Budget and phased drawdown?

Supernova

Hi all,

Got made redundant last year and have a £500K SIPP and 115K ISA.

Semi-retired at 55 now and the plan is to use phased drawdown and take say £15K TFC a year from 60K vested as core income hoping the investments will maintain the SIPP.

I am thinking that the budget hasn't really changed things for me as the alternative would be that I would have to deplete the SIPP by more, and pay tax at my marginal rate to achieve the same income.

Also, I haven't seen anything about changes to the 55% tax liability to the vested portion upon my inevitable death or what can be done with the vested portion in terms of cashing in - any changes?

Thanks for any comments.

kidmugsy

Supernova wrote: »

I haven't seen anything about changes to the 55% tax liability to the vested portion upon my inevitable death or what can be done with the vested portion in terms of cashing in - any changes?

Are you unmarried, then?

Supernova

kidmugsy wrote: »

Are you unmarried, then?

I am unmarried but have nominated my partner as beneficiary.

kidmugsy

Would it make sense to use the new freedoms (assuming that they are enacted) to remove as much as possible annually without exposing yourself to 40% tax? That way you "freeze" your tax rate at 20% and can top up your ISAs if you find you have surplus income.

Or will it make more sense to withdraw tax-exposed income after you have stopped earning, so that you'll be paying 0% tax on it?

zagfles

Supernova wrote: »

I am unmarried but have nominated my partner as beneficiary.

Your partner could continue to take the drawdown taxed at normal marginal rates under current rules.

The govt said in the budget they are "looking at" the 55% for lump sums with a view to reducing it. See the budget document https://www.gov.uk/government/topical-events/budget-2014

dunstonh

At this moment in time, we dont know how existing crystallised pensions will be treated post April 2015. Hopefully, they will use the new rules but I have yet to see anything that says they will (equally, not seen anything that says they wont).

A phased pension drawdown actually fits the new option better than any other method. So, we just have to hope logic applies and they apply the rules to both.

Supernova

zagfles wrote: »

Your partner could continue to take the drawdown taxed at normal marginal rates under current rules.

The govt said in the budget they are "looking at" the 55% for lump sums with a view to reducing it. See the budget document https://www.gov.uk/government/topical-events/budget-2014

You are right. Thank you.

Supernova

kidmugsy wrote: »

Would it make sense to use the new freedoms (assuming that they are enacted) to remove as much as possible annually without exposing yourself to 40% tax? That way you "freeze" your tax rate at 20% and can top up your ISAs if you find you have surplus income.

Or will it make more sense to withdraw tax-exposed income after you have stopped earning, so that you'll be paying 0% tax on it?

Well, the full picture for me at the moment is that I do a little teaching which will bring in no more than £5K a year and am currently living off cash reserves of about £45K.

If I took phased drawdown and £15K TFC plus a little income I would be paying no tax and leaving the £45K balance crystallised and still invested.

Under the new rules from next year I think I could take £20K, pay £2K tax and achieve the same income as drawdown. I don't know how much SIPPCentre would charge for that. It's currently £180 for entering drawdown.

Of course I am subject to the existing rules this year and now I think about it I'm wondering whether it's more advantageous to take 0% GAD income and all as TFC rather than 120% or 150% income.

Phew!

Supernova

dunstonh wrote: »

At this moment in time, we dont know how existing crystallised pensions will be treated post April 2015. Hopefully, they will use the new rules but I have yet to see anything that says they will (equally, not seen anything that says they wont).

A phased pension drawdown actually fits the new option better than any other method. So, we just have to hope logic applies and they apply the rules to both.

Thanks dunstonh.

Has anything particularly changed as regards drawdown, phased or otherwise, apart from the 150% GAD limit at the risk of taking too much income?

Cheers