Minimising Tax on my pensions

octavian · 15 March 2017 at 5:46PM

I'm 60 and due to receive my DB pension of ~£15K pa in Q3 2018. I also have a DC pension with Clerical Medical worth about £60K.
I'm currently self-employed working 1 day a week for ~£6K pa and have rental income of ~£2.5K pa. My wife is retired and receiving state pension.

After what I've learned through reading the really useful and prodigious information on this forum I'm interested in transferring my DC pension to a SIPP and contributing £2880 (or maybe a bit more) annually to receive the tax benefits.

I'm also wondering what I should do to try and minimise my tax situation. Should I be aiming to migrate my DC pension into my S&S ISA in order to protect it from tax?

Once my DB pension kicks in my personal allowance will be used, so any withdrawals from my DC pension will be taxed (over and above the 25% tax free part). I'm not sure whether to move it all into drawdown and take the 25% tax free lump sum or whether UFPLS would be better.

Would it make sense to defer my DB pension so that I can withdraw money from my DC pension tax free (up to my unused personal allowance) and invest it in my S&S ISA?
I'm pretty sure we can manage without the DB pension for a few more years.

Any suggestions would be much appreciated.

Linton · 15 March 2017 at 6:18PM

It does make sense to clear your DC pension, into an S&S ISA if you dont need the cash, whilst you can keep within your tax allowance. Whether deferring your DB pension is a good idea depends on if and by how much your DB pension would be increased.

xylophone · 15 March 2017 at 6:22PM

My wife is retired and receiving state pension.

This is old state pension?

The deferment terms are very good for OSP

You might consider transferring your Clerical Medical to a HL SIPP, taking the PCLS and using this as a replacement for your wife's deferred SP.

You could invest the balance/keep in cash as you wish.

She (or you on her behalf) could contribute up to £2880 into a SIPP - you, too, could continue to contribute to a SIPP up to your net relevant earnings.

http://forums.moneysavingexpert.com/showthread.php?t=5580163&page=14

With regard to deferring your DB pension, are there any late payment increases?

Otherwise you might be better to take it and move as much as you can into income paying funds in your S&S ISA (s) and taking tax free income from that?

octavian · 15 March 2017 at 6:29PM

Linton wrote: »

It does make sense to clear your DC pension, into an S&S ISA if you dont need the cash, whilst you can keep within your tax allowance. Whether deferring your DB pension is a good idea depends on if and by how much your DB pension would be increased.

Thanks. I'll contact the pension provider and see what the deal is with deferring it.

octavian · 15 March 2017 at 6:37PM

xylophone wrote: »

This is old state pension?

The deferment terms are very good for OSP

You might consider transferring your Clerical Medical to a HL SIPP, taking the PCLS and using this as a replacement for your wife's deferred SP.

You could invest the balance/keep in cash as you wish.

She (or you on her behalf) could contribute up to £2880 into a SIPP - you, too, could continue to contribute to a SIPP up to your net relevant earnings.

http://forums.moneysavingexpert.com/showthread.php?t=5580163&page=14

With regard to deferring your DB pension, are there any late payment increases?

Otherwise you might be better to take it and move as much as you can into income paying funds in your S&S ISA (s) and taking tax free income from that?

My wife is already receiving her SP (she's a bit older than me) so I guess it can't now be deferred. She's just recently opened an HL SIPP and paid £2880 in.

I shall investigate the terms for deferring my DB pension.

Thanks for the comments.

greenglide · 15 March 2017 at 6:45PM

If her SPa was before 6/4/2016 then she can still "defer" even though she is already in receipt.

This is one of the changes that isnt allowed with the nSP.

xylophone · 15 March 2017 at 6:47PM

She did reach State Pension Age on or before 5.4. 16?

I guess it can't now be deferred.

It is possible that it can be deferred. See page 16 of this (for NI but rule is the same)

https://www.communities-ni.gov.uk/sites/default/files/publications/dsd/your-guide-to-state-pension-deferral.pdf

If you are already claiming State Pension, you can decide to
stop claiming for a while to earn more money for your future.
You can only stop claiming once.
You can stop your State Pension by telling us the date you
want to stop claiming from (this cannot be a date in the past
or more than 4 weeks in the future).
You must normally live in the UK to put off claiming your
State Pension (see page 36, which explains when this rule may
not apply).

octavian · 15 March 2017 at 8:33PM

Linton wrote: »

It does make sense to clear your DC pension, into an S&S ISA if you dont need the cash, whilst you can keep within your tax allowance. Whether deferring your DB pension is a good idea depends on if and by how much your DB pension would be increased.

I've dug out my retirement information pack and it says regarding when you can take benefits -

wrote:

Normal retirement age under the Plan is 62. In some circumstances you can take your
benefits earlier or later than this. If taken earlier, your pension benefits will be smaller
because pensions are typically paid for longer but you may need the consent of the
Trustees of the Plan to do this. You can instead choose to take them at a later date,
provided you do so before age 75, again subject to the consent of the Trustees. If you
delay taking your pension it will be increased to take account of its later payment.

Unfortunately it doesn't specify how much the increase would be. I'll contact them and see what they have to say.

xylophone wrote: »

She did reach State Pension Age on or before 5.4. 16?

My wife's SP started in Feb '15, so perhaps she could defer it, but I don't see how that would help my tax situation. Is deferring the SP considered to be a good deal? I suppose it depends how long you live!

xylophone · 15 March 2017 at 10:28PM

If you transfer your DC pension into a SIPP and your wife defers her state pension, you can replace her state pension for a couple of years with your PCLS while her pension increases by 10.4% per annum.

You can also start to draw down your pension up to your personal allowance while paying up to £4000 (MPAA next tax year) into your SIPP and gaining tax relief.

You can pay as much as you wish within your ISA allowance into income funds within a stocks and shares ISA to obtain a tax free income.

When you start your DB pension you can pay £2880 into your SIPP thus reducing your adjusted net income so that you will be paying a very modest amount of tax.

Dazed_and_confused · 15 March 2017 at 10:38PM

xylophone

Given what the op has said about his income i think this is a little misleading to say the least,

When you start your DB pension you can pay £2880 into your SIPP thus reducing your adjusted net income so that you will be paying a very modest amount of tax.

The standard £720 tax relief would be added to the sipp fund but how will reducing ani reduce the amount of tax the op pays?

xylophone · 15 March 2017 at 11:52PM

I should have said that a contribution to his pension will in effect reduce the amount of tax he actually pays.

Minimising Tax on my pensions

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