POLL. How will you use new pension freedoms?

Dunnit

The whole point about guarantees is that someone has to underwrite the guarantee (accept (or pay for) the risk). The government does that by providing a SP and other benefits. It is surely up to everyone else to determine how much extra they need in retirement. It was guarantees that meant that final salary schemes became too expensive for employers; it is the guarantee in annuities which make them appear to be poor value; it was guarantees which broke Equitable Life.
Over a prolonged period of investment; given tax relief; the ongoing cutting (perhaps making visible is a better term) back of charges; judicious transferring of higher risk assets to lower risk, towards the end; forced employer contributions; it is difficult to see how any pension investment strategy should not provide more out than the beneficiary paid in. The government cannot afford any bigger guarantee than the state pension.
To anyone retiring decades from now my advice would be to read the article by Richard Evans in the Telegraph of 7 April on the benefits of compound interest.

chucknorris

gadgetmind wrote: »

Yes.

Rip it all out in two years before SP kicks in, so get the lot tax free, and bang it into an ISA,.

20% tax saving in, everything tax free out. what's not to like?

What I don't like is that I would not be gaining any tax free status, merely switching the wrapper from pension to ISA. I would rather invest cash from elsewhere into my ISA and leave my pension as it is, to carry on growing tax free.

gadgetmind

chucknorris wrote: »

I would rather invest cash from elsewhere into my ISA and leave my pension as it is, to carry on growing tax free.

Yes, growth will be tax free, but you risk being taxed on money being taken out of your pension if you leave it until state pension kicks in.

Our plan from age 55 to 67 is to maximise pension withdrawals in a tax efficient way (wife using all of 0% allowance, me all of this and all of 20% band), max out ISA contributions each year, and then use our CGT allowances to sell enough unwrapped holdings (which also generate dividends for my wife) to cover the Waitrose bill.

After SP kicks in, my wife's SP will be tax free as her pension will be empty (also saves SIPP fees!) and I can reduce my drawdown to avoid 40% tax. By then, our unwrapped holdings should be greatly reduced and our ISAs rather healthy.

Dunnit

One thing that others need to be aware of if they run down their pensions is you cannot transfer ISAS to another person so on the death of one partner their money is exposed to tax.

gadgetmind

True, but income from the pension would also be taxable in the hands of the survivor assuming it was all crystallised.

Triumph13

gadgetmind wrote: »

True, but income from the pension would also be taxable in the hands of the survivor assuming it was all crystallised.

The pension was always taxable (apart from the bits you get out tax free). Taking it out taxed to put it into an ISA that unwraps itself on death is an issue I hadn't considered.
We need to see what changes they make to the tax rates on the second death on crystallised and uncrystallised pots as that is going to be the crucial factor determining whether it is best to try to empty the pension at 20% tax and stuff it in ISAs or to leave it be. I'm hoping the latter as it makes life much simpler!

Triumph13

Dunnit wrote: »

One thing that others need to be aware of if they run down their pensions is you cannot transfer ISAS to another person so on the death of one partner their money is exposed to tax.

Definitely something to consider, but a fair way down the list of priorities I would say.
My overall plan is very similar to Gadget's and I see the priorities as:

1. Use up every bit of tax free allowance you can (TFLS and PAs)
2. Avoid wherever possible paying HRT on pension income
3. Minimise tax bill on inheritance when second spouse dies
4. Protect all investment income once outside pension with ISAs

To the extent that it does make sense to get capital out of the pension and into an ISA, I'm much more concerned to minimise the tax I pay on the capital when I extract it than I am about the tax on any income it earns before I can get it sheltered in an ISA.

chucknorris

gadgetmind wrote: »

Yes, growth will be tax free, but you risk being taxed on money being taken out of your pension if you leave it until state pension kicks in.

Whenever I take it out I will pay at least 40% tax on it, so the timing doesn't make any difference (apart from avoiding higher rates of tax i.e. the 60% and 45% bands).

gadgetmind

Triumph13 wrote: »

Taking it out taxed to put it into an ISA that unwraps itself on death is an issue I hadn't considered.

My wife will have two choices -
1) Take her pension tax free using personal allowances before SP kicks in and either spend excess or invest elsewhere.
2) Leave pension alone, spend other monies, don't continue to invest, and then draw pension after SP when it will be taxed.

I think that (1) makes more sense for her.

I have the same two choices, to either drawdown heavily before SP using 0% and 20% bands, or to leave it alone and face 40% tax on some pension drawdown after SP kicks in.

Again, getting the most out I can at lower tax rates seems like the best plan.

At the point of retirement (and after PCLS)) our assets will split down to 50% pensions, 20% ISAs and 30% unwrapped. From a tax POV it seems to make sense to me to keep moving the unwrapped to ISAs, draw on the pensions as tax efficiently as we can, and let life insurance cover the premature death scenario.

Of course, we will be taking professional advice at age 55 to refine plans and visit the chewy issue of IHT.

gadgetmind

Triumph13 wrote: »

To the extent that it does make sense to get capital out of the pension and into an ISA

In our case I think of it more as unwrapped holdings going into ISAs but money is fungible.

I'm much more concerned to minimise the tax I pay on the capital when I extract it than I am about the tax on any income it earns before I can get it sheltered in an ISA.

As my wife's pension can (now!) be extracted in just a few years using PAs, income from unwrapped holdings won't be subject to additional tax as it's mainly dividends. She can also get another £5k of income tax free from cash savings and (I think!) bonds.