early retirement options & new rules

SoftCentre

Planning early retirement in Sept this year at age 60. Have secure DB income as main pension, but will have also about £70k in DC pot. Can I take my tax free lump sum of £70K/4 this year, and leave the rest untouched until next year, when I'll review finances and make my "best" decision then under new rules announced in the budget?

Any other recommendations?

Thanks

kidmugsy

Yup. Or you could even put the balance into Flexible Withdrawal if you qualify under the new, transitional rules, and do a bit of Withdrawal too in 14-15. Or even Capped Drawdown if you don't qualify for Flexible.

I guess what you actually choose to do might be governed by tax avoidance.

Linton

SoftCentre wrote: »

Planning early retirement in Sept this year at age 60. Have secure DB income as main pension, but will have also about £70k in DC pot. Can I take my tax free lump sum of £70K/4 this year, and leave the rest untouched until next year, when I'll review finances and make my "best" decision then under new rules announced in the budget?

Any other recommendations?

Thanks

You can take the 25% now but leave the rest untouched by going for drawdown and then not drawing down anything. The downside is that, depending on your provider, you may be charged drawdown fees anyway.

Whether that will affect your eligibility to do something different after the new scheme comes into force is unknown. The new scheme is only out for consultation at the moment so anything could change between now and when the legislation is put before parliament. I would guess that drawdown limits would simply be removed but that's just my guess.

SoftCentre

Thanks for replies.

For tax year 14-15, I'll probably be in 40% tax bracket because of roughly half year full salary, half year pension income, but will be dropping down to 20% for tax year 15-16.

So my 25% of £70k tax free lump sum would be ideal to supplement finances till April 2015. Again, ideally, therefore I'd like not to have to commit to anything till then with the remainder of the pot.

If, by not taking the lump sum in Sept, that removed any possibility of getting tied into an arrangement I don't like before April 2015, then I'd be able to afford that I think.

Maybe by September, it will all be clearer !!

kidmugsy

SoftCentre wrote: »

Maybe by September, it will all be clearer !!

Yes, it sounds as if the whole set of reform proposals will suit you very well.

Consider the possibility that if your DB pension is big enough (£12k p.a.) you could take the TFLS and go into Flexible Withdrawal in September, but make no withdrawal until after 05/04/2015. That would probably "lock in" the advantages you seek.

SoftCentre

Just as a follow up to the useful replies above, I have a further question. If I have received (and made) monthly contributions into my DB scheme this tax year, (April-August), does that not make flexible drawdown (and hence lump sum) unachievable until April 2015?

kidmugsy

SoftCentre wrote: »

Just as a follow up to the useful replies above, I have a further question. If I have received (and made) monthly contributions into my DB scheme this tax year, (April-August), does that not make flexible drawdown (and hence lump sum) unachievable until April 2015?

Oh darn it, you're right about the flexible withdrawal. But happily not about the lump sum. Just opt for capped drawdown, say, or even consider the one year annuity that Liverpool Victoria (aka LV=) has introduced, with your choosing (if it's allowed) to receive that annuity payment next tax year. I'd guess, on no evidence whatever, that capped drawdown might be the better bet. It leaves you free to drawdown the tax-exposed 75% whenever you want.

SoftCentre

Thanks for the tips. Unsure about committing to capped drawdown (fees every 3 years??). If I am comfortable about existing financially on my DB pension until April 2015 (ie without the DC lump sum or any DC drawdown), would I be better just to wait till then before I do anything?

Dunnit

Going in April next year in a very similar position to you (DB + £70kDC).

Pension providers are not going to survive by annuities alone so will be offering services more suited to the new rules which logically will drop the price of drawdown.

I would be putting off buying the big car/motorhome/holiday until April. You can of course adjust this in March as there may be a benefit to dipping out in March.

kidmugsy

SoftCentre wrote: »

Thanks for the tips. Unsure about committing to capped drawdown (fees every 3 years??).

Somewhere around £90 every three years at HL. Doesn't sound onerous to me. Plus £10 p.a. for the withdrawal.

PensionTech

HMRC have some new guidance on this saying that members can take their 25% PCLS now and then leave the rest untouched for 18 months without having to go into drawdown. Search HMRC pension flexibility - I can't post links yet!

However please note this is up to whether your scheme decides to follow this guidance from HMRC. Much like the "immediate" Budget reforms, the legislation hasn't actually been updated yet, so there's a possibility that some schemes will play it safe and abide by the existing regulations (saying that you can only defer taking the rest of your benefits for 6 months following PCLS) until the amendments actually go through - there's even a possibility that they might have to do so, if their scheme rules are worded restrictively.