will this be possible under the new pension arrangements

frugal90

I am currently a 46 year old and I want out of my job as soon as I can. I have a final salary pension scheme and can draw this from aged 55 but it would attract about a 5% actuarial reduction per year so I have a plan which I need help with . I want to stop when I am 53 which means I have to cover 7 years until I can take my final salary pension in full without reduction there will also be a lump sum of 3 times the annual pension. If over the next 8 years I can get my sipp up to a value of £70/£80K or even more if investments go well, then when I am 53 I could take the 25% lump sum-£20k this should be enough to see me through to age 55 as I have no other debts at all and a frugal living lifestyle . I would then at age 55 take the 0% personal tax amount -currently £10000 ish then each year do the same until I hit 60 when I will be able to take my final salary scheme pension and it's associated lump sum. My big question is can I take annually the 0% tax related amount and pay no tax on that amount and can I do that annually for 5 years?


thanks for any help - hubby in a similar situation and if this is possible then me might be able to get out whilst still in our 50s, alive and allow us to do the long cycle tours that we want to do-cheap living as well.


thanks guys -hopefully

dunstonh

hen when I am 53 I could take the 25% lump sum

You cant. It is age 55 minimum rising later to 57 (and then 10 years less than state pension age)

frugal90

yes - okay use £20k worth of my isas for year 1 and 2 -then 25% then 10k per year I-the point is this flexibility to take a number of pots of cash within the personal 0% tax limit possible?


thanks

nearlyrich

Do we know when the age rises to 57?

frugal90

think it was to be 2028

OldBeanz

In principle this appears to be what many on here have been planning to do i.e. "exploit" DC pensions to fully use tax allowances before a DB or SP is paid especially for a wife who may be younger or have poorer pension provision than her husband.

grey_gym_sock

frugal90 wrote: »

think it was to be 2028

that's the proposal. though a footnote (on p. 26 of the consultation documents) adds:

The transition to this age will need to begin before 2028 and the government will provide further detail on this in its summary of responses to this consultation

however, presumably you're old enough that that won't affect you. (whereas i'll be 55 in 2027, so probably the transitional provisions will catch me.)

the basic idea of taking £10k (or whatever the personal allowance has risen to) out of the SIPP each year sounds like exactly the kind of thing that osborne wants to allow. though this will become clearer next year, when we see what "anti-avoidance" provisions they will introduce; it all sounds simple now, but may be more complicated in the legislation.

and S&S ISAs are good for before you can access your SIPP.

wakeupalarm

Seems crazy for a chancellor who needs to raise funds to plug the ever growing national debt, to allow people who have received tax relief of 40% or more and would have paid at least 20% tax on the withdrawals previously to suddenly avoid paying any tax at all until state pensions kick in.

Why go to all the trouble of introducing the flat rate pension and ensuring it is cost neutral, to then give away billions in future tax receipts.

Maybe he is planning on shifting the debt burden onto the younger generations as usual. Or maybe there is still a sting in the tail to come. Maybe the removal of the 25% tax free lump sum is finally here.

Debt_Free_Chick

wakeupalarm wrote: »

Seems crazy for a chancellor who needs to raise funds to plug the ever growing national debt, to allow people who have received tax relief of 40% or more and would have paid at least 20% tax on the withdrawals previously to suddenly avoid paying any tax at all until state pensions kick in.

Why go to all the trouble of introducing the flat rate pension and ensuring it is cost neutral, to then give away billions in future tax receipts.

Maybe he is planning on shifting the debt burden onto the younger generations as usual. Or maybe there is still a sting in the tail to come. Maybe the removal of the 25% tax free lump sum is finally here.

Using the OP's example, it's unlikely that any tax would have been paid under the old rules. A pension pot of c£80k would have converted to a very modest annuity and - if the only income - likely to be below the personal allowance.

The OP's plan is probably costing nothing in terms of lost tax revenue to the Chancellor.

Where there are likely to be tax gains are from those who take the whole pension pot in one go. What would have attraced no tax liability under the old rules is going to present a windfall tax receipt of c£22k (using the OP's example).

I think GO has been rather clever here as I suspect some (many?) will not have worked this out and will be attracted to the idea of having all their money without understanding that it will be taxed - at source, I believe, by the pension provider ...!

wakeupalarm

OP annuity would have paid tax once the state pension kicked in now there is the opportunity to withdraw all or very close to all of it with out any tax being paid.

As for your second point, I'm sure there will be endless articles in the newspapers advising people not to cash in all in one go. Those with modest pension pots can quite easily spread it out over 5-6 years and avoid tax all together.

And using just a single example is not going to eliminate the millions of people with more than modest pension pots who will not pay tax when they previously would have.

Seems people just want to look at these proposals with rose tinted glasses and not consider the wider implications.

dunstonh

Seems people just want to look at these proposals with rose tinted glasses and not consider the wider implications.

Or perhaps being realistic.

You can have £100k in ISAs and draw an income of your choice and no-one bats an eyelid. Or have £100k in investment bonds and again, no-one bats an eyelid. Or have it unwrapped and no-one bats an eyelid. However, £100k in the pension drawing an income and you had all sorts of restrictive rules. Why? Its just another tax wrapper. If you can trust people in the other tax wrappers then why cant you trust them in the pension tax wrapper