Pension planning advice for couple nearing 60s

kidmugsy

Just to add that any income that you can get free of income tax is insulated from future increases in income tax rates. Since the public finances have been ruined, I expect income tax rates to rise substantially. That's one reason that I'm cool to pension saving unless you have advantages such as "salary sacrifice scheme and the employer is contributing a bit".

gadgetmind

dunstonh wrote: »

That would bring the 25% into a taxable environment

Yes, but if it's invested in the name of the non-earning spouse in such as way as to generate dividend income, there is no further tax to pay. It can then be moved to ISAs at £21kpa via "Bed and ISA" to use their annual CGT allowances.

I'd much rather do this with the 25% than leave it in a pension where it will be subject to 20% tax as it's drawn down.

gadgetmind

onewom wrote: »

I have the spreadsheets for my current expenditure and one for retirement, which my family thinks very amusing

Those spreadsheets are a credit to you. Some people like ignorance, and even seem proud of it, but it's not for me.

think that if we can get £10000 a year in addition to state pension we will be living well.

The back of my envelope suggests you could achieve that now and another £7200 per year (£3600 each of which you'll only pay £2880, so £480 a month between you) for another decade will help further.

Where did you get this figure of £10k pa from?

Anyway -
1) Aim to split income between you, so start putting £240pcm in a pension for you. You'll probably be able to draw an income from this pension with no tax as it will probably only be £2k ish per year so within your personal allowance.
2) Move everything that isn't in ISAs into ISAs as quickly as the ISA limit and CGT will allow. Personally, I'd also do this with your husband's 25% lump sum, but I know opinions differ.

[Deleted User]

Thank you for your imput gadgetmind. I obtained the figure of £10k in addition to the state pension from our current expenditure (less some expenses that we will no longer have) with a generous estimate for increasing fuel and food bills. This seems a goal we can reach or even exceed so it will just be a matter of making the decisions.

gadgetmind

onewom wrote: »

I obtained the figure of £10k in addition to the state pension from our current expenditure (less some expenses that we will no longer have) with a generous estimate for increasing fuel and food bills.

Oh, right, sorry I didn't realise this was a goal rather than a projection. Very sensible.

BTW, I just spotted in another thread that you could do a pension for yourself, pay in £2880pa (£240pcm) and HMG would gross this up to £3600pa. As long as the total of all of your pots doesn't exceed £18k, you can withdraw it all at once, and if you split it across two pots and take both within 12 months of each other, you can do the pots in different tax years and pay no tax. Having each at about your personal allowance would seem to make sense.

You can then continue to do a £240pcm pension, and get the extra put in there by HMG, but can't use the above triviality rule again.

jamesd

The current salary sacrifice scheme offers an interesting way to make a nice bit of extra money.

He could take benefits (lump sum plus drawdown pension income) from the £200,000 pension and then take the income of that to live on while using salary sacrifice to pay the same amount of money into the work pension scheme.

For a basic rate tax payer with salary sacrifice that would get him 20% tax relief and 12% national Insurance avoided as well, plus possibly some of the employer NI if they share that.

For higher rate income it's the higher rate tax plus 2% employee NI saved and any employer NI that's shared.

The lump sum from the £200,000 could be put into S&S ISAs and invested just as it would be in a pension so taking it earlier than retirement doesn't affect the final value.

There is one really big benefit of income drawdown for you. 100% of the pension pot can be inherited by the spouse into their own pension pot after the first death, so there's a built in excellent income protection for the spouse if their partner dies first. Buying that with an annuity instead would greatly cut the available income.

He also has a pension pot size that might make it worth considering using a "scheme pension" to get a personal life expectancy calculation. That can allow more money to be taken out than normal capped drawdown, perhaps 50% more or even 80% more if his health was bad. This could increase the amount that could be taken as income and reinvested to get that second bite at the tax an NI relief cherry. Scheme pensions have in the past been mainly for older retirees, particularly with less than perfect health, but the recent 18% reduction in allowed income in capped drawdown has made them more attractive to other people with fairly significant pension pots. It's quite likely that he would gain more in extra tax relief than the extra cost of a scheme pension, though the IFA arranging this would need to verify this to determine if it was worthwhile.

While the 100% inheritance by a spouse within their own pension provides a lot of protection, once he does take any benefits from the pension he'd lose the chance to have 100% paid out outside a pension to a beneficiary. If that is a concern for him he should look into replacing that benefit with some life assurance. Again, the extra tax relief from the second bite at the cherry is pretty much certain to make this a better deal than not doing it.

Normal capped drawdown does have the GAD limit on how much income can be taken. If that looks insufficient another reason for taking the pension income before retirement is so it can be saved or invested within a S&S ISA or otherwise and then drawn on later to supplement the income.

In any case, with the £200,000 pot there's enough value here and enough potential for gains in tax relief to make it worth consulting an IFA for personal advice.

For yourself using the £3600 gross in pension contributions a year seems likely to be a good idea. That's because you get your own personal income tax allowance so it's a nice bit of likely tax advantage. That gain, if it happens, would even beat basic rate plus NI saving for him reinvesting in another pension with money from the first.

If there is no need for the capital of the 25% lump sum to remain available some of it can be used for income to increase the amount of salary sacrifice he can do. There are some anti-recycling rules that would apply to this so if it's desirable ask and someone will explain the limits. With ten years he'll have more than ample time to recycle it all.

jennifernil

gadgetmind wrote: »

BTW, I just spotted in another thread that you could do a pension for yourself, pay in £2880pa (£240pcm) and HMG would gross this up to £3600pa. As long as the total of all of your pots doesn't exceed £18k, you can withdraw it all at once, and if you split it across two pots and take both within 12 months of each other, you can do the pots in different tax years and pay no tax. Having each at about your personal allowance would seem to make sense.

Are there rules on who can do this?

My husband has pension income above what we require to live on, but I only have my State Pension of about £2500 pa. (I am 62) So, even with our non-ISA savings in my name, I am not using all my personal allowance, and will have even more spare allowance when I get the Age Allowance at 65.

Could I use £2880 of our surplus funds to pay into a pension for myself, thus gaining the extra "tax relief"? Does this have to be for a certain number of years before I could withdraw it under the triviality rules?

jamesd

Anyone aged under 75 can pay the money in. Anyone from 60 to 75 can take the money out. All money must be taken out within a single 12 month period. Once that 12 months is over triviality can never be used again during the lifetime of the person who did it. There's no minimum number of years but the one 12 month period rule means it's best to get close to the limit before doing it.

Once that is done it's still possible to pay money into a pension plan but that will get only the 25% lump sum allowance when taking it out, plus whatever ongoing income the remaining 75% can provide. That would still be efficient for you until you're using your full age allowance - 25% added to your money by HMRC, no income tax taken on the way out.

gadgetmind

jennifernil wrote: »

Are there rules on who can do this?

The only one I know of is that you can't do it if in Flexible Drawdown, which doesn't apply to you.

I only have my State Pension of about £2500 pa. (I am 62)

It might be that you'd be better off boosting your state pension, but that's a whole other subject.

Could I use £2880 of our surplus funds to pay into a pension for myself, thus gaining the extra "tax relief"? Does this have to be for a certain number of years before I could withdraw it under the triviality rules?

Yes, you can do this, and no, you don't have to hold for any set time. There have been a few threads recently regards triviality. The main rules are that the total of all of your pots must be <£18k and that all pots taken under triviality must be within 12 months of each other. This means you can spread triviality pensions over two tax years.

Even after this, you can still benefit from boosting as you can put £2880 into an immediate vesting pension. You put in £2880, HMG makes it up to £3600, you take out £900 straight away, and the rest goes into a (usually level?) annuity. It usually takes 10-12 years to break even if you won't be paying tax on the annuity as it's a return of about 8% per annum. Cavendish online do these with a £30 fee, but there might be others with more annuity options.

jennifernil

gadgetmind wrote: »

The only one I know of is that you can't do it if in Flexible Drawdown, which doesn't apply to you.



It might be that you'd be better off boosting your state pension, but that's a whole other subject.



Yes, you can do this, and no, you don't have to hold for any set time. There have been a few threads recently regards triviality. The main rules are that the total of all of your pots must be <£18k and that all pots taken under triviality must be within 12 months of each other. This means you can spread triviality pensions over two tax years.

Even after this, you can still benefit from boosting as you can put £2880 into an immediate vesting pension. You put in £2880, HMG makes it up to £3600, you take out £900 straight away, and the rest goes into a (usually level?) annuity. It usually takes 10-12 years to break even if you won't be paying tax on the annuity as it's a return of about 8% per annum. Cavendish online do these with a £30 fee, but there might be others with more annuity options.

Thanks to both you and jamesd, that has given me quite a bit to think about!

I am already getting my State Pension as it is a 60% one claimed on my husband's contributions. He has not worked here long enough to have enough contributions for a full pension, so mine is likewise reduced. He unfortunately hit 65 before the 30 year business was introduced.