Pension planning

Cloudydaze

I've finally been given some serious thought to future and trying get the right balance between mortgage over-payments, pensions, investments & savings. As a 40% tax payer, pensions seem like a no brainer.

Obviously predicting the future is impossible as life has the habit of throwing curve balls but I want to work towards the idea of a lifestyle change at 55. Ie doing something more enjoyable and less stressful (and inevitably for less money). Both parents are about to hit 70 and both working albeit part-time (a want rather, than a need). I can see the benefits as they are both physically fit and mentally sharp so I'd like to keep working for as long as possible.

So, I have a few questions....

1. Is 55 the lowest age for private pension?

2. Can I have multiple pots with different 'retirement' ages?

3. What are the options for the remaining funds after taking the 25% lump sum? Can it be transferred to a pension with a later 'retirement age?

4. Can I change the stated 'retirement' age of my (private) pensions at any time?

So reasons for the questions.... my current thinking is to set up a new (third) pension with a 'retirement' age of 55 for the sole reason of using the 25% lump sum to pay off my mortgage which by then will be about £45k. I'd need a £180k pot so would need to contribute £108k (well actually less as that's not allowing for growth).

I would then like to transfer the balance to one of other pensions to use at 65 or later. Would I still be allowed to withdraw 25% from that pension?

Thanks to anyone who bothered to read!

mania112

Cloudydaze wrote: »

So, I have a few questions....

1. Is 55 the lowest age for private pension?

2. Can I have multiple pots with different 'retirement' ages?

3. What are the options for the remaining funds after taking the 25% lump sum? Can it be transferred to a pension with a later 'retirement age?

4. Can I change the stated 'retirement' age of my (private) pensions at any time?

1. 55 is the lowest age at which you can draw benefits from a pension.

2. You can 'retire' and draw benefits from a pension at any age from 55. The retirement age shown on pension statements is only there for illustrative reasons, it can be whenever you like.

3. There are 2 main options at retirement. Income Drawdown and Annuity. There are a variety of differences, but regarding income, Drawdown has maximum flexiblity (so yes, in Drawdown you can tak e the tax free cash and defer the income until a later date). An Annuity, once setup, is fixed for life and income will start no later then the end of the first year (and that's only if you want Annual payments, end of the first month if you want monthly).

4. as #2, yes, but it's only for illustrative purposes anyway, you can retire whenever you like >55.

mania112

So to answer your problem, you can just top up an existing pension, you wouldn't need to start a new one.

Cloudydaze

Thanks that's really helpful. Just one more question.

If I take the lump sum at 55 and defer the income, to say to 65, can I still pay in over those 10yrs and get the tax relief?

dunstonh

1. Is 55 the lowest age for private pension?

For those that do not have a protected age, yes.

2. Can I have multiple pots with different 'retirement' ages?

no need. You dont fix the age at the outset and you you can phase the benefits from a single pension.

3. What are the options for the remaining funds after taking the 25% lump sum? Can it be transferred to a pension with a later 'retirement age?

There is no age to worry about.

4. Can I change the stated 'retirement' age of my (private) pensions at any time?

The only thing the stated age does is allow the provider to send a projection to that age. It doesnt mean you take benefits then

mania112

Cloudydaze wrote: »

Thanks that's really helpful. Just one more question.

If I take the lump sum at 55 and defer the income, to say to 65, can I still pay in over those 10yrs and get the tax relief?

Yes, it would be a separate 'tranche' of the pension, but that's a common thing to do.

FYI - Pre-retirement funds are known as uncrystallised and post-retirement funds are known as crystallised.

And never the twain shall meet.

mania112

There's also a 'thing' called income recycling.

If you aren't in need of the income during the period of age 55-65, you can withdraw the maximum and contribute it straight back into a pension.

It's tax neutral (you'll pay tax and get relief on the way back in) but it builds up further funds from which you can take 25% tax free from (because you'll be converting crystallised funds into uncrystallised funds)

Cloudydaze

Ah, that's interesting & very informative!

Any recommendations for further reading on pensions? I don't mean fund choices but more about strategies and how to make the most of the tax relief etc

jamesd

The Early-retirement wannabe discussion here covers a lot of territory.

Mania112 is right about income recycling. It's even better if you can use a work salary sacrifice scheme because that also gives you an NI gain on all of the money. In addition it's possible to recycle the tax free lump sum but there are limits on how much and when, so ask for more details if this interests you.

An alternative for the lump sum of course is S&S ISA investing. Or some limited and appropriate level of VCT use, you can get VCTs paying 8-9% tax free, with 30% income tax refunded on the way in that has to be repaid if you sell within five years. You can sell and repeat this tax relief every five years if you like. But VCTs are seldom appropriate for more than about 5-10% of investments so they tend to be only for those with larger investment values. The tax free income and recycling every five years aspect can be very handy for higher rate tax payers who want to increase their untaxed and hence efficiently spendable income, though.