First Actuarial LLP (FA) who take full responsibility for it • FA are not financial advisers but are regulated by the Institute and Faculty of Actuaries in respect of a range of investment business activities. • Any figures in this presentation are illustrations only and are designed to explain how various investments including pensions and shares schemes operate. • The content of this presentation is designed to provide you with helpful information regarding retirement planning issues and nothing in it should be regarded as providing you with any specific advice or recommendations. • The CIPP NEST DC Scheme is governed by its Trust Deed and Rules and relevant legislation. More detailed information about the scheme is available on request. • If you require specific advice or help regarding your financial planning, please contact an Appropriately Qualified Financial Adviser. 54
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Any questions??
First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Saving enough to stop work Delivered to CIPP tutors, 9 July 2016 David Joy Founder, First Actuarial LLP david.joy@firstactuarial.co.uk 0780 389 2266 www.firstactuarial.co.uk

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Saving enough to stop work

  • 1. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Saving enough to stop work Delivered to CIPP tutors, 9 July 2016 David Joy Founder, First Actuarial LLP david.joy@firstactuarial.co.uk 0780 389 2266 www.firstactuarial.co.uk
  • 2. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY This presentation belongs to First Actuarial LLP. Our mission to is to help improve financial literacy and we think a really good way to do this is through the workplace. If your company is interested in financial education please do get in contact with us to find out how we can help you to help your colleagues. We want to spread our message. But it takes time to come up with good ideas for delivering effective financial education. So if you do wish to use the slides or ideas in this presentation, that’s fine too, all we ask is that you always acknowledge First Actuarial LLP as the original source. Thank you, and enjoy the presentation. David Joy Founder, First Actuarial LLP david.joy@firstactuarial.co.uk 0780 389 2266
  • 3. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY 3 Saving enough to stop work Who am I? Help you think about your pensions and savings Not a salesperson Independent
  • 4. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Tax doesn’t need to be taxing… Warm up1
  • 5. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY £25,000 Salary NI 12% Tax 20% NI 12% Tax 20% Tax at 0% Tax at 0% Salary £25,000 Salary Salary £25,000 Salary Salary Tax 20%Tax at 0% £0 £8,060 £11,000 £43,000 Nat’l Ins 2% Tax 40% What you take home Salary £25,000 Tax of £2,800 NI of £2,033 Nat’l Ins 12% Take-home of £20,167 Nat’l Ins 0% How tax works on your salary… Income tax Nat Ins
  • 6. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY £25,000 Salary Tax at 0% Nat’l Ins 2% Tax 40% What you take home Take-home of £20,167 NI £6 £50 £50£50 NI £6 Tax £10 NI £6 Tax £10 NI £6 £34 Nat’l Ins 12% Tax 20% Nat’l Ins 0% How tax works on £50 of your salary… £0 £8,060 £11,000 £43,000 Salary £25,000 Income tax Nat Ins
  • 7. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY £25,000 Pension Tax 20% Tax 20%Tax at 0% Tax at 0% Pension £25,000 Pension £25,000 Pension Tax 20%Tax at 0% £0 £8,060 £11,000 £43,000 Nat’l Ins 2% Tax 40% What you take home Pension £25,000 Tax of £2,800 Nat’l Ins 12% Take-home of £22,200 Nat’l Ins 0% Income tax Nat Ins How tax works on your salary…pension…
  • 8. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Do I need to worry about inflation…? Warm up2
  • 9. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY What am I saving for?
  • 10. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Why we save Do I need to worry about inflation? Need to worry? No Probably Definitely Price of pizza from leading take away Today? 1 year? 5 years? 15 years?
  • 11. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Saving enough to stop work What are we going to talk about? Closing the gap Having enough money to stop work What money are you building up? Action plan
  • 12. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY • Lots of research – 50% to 75% of your current salary – This is a large range – What is right for you? – Think this through with your partner 12 How much money will I need to stop work?
  • 13. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY 13 Holidays Long term care (you or parents) Leisure Heating No mortgage Children finally left home No National Insurance to pay Don’t have to save for retirement Spending might reduce Spending might increase Having enough money to stop working
  • 14. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Hello, my name is Danni I am 45 (1970) and have been in the CIPP NEST DC scheme for 2 years My salary is £25,000 I’ll show you how I’m going to work out how much I need to stop work. This will help you do the same…
  • 15. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Extra 2 holidays £3,000 pa Use house for care £0 Extra Leisure £1,000 pa Extra heating £1,000 pa Save mortgage £6,000 pa 1 Child £5,000 pa No NI £2,000 pa Save pension conts £1,000 pa Spending might reduce Spending might increase Danni - £25,000 pa TOTAL £14,000 TOTAL £5,000 TOTAL REDUCTION = £9,000 TARGET INCOME = £16,000
  • 16. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY How much for Danni - £16,000
  • 17. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Saving enough to stop work What are we going to talk about? Closing the gap Having enough money to stop work What money are you building up? Action plan
  • 18. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY What money are you building up? Other savings Cash, shares ISAs Other sources Inheritance, buy-to-let, own home CIPP NEST pension State pension CIPP contribution plus what you pay Other pensions Basic State Pension New State Pension From other employments
  • 19. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY What money are you building up? State Pension
  • 20. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Background to State Pensions 2015 position New from 2016 Basic State Pension - £6,029 a year 30 qualifying years - NI contributions - Child benefit years to age 12 Better of own and 60% spouse’s State Second Pension (S2P) Complicated formula “New State Pension”- £8,000 a year 35 qualifying years No use of spouse’s Need at least 10 years to get any BR19 form can be useful if you have complicated employment history
  • 21. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY State Pension – what has Danni built up Built up to date State pension date Forecast at SPA
  • 22. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY 22 Going forward, SPA linked with studies of life expectancy State Pension - when you might get it Danni born 1970 so SPA 67 but will be 68
  • 23. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY How Danni is working to her target
  • 24. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Your CIPP Pension What money are you building up?
  • 25. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY CIPP NEST Scheme Individual pot that builds up You pay 1% plus whatever you can afford You can choose how it is invested CIPP pays 1% of salary There is a default fund in case you cannot decide
  • 26. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY CIPP Scheme- what Danni will build up 26 = £1,000 a year in today’s terms, payable from age 65 £1,000 per year
  • 27. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY How Danni is working to her target
  • 28. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY What income will you build up? Other Pensions
  • 29. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Other pensions - defined benefit 1. An up to date deferred benefit statement showing the accrued pension including revaluation from my date of leaving to now. 2. Confirmation that the accrued revalued pension calculated above will continue to be revalued between now and my retirement age. 3. The earliest age at which all of my pension can be taken without reduction. Example:
  • 30. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Sample letter for defined contribution pension To: the Trustees of the XYZ Pension Scheme <<Date>> Dear Sirs Name: John Smith National Insurance Number: AB123456C Date of Birth: 1 January 1960 Please can you send me the following information about my deferred pension in the scheme: 1. An up to date pension statement showing the most recent fund value. 2. A projection of what this might be worth at age 65, in today’s terms based on standard assumptions. 3. Details of the funds in which it is invested 4. The annual management charge being applied 5. Any other charges being applied Yours faithfully Other pensions - defined contribution 1. An up to date benefit statement showing the most recent fund value. 2. A projection of what this might be worth as a pension at age 65, in today’s terms assuming standard assumptions. 3. A summary of the investment funds being used. 4. Confirmation of the annual management charge that applies to each of the funds. 5. Any other charges that apply. Example
  • 31. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY How Danni is working to her target
  • 32. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY • So, you have saved incredibly hard and have £200,000 in your all your pension pots after taking your tax free lump sum • You’ve decided not to buy an annuity • You’ve even heard you can take it all in one go… • So should you…? A word of warning…
  • 33. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Don’t let the freedoms free you from your cash First Actuarial’s Tax muppetometer
  • 34. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Don’t let the freedoms free you from your cash First Actuarial’s Tax muppetometer
  • 35. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Don’t let the freedoms free you from your cash First Actuarial’s Tax muppetometer
  • 36. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY The small print We have used 2015/2016 tax allowances, ignored investment returns and inflation and not tried to predict how HMRC might bend the rules in the future, which they undoubtedly will. Allowing for these might change the numbers a bit, but would also make the model less user friendly although we doubt the underlying messages would change. Namely, spreading your DC pot over a number years will, for most people, mean paying less tax. Don’t let the freedoms free you from your cash First Actuarial’s Tax muppetometer
  • 37. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Other savings What money are you building up?
  • 38. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Other savings: 38 Unilever share schemes Stocks and Shares ISA Cash ISA Shares held personally Cash Other savings Total current value of long-term savings Current value of other savings You Your Partner
  • 39. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Other savings: income? What income might this produce when you want to stop work? Assume a retirement of 25 years from age 65. So divide your total assets by say 25. Danni has £50,000 from all sources, so around £2,000 a year.
  • 40. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY How Danni is working to her target Gap
  • 41. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Saving enough to stop work What are we going to talk about? Closing the gap Having enough money to stop work What money are you building up? Action plan
  • 42. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY How Danni is working to her target Gap
  • 43. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Closing the gap • Options 1. Pay more 2. Work longer/retire later 3. Accept lower standard of living in retirement
  • 44. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Putting £34 of net pay into CIPP NEST DC Scheme Basic rate taxpayer Net cost to you Tax and NI Saving Total amount to be invested Get back after tax (basic rate taxpayer in retirement) Ordinary contributions £34 £8 £42 £36 Salary sacrifice contributions £34 £16 £50 £42 Closing the gap: Paying more How tax works on different forms of savings: the figures So, ISA or Pension? ISA £34 - £34 £34 55 LISA £34 £8 £42 £42
  • 45. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY But what about debt…? Nearly there…
  • 46. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Type of borrowing Typical long term APR Mortgage 2% - 5% Student loan 1.5% - 7% Personal loan 3% - 10% Agreed bank overdraft 20% Credit card/Store card 20% - 30% Spreading insurance 35% Bloke with a big dog An arm and a leg Payday loans 1500%* Closing the gap What if I also have debts? Borrow £5,000 over 5 years Per month Total paid Interest paid 5% APR £94 £5,640 £640 20% APR £128 £7,680 £2,680 Payday loan 1500% APR £1,300 £78,000 £73,780 £2,000 more £73,000 more vs 5% APR 0% deals?
  • 47. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY 0-4 months of salary/ in control/low interest Consider best savings options 5-8 months of salary/ interest increasing Avoid building up further debt Focus on reducing debts with highest APR 9+ months of salary and in arrears/out of control Pay priority debts (rent/mortgage) Seek advice from Citizens Advice or Step Change Amount of debt Action Closing the gap What if I also have debts?
  • 48. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY How Danni is working to her target
  • 49. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Closing the gap: retiring later Other pensions- what Danni will build up = £1,000 a year in today’s terms, payable from age 65 = £?,??? a year in today’s terms, payable from age 68 £1,150 a Rule of thumb: If not paying in anymore, each year earlier/later changes amount by 5% Earlier: -5% a year Later: +5% a year So in Danni’s case – 65 to 68 means 3 years later: So 3 x +5% = +15% So £1,000 x 1.15% = £1,150 pa £1,000 per year at 65
  • 50. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY How Danni is working to her target
  • 51. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Closing the gap • Options 1. Pay more 2. Work longer/retire later 3. Accept lower standard of living in retirement • Reality 1. Do a bit of all 3 options…?
  • 52. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Saving enough to stop work What are we going to talk about? Closing the gap Having enough money to stop work What money are you building up? Action plan
  • 53. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Action Plan • Work out some broad figures – What income you might need – What you’re already building up – Involve your partner • How can you close the gap? – Make sure expensive debt is addressed – Consider features of different savings areas • Review on regular basis • Take some action
  • 54. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Disclaimers and warnings • This material has been prepared by First Actuarial LLP (FA) who take full responsibility for it • FA are not financial advisers but are regulated by the Institute and Faculty of Actuaries in respect of a range of investment business activities. • Any figures in this presentation are illustrations only and are designed to explain how various investments including pensions and shares schemes operate. • The content of this presentation is designed to provide you with helpful information regarding retirement planning issues and nothing in it should be regarded as providing you with any specific advice or recommendations. • The CIPP NEST DC Scheme is governed by its Trust Deed and Rules and relevant legislation. More detailed information about the scheme is available on request. • If you require specific advice or help regarding your financial planning, please contact an Appropriately Qualified Financial Adviser. 54
  • 55. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Any questions??
  • 56. First Actuarial LLP is a limited liability partnership registered in England & Wales. Number OC348086. Registered address: First Actuarial LLP, Mayesbrook House, Lawnswood Business Park, Leeds, LS16 6QY Saving enough to stop work Delivered to CIPP tutors, 9 July 2016 David Joy Founder, First Actuarial LLP david.joy@firstactuarial.co.uk 0780 389 2266 www.firstactuarial.co.uk

Editor's Notes

  • #6: <Presenters are going to have to work out when the clicks are and get used tot hem as too many to describe below. Tax and NI blocks come up separately, then the £30K salary arrives, then it pauses above the NI blocks, then the tax blocks, then finally the take-home blocks before finale is to show take home of £23,663. Note I have ignored the 1.4% rebate on earnings between LEL and PT – in fact NI bill would be around £30 lower but this considered not worth it. On salary Earnings are sliced into different bands for income tax Personal allowance (nil tax) Next 31,865 (basic rate income tax 20%) Next 58,115 (higher rate income tax 40%) Earnings are sliced into different bands for NI (slightly different from tax) First £7,985 (up to £153 per week -nil) Next £33,904 (between £153 and £805 per week - 12%) Rest 2% A passing observation here is that despite increasing the personal allowance materially over last 5 years, as NI threshold has not kept up. They were broadly similar in 2007 at around £5,000. But people who earn £10,000 are not completely out of the tax system, only people who earn less than £8,000. OK, so let’s see what happens to your headline salary of £30,000. Conclusion is you pay NICs and tax and take-home is around £23.6K
  • #26: [all of your pensions are added together.
  • #36: Step 3: Spreading it over 10 years… and you’ll save nearly £45,000 in tax. Wow. How much better can it get – what if we did 20 years?