Early-retirement wannabe

enthusiasticsaver

I would also agree that you could afford to retire tomorrow if need be and still have plenty of capital left. £100k TFLS from DC pot would cover 4 years from say 58 to 62. Withdraw 2 PAs if DCs split evenly would give you £22k per annum with no tax to pay and the difference needed from savings. If you do that for a further 3 years until the DB pension is claimed that would crystallize £166 from the DC pot with no tax to pay. You would have more than enough income left in DC pot and full state pensions at 67 plus the 3 DB pensions to cover your needs and still have money left for holidays etc.

happyandcontented

enthusiasticsaver wrote: »

Triumph has already given you great advice but would say that you obviously wont have any problem meeting your income requirement in retirement given your high DB pension at £21k plus the 2 smaller DB pensions.

You need to watch the LTA depending on the split in pensions as that DB pension at £21k at 60 and £25k at NRA of 65 will have a high CETV so if the majority of that £400k is in your name as well you may well go over the million allowance. That is my first thought.

You need to check the provision for your wife (or husband) if he or she is the lower earner as although presumably they would get 50% spousal pension from the high DB pension this would not be high enough to cover outgoings unless they still had a large investment pot. Obviously once state pension kicked in though they would be fine so the crunch years are between 60 and 67 or spa.

You will be straying dangerously into higher tax bracket area once you have your DB pension and state pension so I would use the pension commencement lump sum from the DC to live off initially and delay taking the DB pension and withdraw up to the PA in the early years to crystallise without paying 40% tax. After spa if you have around a £23k plus sp of £8k then withdraw up to around £40k from DC pot or leave invested.

Any focus on further investment should be in the lower earners pot to make most tax efficient use of allowances.

Thanks, although as we understand it the value of the DB pension is not assessed at the CETV value unless it is taken that way. If it was taken as it was intended to be taken it accounts for 40% of the LTA according to the documents we have, leaving some, but admittedly not a lot, of headroom once the DC pots are in the mix.

The DC pots are all in the higher earners name so I suppose we can't then do this?
"Withdraw 2 PAs if DCs split evenly"

As you say, I think we have reached the conclusion that any further pension payments should be primarily into a SIPP for the lower earner but a consideration is that if contributions were made via the business they would attract lots of tax benefits.

Lower earner is a second shareholder though so not sure if it is possible to make their contributions that way? Or would they have to be directly employed?

Triumph13

I wouldn't discard the CETV option quite so quickly given your desires to leave an inheritance and the impact of the very unequal split of provision if the well provided spouse dies first.
£800k of CETV plus £400k of DC comes to £1.2M. 25% LTA charge on the excess is 'only' £50k and still leaves £1.15M which is £250k of TFLS and £900k of drawdown funds. A very conservative 3% drawdown rate gives £27k gross which would be £24k net. Add 2 SPs and say £2k of DB for other spouse again gets you to £41k pa net. Backfilling from 57 to 66 takes only £150k of the £250k TFLS leaving plenty spare to see you through any downturns. The big advantage of this route is the drawdown funds are entirely inheritable by the other spouse and ultimately by your kids. The £50k LTA charge is small beer in this context.


I'm normally not at all keen on giving up guaranteed income, but in this case I would very seriously consider it as the above calculation uses what most would call a very prudent withdrawal rate plus you have a lot of capacity to cut back in a downturn as a high percentage of your 'core' spending is covered by SPs / Bridging funds and you have a whole lot of slack in your overall budget even if you retire today.

Triumph13

If you do decide to work longer, the decision on where to focus pension contributions is very dependent on whether you will take the CETV or not. If taking the CETV then HR spouse is already over LTA so unless also saving NI through sal sac there is no tax benefit to further contributions - 40% relief going in and 40% tax going out (25% LTA charge then basic rate tax). If not taking the CETV then HR spouse still has LTA capacity and makes a good return on contributions with £60 going in becoming £85 coming out. This beats anything BR spouse can achieve.


If you do have the cash though, eg from savings, I'd still strongly recommend making the maximum possible pension contributions for BR spouse as they have the ability to get it all out tax free in a short timescale for an 'instant' 25% return on investment.

enthusiasticsaver

happyandcontented wrote: »

Thanks, although as we understand it the value of the DB pension is not assessed at the CETV value unless it is taken that way. If it was taken as it was intended to be taken it accounts for 40% of the LTA according to the documents we have, leaving some, but admittedly not a lot, of headroom once the DC pots are in the mix.

The DC pots are all in the higher earners name so I suppose we can't then do this?
"Withdraw 2 PAs if DCs split evenly"

As you say, I think we have reached the conclusion that any further pension payments should be primarily into a SIPP for the lower earner but a consideration is that if contributions were made via the business they would attract lots of tax benefits.

Lower earner is a second shareholder though so not sure if it is possible to make their contributions that way? Or would they have to be directly employed?

I would think they have to be employed to do it through your company. Is the lower earner a company director and do they draw a salary?

happyandcontented

Triumph13 wrote: »

I wouldn't discard the CETV option quite so quickly given your desires to leave an inheritance and the impact of the very unequal split of provision if the well provided spouse dies first.
£800k of CETV plus £400k of DC comes to £1.2M. 25% LTA charge on the excess is 'only' £50k and still leaves £1.15M which is £250k of TFLS and £900k of drawdown funds. A very conservative 3% drawdown rate gives £27k gross which would be £24k net. Add 2 SPs and say £2k of DB for other spouse again gets you to £41k pa net. Backfilling from 57 to 66 takes only £150k of the £250k TFLS leaving plenty spare to see you through any downturns. The big advantage of this route is the drawdown funds are entirely inheritable by the other spouse and ultimately by your kids. The £50k LTA charge is small beer in this context.


I'm normally not at all keen on giving up guaranteed income, but in this case I would very seriously consider it as the above calculation uses what most would call a very prudent withdrawal rate plus you have a lot of capacity to cut back in a downturn as a high percentage of your 'core' spending is covered by SPs / Bridging funds and you have a whole lot of slack in your overall budget even if you retire today.

Thank you, this has given me food for thought.

I have bolded the bit that I am not sure of, to use only 150k of the 250k tax free would mean income of c16k for the nine years from now. Is that what you are suggesting? Although the reality would be that it would be 6 years from aged 60 as we are not quite ready to retire yet.

Triumph13

happyandcontented wrote: »

Thank you, this has given me food for thought.

I have bolded the bit that I am not sure of, to use only 150k of the 250k tax free would mean income of c16k for the nine years from now. Is that what you are suggesting? Although the reality would be that it would be 6 years from aged 60 as we are not quite ready to retire yet.

The key point is that the £900k drawdown pot is giving you £27k gross / £24k net from day one in my illustration. The only things your are backfilling are the small DBs and the two SPs - one of which will be entirely subject to tax as the drawdown fund is already using up that person's PA. Backfilling SPs therefore costs £15k PA and then I assumed 3 years of backfilling a £2k DB to give a total hole to fill of £141k (=9x15 + 3x2)

happyandcontented

Thank you, I see that now! Honestly, I think we are being driven mad by the variations of what to do! Nice problem to have though, but we do feel it is the biggest decision we will ever take and it needs to be right for us. It is helping so much to set it out on here and get your comments.

Our IFA has (informally) advised against transfer as he prefers the guaranteed income aspect and the risk being borne by the DB scheme. Part of me wonders whether this is wholly to do with our best interests or whether his liabilities are factored into that too.

The way we are looking at it is that to get 800k out you would need to live 32 years at 25k PA. That is over average life expectancy. Chances are life will be shorter than that hence losing whatever is left in the scheme, which is likely to be in excess of the 50k tax charge if we took the CETV.

Then comes the realisation that we are not equipped to manage a fund of 900k and balance and rebalance a portfolio to avoid/mitigate the major market vagaries. We are not overly bothered about massive growth and would prefer a lower return rather than be overly exposed.

Is that even possible?

happyandcontented

enthusiasticsaver wrote: »

I would think they have to be employed to do it through your company. Is the lower earner a company director and do they draw a salary?

We have queried with our accountants which is the best way to facilitate this.

The lower earner does do the expenses and often deals with the accountants, but is designated a shareholder, not an employee or Director.

Given the work is being done "free" currently, it may be that a change of status would be the best way forward, and we are hoping that will be clearer after advice from the accountants.

westv

I was thinking the other day about my £5k PPF rescued DB pension from the first company I worked at.
I was there for 17 years from age 16 but they didn't start employees into the scheme until they were age 25 - when seems quite late nowadays.
If they had had an earlier starting age then my DB might have possibly been double!