tax/savings strategies for AFTER retirement

fizio

PasturesNew wrote: »

Spend it all, spend it all, spend it all...... if I had a pension income bringing in huge sums I'd be spending it all every month. I'd work on the basis that "I've a ton of money coming in, whatever goes wrong I can pay from next month's pension easily" - whether that's needing the roof fixing, a new boiler, car breakdown ....

Spend it....

I do plan on spending it and enjoying life but not to any excess - don't really have an extravagant lifestyle but will do some travelling etc..

fizio

An interesting point from jamesd about when to take the pension if its not immediately needed
1. take it straightaway - especially if close to the LTA limit
2. delay it a few years - main reason being my DB pension reduces by 5% for every year early that i take it

I think I'll have to look at the numbers nearer the time.
I' assuming that I have to take DB and DC together and that I can't take DC on retirement and leave DB for a few years?

fizio

The only other way i can think of to minimise tax is to make use of the CGT allowance annually. Maybe use part of the lumpsum (after ISA's) to take advantage of CGT. Not exactly sure how this will work but worth investigating?

atush

I' assuming that I have to take DB and DC together and that I can't take DC on retirement and leave DB for a few years?

Generally, they are taken seperately, the DC first (to keep from drawing the DB early/reduced).

fizio

atush wrote: »

Generally, they are taken seperately, the DC first (to keep from drawing the DB early/reduced).

Hmmm,
that puts a slightly different perspective on things. I could take my DC (prob worth 0.5M) and asscociated 25% lump sum as soon as i retire and then take the DB when its needed and/or when i take the minimal hit on its reduction factor..
Time to add some more columns top my spreadsheet I think
Thanks

jamesd

You don't have to take DB and DC at the same time. You don't have to take all of the DC at the same time.

Ignoring the lifetime allowance what I'd tend to suggest is taking DC at 55 and DB at normal retirement age. That avoids the 5% a year reduction for life in the DB payout.

For the DC you can get different GAD calculation date for different parts by taking them at different times. That can reduce the chance of all of the DC income dropping due to a GAD calculation at the same market downturn time. Many schemes will just add existing money to the same date/pot so you might need to transfer to a different scheme temporarily.

Also, a DC pot in drawdown can only be transferred as a whole, not in pieces, but each pot with a different GAD date is separate and those pots can be transferred individually.

Staged drawdown of the DC pot is worth considering, even if it's only done over the course of two years to create say four different pots with an eight month gap between them at months 0, 8, 16, 24 then at 36 the month 0 pot's GAD recalculation happens. Not six month gaps because when the GAD calculation changes to annual as you pass age 75 these will end up still having a four month gap between calculation dates.

Daniel54

To echo an earlier point,I found it very useful to talk with an IFA when considering the interplay of various saving pots with the LTA.I am ahead of you OP and will take my DB pensions at the NRD of 60 next year ( and already have fixed protection),so we are not in the same position.Nevertheless,these are my take-aways which you might find useful

- your DB scheme is the most valuable of the pensions ( don't forget the widow's benefits) .Think carefully about the cost of taking it early and also whether to take the tax free lump sum -I almost certainly won't ,unless the commutation rate is somewhere near the true value.

- think about staged crystallisation of the DC pot.Jamesd had suggested one reason for doing this ,but it also gives you more control over when to crystallise.I have put mine in a modular SIPP where each drawdown will be 25% tax free and 75% tax paid,leaving the entire balance of the fund to grow free of tax.I have left headroom for my fund to grow within the LTA.

- I found myself having to consider the extent of my risk tolerance when no longer earning .As a result preservation of capital has become more important and my SIPP is more conservatively invested already with a target of inflation plus 2% and reduced potential volatility

-as taking income and capital from ISAs requires no further tax I will take this in priority to the SIPP.Becomes particularly important if in retirement you are a higher rate taxpayer,or near to being so.

Hope this helps .My final point would be to not focus in the first place on the tax,but to work out what you want to achieve,and when, before subsequently looking at the tax implications.For my part I would not wish to take increased risk if the objective is solely to mitigate tax

fizio

Daniel/James
Thanks a lot for the advice and I am starting to get a clearer picture of my options. It does look like I may well have to see an IFA nearer the time and ensure I get my finances in the right order to maximise income and minimise tax.

richbeth

Hi,
it sounds like you are in a very similar position to our household. I developed a rather complex spreadsheet to help model various scenarios and one of the key learnings from this was that my wife and I should DECREASE pension contributions in favour of ISAs. This is because we needed to fill the gap from your DC pension between 55 and 67.

If we put lots into pensions we'd significantly exceed our income targets from 67 onwards but at the expense of cash at the start which wasn't what we were looking for. We could actually retire before 55 by using ISAs even though they are less tax efficient.

I calculated there was an optimum amount we should have in our combined SIPPs of ca £600k. This means we could take a tax free lump sum of £150k and start drawdown. The £150k would then help subsidise our income until 67. But as this wasn't enough we needed another source of income and ISAs worked well for this.

Took me damn months to get it all sorted out !
R

fizio

Thanks Richbeth,
the whole thing does seem horrendously complicated with multiple pension/investment/tax options. I left ISA's a bit late but now have 100K between us and expect another 100K by the time i look at retirement so hopefully 200k odd of ISA plus 600k odd of DC will mean I can delay DB to avoid penalties..
I also realised that I have a lot of company shares and given the CGT situation I had better start to cash them in gradually now rather than leave till the end and be hit with CGT bill.
Similarly I'll get the OH a SIPP started as have also left that too long and as far as I can tell you can't buy prior years if not in work..
It does indeed look like my current spreadsheet is too simple and too focussed on investment growth until retirement and I need a version to work out post-retirement options.. Something to do over xmas...