Pension

Cautious_Investor_3

jamesd wrote: »

It makes no difference to the death benefits for pension purposes in this case because there is a spouse who inherits 100% of the money without tax charge into her own pension, unless I've missed some change proposed for this.

Yes and no!

If the spouse decides to continue in income drawdown or purchase an Annuity then you are right 100% of the fund is available for her.

However, if she decides to take a lump sum then a tax charge of 55% will be made post 5th April 2011. If the OP had not vested then 100% of the fund would be available i.e. no tax charge.

I agree with you about the funding retirement income before the state pension kicks in point. I have seen many people use Income Drawdown to take a higher level of income in the years before the state pension starts, then reducing the amount they take from their drawdown when they hit state pension age.

This type of planning can be a really useful way of helping people retire early.

The Cautious Investor

jamesd

Cautious_Investor wrote: »

Yes and no!

If the spouse decides to continue in income drawdown or purchase an Annuity then you are right 100% of the fund is available for her.

However, if she decides to take a lump sum then a tax charge of 55% will be made post 5th April 2011. If the OP had not vested then 100% of the fund would be available i.e. no tax charge.

It didn't occur to me that the spouse might try taking the rest of the pension pot out of the pension instead of using it to provide an ongoing income from moving it to a pension of their own.

Given the benefits of starting to use the maximum drawdown rate as soon as possible I'm inclined to go with considering insurance to cover the amount of the tax charge if taking all of the pension pot as a lump sum is a possibility. That might be unaffordable sometimes, though, depending on health. The new flexible drawdown approach might also have some application here, depending on the amounts and income tax rates involved and desirability or otherwise of annuity purchase.

My guess is that this is more likely to be a concern for mass wealthy or high net worth cases?

Cautious_Investor wrote: »

This type of planning can be a really useful way of helping people retire early.

Yes, it certainly can.

I hit my own contingency early retirement target in December. Took something under six years from a zero start. Still inadequate safety margins and only just sufficient income levels so there's some time to go yet before I'd be able to consider deliberately retiring early.