New pension rules query

barnsleynanna

Hi all. My husband retires in September 2016. He has a pension pot of around £80K split around three different funds. I am 52 years of age and will retire when he does. I also have a pension pot of around £65K which I moved from three different funds into one single fund last year (silly me!). I just wondered if anyone can tell me when the new rules are coming in? The plan is to take all of both our pension pots in full (25% tax free, plus pay 20% tax on the rest). We plan to sell our mortgage free property and give the proceeds to my daughter against a new mortgage for herself and partner. We will live in our mobile home for 10 months of the year and go and stay with them in the Winter. Are the new rules likely to go through, do we think? And if so, will we both definitely be able to take all our pension pots ? (I'm thinking of leaving mine alone for longer and we'll probably just cash in my husband's first). Any advice would be welcome.

RickyC_IFSWP

barnsleynanna wrote: »

Hi all. My husband retires in September 2016. He has a pension pot of around £80K split around three different funds. I am 52 years of age and will retire when he does. I also have a pension pot of around £65K which I moved from three different funds into one single fund last year (silly me!). I just wondered if anyone can tell me when the new rules are coming in? The plan is to take all of both our pension pots in full (25% tax free, plus pay 20% tax on the rest). We plan to sell our mortgage free property and give the proceeds to my daughter against a new mortgage for herself and partner. We will live in our mobile home for 10 months of the year and go and stay with them in the Winter. Are the new rules likely to go through, do we think? And if so, will we both definitely be able to take all our pension pots ? (I'm thinking of leaving mine alone for longer and we'll probably just cash in my husband's first). Any advice would be welcome.

Hi barnsleynanna

That's interesting. The short answer to your question is that the new pension access rules should be kicking in in April 2015. It's the biggest change in pensions for years so I doubt they will do a U-turn. Whether or not it's a good idea taking both your pots completely is a separate issue though.

Clearly pensions are designed to provide you with a source of income/capital for old age and are in a tax-free environment. If you were to take them all out, what will you live on? Not to mention that they will then be liable for tax on withdrawal and in most other investments (apart from the usual ISAs etc.). The tax on the remainder 75% will depend on your highest income tax rate... but with those amounts, I'd imagine between 20%-40% tax payable if you took them all out in one go.

A wiser option would be to take the tax-free cash (25%) and take income from your pensions as and when you need it, so your pension remains invested in a tax-free environment.

p.s. your daughter and her partner are very lucky! Do you plan on giving them all the proceeds from your house sale?

kidmugsy

barnsleynanna wrote: »

. We plan to sell our mortgage free property and give the proceeds to my daughter against a new mortgage for herself and partner. We will live in our mobile home for 10 months of the year and go and stay with them in the Winter.

My advice is that that plan is bonkers. Do you sincerely want to be poor?

dunstonh

The plan is to take all of both our pension pots in full (25% tax free, plus pay 20% tax on the rest).

It wont be 20% tax on the rest. His value will take him into higher rate. This is a very inefficient way of doing things for most people.

Are the new rules likely to go through, do we think?

The main bits will but there are expected to be tweaks to taxation and anti-avoidance.

And if so, will we both definitely be able to take all our pension pots ?

You wont as you are not old enough. 55 is the minimum age to commence a pension unless you have a rare age protected scheme.

We plan to sell our mortgage free property and give the proceeds to my daughter against a new mortgage for herself and partner. We will live in our mobile home for 10 months of the year and go and stay with them in the Winter.

Interesting lifestyle choice. Do you think you will keep it up for 30 odd years? Will you be retaining enough funds for changes in plan (such as health issues)? How are you going to fund your income in retirement?

xylophone

We plan to sell our mortgage free property and give the proceeds to my daughter against a new mortgage for herself and partner. We will live in our mobile home for 10 months of the year and go and stay with them in the Winter

https://forums.moneysavingexpert.com/discussion/comment/65630114#Comment_65630114

You considered all the points made in the above? You say that you are ten years younger than your husband- nobody can ever predict but this could mean a long time living alone?

With regard to the state pension for you and your spouse, see

https://www.gov.uk/new-state-pension/overview

and https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181237/single-tier-pension-fact-sheet.pdf

You might both wish to obtain state pension statements later this year when it seems that calculations under the new rules will be available.

Incidentally, in a previous post https://forums.moneysavingexpert.com/discussion/comment/63159923#Comment_63159923 you described yourself as "self employed" but it might be as well to check ? http://www.hmrc.gov.uk/working/intro/empstatus.htm

Regarding the 2014 budget and pensions see this

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/301563/Pensions_fact_sheet_v8.pdf

http://www.telegraph.co.uk/finance/personalfinance/pensions/10710606/Budget-2014-How-will-the-new-pensions-system-work.html

atush

We just had the same query a week or so ago, was it you?

Living in a mobile home for 10 months and living with them will get old. Plus half your money you give them will carry to risk of being lost on Divorce, or the death of your child and their spouse's remarriage- would you want to live there then?

What about when you are older? A mobile home may not be suitable for those with mobility issues not to mention when it gets very cold.

I agree this is a bonkers idea.

by all means, down size to a flat and give them some cash, or give them some of the TFLS. But dont make yourself poor in retirement. Youy just don't have enough cash really as you will lose 20-40% of your pensions to tax.

You together have a pot of 145K. this is good, but not a huge almount to last your 30 years or more, and 36K of it will be a tax free lump sum, the other 108K has to last the two of you the rest of your life. So it might not be a good idea for you to retire at 54 with your OH if you are going to be giving away some or all of your Lump sum?

zagfles

As well as all the above, you need to understand the pre-owned assets rules if you are considering something like this. If you give your daughter money which she uses for a house which you live in rent free (even if part time) you could get stung for income tax on the market rent under the POA rules!

RickyC_IFSWP

zagfles wrote: »

As well as all the above, you need to understand the pre-owned assets rules if you are considering something like this. If you give your daughter money which she uses for a house which you live in rent free (even if part time) you could get stung for income tax on the market rent under the POA rules!

Good point, zagfles. But I think as the money would constitute an outright gift, it would be excluded from POAT. Instead, it would be Gift with Reservation of Benefit that could have IHT implications and should be the concern. After saying all that, without digging deeper, I don't think visiting/staying at their daughter's place temporarily would likely fall foul of this rule.

zagfles

RickyC_IFSWP wrote: »

Good point, zagfles. But I think as the money would constitute an outright gift, it would be excluded from POAT.

That's the point of the POA rules, they deal with outright gifts where the doner later benefits from that gift. The OP's plan seems to tick all the boxes for a POA charge. See http://www.hmrc.gov.uk/poa/poa_liable.htm

...Did you own any part of the land you occupy after 17 March 1986 or contribute to the purchase of the land after 17 March 1986 eg through gifts of cash......'Occupy' means ...or you occupy it from time to time.

atush

I don't think they enough assets to be over IHT limits.

Still a completely bonkers idea though.

And worried when people with such far reaching ideas don't come back here to discuss.

RickyC_IFSWP

zagfles wrote: »

That's the point of the POA rules, they deal with outright gifts where the doner later benefits from that gift. The OP's plan seems to tick all the boxes for a POA charge. See

Hmm I think you maybe right there, zagfles! Reading into it, it appears that there's a de minimus limit of £5,000 per person, i.e. so if the benefits received through living at the property for 2 months of the year is less than £10,000 for both of them, then there should be no income tax liability under POAT. So unless this is an expensive mansion, there shouldn't be a problem.