saving enough 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

Saving enough to stop workDelivered to CIPP tutors, 9 July 2016

David JoyFounder, First Actuarial LLP

[email protected] 389 2266

www.firstactuarial.co.uk

mailto:[email protected]

http://www.firstactuarial.co.uk/


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.





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Saving enough to stop workWho am I?

Help you think about your pensions and savings

Not a salesperson

Independent


Tax doesn’t need to be taxing…

Warm up1


£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


£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 £10NI £6

Tax £10NI £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 £43,000Salary

£25,000

Income tax

Nat Ins


£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…


Do I need to worry about inflation…?

Warm up2


What am I saving for?

NowShortlyIn a few

yearsNothing

in mindLast stop

Retirement


Why we saveDo I need to worry about inflation?

Need to worry? No Probably Definitely

Price of pizza from leading take away

£10.25£14.48

£11.31

Today? 1 year? 5 years? 15 years?

£10.00


Saving enough to stop workWhat are we going to talk about?

Closing the gap

Having enough money to stop work

What money are you building up?

Action plan


• 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

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


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…


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 = £9,000TARGET INCOME = £16,000


How much for Danni - £16,000



Closing the gap



Action plan



Other savings Cash, sharesISAs

Other sources Inheritance, buy-to-let, own home

CIPP NEST pension

State pension

CIPP contribution plus what you pay

Other pensions

Basic State PensionNew State Pension

From other employments



State Pension


Background to State Pensions2015 position New from 2016

Basic State Pension - £6,029 a year30 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 yearsNo use of spouse’sNeed at least 10 years to get any

BR19 form can be useful if you have complicated employment history


State Pension – what has Danni built up

Built up to date

State pension date

Forecast at SPA


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


How Danni is working to her target


Your CIPP Pension



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


CIPP Scheme- what Danni will build up

26

= £1,000 a year in today’s terms, payable

from age 65

£1,000 per year


What income will you build up?

Other Pensions


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:


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


• 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…


Don’t let the freedoms free you from your cashFirst Actuarial’s Tax muppetometer


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 cashFirst Actuarial’s Tax muppetometer


Other savings



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


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.



Gap



Closing the gap



Action plan



Gap


Closing the gap

• Options1. Pay more2. Work longer/retire later3. Accept lower standard of living in retirement


Putting £34 of net pay into CIPP NEST DC

SchemeBasic rate taxpayer

Net cost to you

Tax and NISaving

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 moreHow tax works on different forms of savings: the figures

So, ISA or Pension?

ISA £34 - £34 £34

55

LISA £34 £8 £42 £42


But what about debt…?

Nearly there…


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 gapWhat 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 vs5% APR

0% deals?


0-4 months of salary/ in control/low interest Consider best savings options

5-8 months of salary/ interest increasing

Avoid building up further debtFocus 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 gapWhat if I also have debts?


Closing the gap: retiring laterOther 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 yearLater: +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


Closing the gap

• Options1. Pay more2. Work longer/retire later3. Accept lower standard of living in retirement

• Reality1. Do a bit of all 3 options…?



Closing the gap



Action plan


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


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.

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Any questions??


Saving enough to stop workDelivered to CIPP tutors, 9 July 2016



www.firstactuarial.co.uk


http://www.firstactuarial.co.uk/

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