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    • octavian
    • By octavian 15th Mar 17, 4:46 PM
    • 30Posts
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    octavian
    Minimising Tax on my pensions
    • #1
    • 15th Mar 17, 4:46 PM
    Minimising Tax on my pensions 15th Mar 17 at 4:46 PM
    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.
Page 1
    • Linton
    • By Linton 15th Mar 17, 5:18 PM
    • 7,668 Posts
    • 7,444 Thanks
    Linton
    • #2
    • 15th Mar 17, 5:18 PM
    • #2
    • 15th Mar 17, 5:18 PM
    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
    • By xylophone 15th Mar 17, 5:22 PM
    • 21,308 Posts
    • 12,238 Thanks
    xylophone
    • #3
    • 15th Mar 17, 5:22 PM
    • #3
    • 15th Mar 17, 5:22 PM
    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
    • By octavian 15th Mar 17, 5:29 PM
    • 30 Posts
    • 4 Thanks
    octavian
    • #4
    • 15th Mar 17, 5:29 PM
    • #4
    • 15th Mar 17, 5:29 PM
    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.
    Originally posted by Linton
    Thanks. I'll contact the pension provider and see what the deal is with deferring it.
    • octavian
    • By octavian 15th Mar 17, 5:37 PM
    • 30 Posts
    • 4 Thanks
    octavian
    • #5
    • 15th Mar 17, 5:37 PM
    • #5
    • 15th Mar 17, 5:37 PM
    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?
    Originally posted by xylophone
    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
    • By greenglide 15th Mar 17, 5:45 PM
    • 2,632 Posts
    • 1,658 Thanks
    greenglide
    • #6
    • 15th Mar 17, 5:45 PM
    • #6
    • 15th Mar 17, 5:45 PM
    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
    • By xylophone 15th Mar 17, 5:47 PM
    • 21,308 Posts
    • 12,238 Thanks
    xylophone
    • #7
    • 15th Mar 17, 5:47 PM
    • #7
    • 15th Mar 17, 5:47 PM
    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
    • By octavian 15th Mar 17, 7:33 PM
    • 30 Posts
    • 4 Thanks
    octavian
    • #8
    • 15th Mar 17, 7:33 PM
    • #8
    • 15th Mar 17, 7:33 PM
    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.
    Originally posted by Linton
    I've dug out my retirement information pack and it says regarding when you can take benefits -

    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.

    She did reach State Pension Age on or before 5.4. 16?
    Originally posted by xylophone
    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
    • By xylophone 15th Mar 17, 9:28 PM
    • 21,308 Posts
    • 12,238 Thanks
    xylophone
    • #9
    • 15th Mar 17, 9:28 PM
    • #9
    • 15th Mar 17, 9:28 PM
    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
    • By Dazed and confused 15th Mar 17, 9:38 PM
    • 1,264 Posts
    • 504 Thanks
    Dazed and confused
    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
    • By xylophone 15th Mar 17, 10:52 PM
    • 21,308 Posts
    • 12,238 Thanks
    xylophone
    I should have said that a contribution to his pension will in effect reduce the amount of tax he actually pays.
    • kidmugsy
    • By kidmugsy 16th Mar 17, 12:28 AM
    • 9,270 Posts
    • 6,085 Thanks
    kidmugsy
    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.
    Originally posted by octavian
    First your wife: take 2880 from your savings and contribute it into a SIPP for her. Then after 05/04/17 do it again. Once the tax rebates have arrived at the provider she should probably take her 25% TFLS and drawdown as much tax-exposed income as will avoid her paying tax on it. Caution: with one of the best providers, Hargreaves Lansdowne, she'd have to leave 1000 behind to avoid paying a charge for having opened and closed a SIPP so quickly. So you might compare with the pension that Virgin offers.

    Then repeat this stunt year after year. You'll notice that it will make her up to 720 p.a. tax-free. As for deferring for a few years: it's an attractive scheme with the old-style pension. (It's rather feeble with the new-style so you may not want to bother with it yourself unless you can contrive a tax advantage.)

    Now you: if your earnings this tax year are going to be 6k then I suggest that before the end of the tax year on April 5th you draw on your savings and contribute to a SIPP 0.8 x 6k = 4.8k. In your DC pension I suggest you switch out of whatever funds you are invested in into their lowest risk fund. Then transfer your DC pension into that SIPP too. In about 8 weeks time the provider should have received the 1.2k tax rebate from HMRC and (I assume) your DC pot will be in the SIPP too. So you'll have about 66k there. You might then want to take your TFLS of about 16.5k and replenish your savings. You might also draw down as much tax-exposed income as will avoid you paying tax on it (Personal Allowance - ~6k pa - ~2.5k = ~3k. But see below. That act limits your future contributions to 4k gross p.a. but you're going to be limited to 3,600 gross p.a. once you've no earnings so it scarcely matters. Then you can pursue your idea of deferring your DB pension if the actuarial enhancement is enough to be attractive.

    The two of you together: I suggest you consider (i) gifting the rental property to your wife so that the rent is taken tax-free, and (ii) that once you are trying to run down your SIPP you have your wife transfer to you the permitted part of her personal allowance. You could do that with effect for 17/18.
    • octavian
    • By octavian 16th Mar 17, 7:45 PM
    • 30 Posts
    • 4 Thanks
    octavian
    First your wife: take 2880 from your savings and contribute it into a SIPP for her. Then after 05/04/17 do it again. Once the tax rebates have arrived at the provider she should probably take her 25% TFLS and drawdown as much tax-exposed income as will avoid her paying tax on it. Caution: with one of the best providers, Hargreaves Lansdowne, she'd have to leave 1000 behind to avoid paying a charge for having opened and closed a SIPP so quickly. So you might compare with the pension that Virgin offers.

    Then repeat this stunt year after year. You'll notice that it will make her up to 720 p.a. tax-free. As for deferring for a few years: it's an attractive scheme with the old-style pension. (It's rather feeble with the new-style so you may not want to bother with it yourself unless you can contrive a tax advantage.)

    Now you: if your earnings this tax year are going to be 6k then I suggest that before the end of the tax year on April 5th you draw on your savings and contribute to a SIPP 0.8 x 6k = 4.8k. In your DC pension I suggest you switch out of whatever funds you are invested in into their lowest risk fund. Then transfer your DC pension into that SIPP too. In about 8 weeks time the provider should have received the 1.2k tax rebate from HMRC and (I assume) your DC pot will be in the SIPP too. So you'll have about 66k there. You might then want to take your TFLS of about 16.5k and replenish your savings. You might also draw down as much tax-exposed income as will avoid you paying tax on it (Personal Allowance - ~6k pa - ~2.5k = ~3k. But see below. That act limits your future contributions to 4k gross p.a. but you're going to be limited to 3,600 gross p.a. once you've no earnings so it scarcely matters. Then you can pursue your idea of deferring your DB pension if the actuarial enhancement is enough to be attractive.

    The two of you together: I suggest you consider (i) gifting the rental property to your wife so that the rent is taken tax-free, and (ii) that once you are trying to run down your SIPP you have your wife transfer to you the permitted part of her personal allowance. You could do that with effect for 17/18.
    Originally posted by kidmugsy
    Many thanks for your comprehensive comments.

    My wife's now started a SIPP with HL and paid in 2880, so that's her covered for this tax year. We're OK with leaving 1K on the account to avoid closure.

    I've done the same and paid in 4.8K. I intend to transfer my DC pension into the SIPP in cash later when the tax has been credited to my HL account and then will probably withdraw a lump sum of 25% to move to my ISA and maybe a bit more up to my remaining personal allowance.

    The rental property is shared and my concern is that if I gift my share to my wife it will affect the CGT paid when we sell it in the future. I need to check how that will be affected. But transferring part of her personal allowance to me is a good idea.

    I wish I'd known about non-working people being able to receive tax credits on pension contributions before - we've missed a few years now.
    • kidmugsy
    • By kidmugsy 16th Mar 17, 7:59 PM
    • 9,270 Posts
    • 6,085 Thanks
    kidmugsy
    The rental property is shared and my concern is that if I gift my share to my wife it will affect the CGT paid when we sell it in the future.
    Originally posted by octavian
    Good point. I wonder whether you can ameliorate the problem by your selling your half to your wife rather than gifting it?
    • octavian
    • By octavian 16th Mar 17, 9:02 PM
    • 30 Posts
    • 4 Thanks
    octavian
    Good point. I wonder whether you can ameliorate the problem by your selling your half to your wife rather than gifting it?
    Originally posted by kidmugsy
    That's an interesting idea that I wouldn't have considered. I'll look into it.

    Thanks again.
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