saving enough to stop work
TRANSCRIPT
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
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 JoyFounder, First Actuarial LLP
[email protected] 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
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Saving enough to stop workWho 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 £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
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?
NowShortlyIn a few
yearsNothing
in mindLast stop
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
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
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 workWhat 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
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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
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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 = £9,000TARGET 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 workWhat 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, 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
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 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
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
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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
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= £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 cashFirst 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 cashFirst 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 cashFirst 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 cashFirst 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:
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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 workWhat 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
• Options1. Pay more2. Work longer/retire later3. 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
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
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 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?
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 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?
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 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
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
• Options1. Pay more2. Work longer/retire later3. Accept lower standard of living in retirement
• Reality1. 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 workWhat 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.
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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
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 workDelivered to CIPP tutors, 9 July 2016
David JoyFounder, First Actuarial LLP
[email protected] 389 2266
www.firstactuarial.co.uk