How much do I need to save?

d.white

FatherAbraham wrote: »

What's the problem with annuities?

An annuity to guarantee £40k index-linked for life, and any surplus assets will remain intact and invested until needed.

Warmest regards,
FA

My problem with annuities is that you can't change your mind. I don't like that at all. Also any wealth tied up is not left to your children.

Your_Hero

d.white wrote: »

True you can't take it with you but if it's not tied into a pension then I think you can pass it on to your children more easily and with less inheritance tax with life time gifts or trusts, which I don't think you can with a pension pot but am ready to be corrected.

Usually no IHT is payable on pension funds upon death, unless section 3(1) of the IHTA 1984 applies.

The difference is an income tax charge for crystallised or uncrystallised benefits (and pre or post age 75).

Uncrystallised pensions before age 75 and below LTA, is paid out tax free to dependents and is usually IHT-free. Post 75 and crystallised funds (in drawdown) will pay 55% income tax if taken as a lump sum, but this is widely expected to be reduced, possibly to 45% by next April. If leaving it to your spouse, (s)he could continue to draw an income from this and just be taxed at her marginal rate only.

I guess if you look at 55% and compare with IHT 40% rate, you may conclude that it is a higher tax charge. But don't forget, your pension pot has untaxed money in there (20%, 40%, 45% relief) which the income tax charge of 55% is designed to remove. Therefore, the net effect should be lower than the IHT charge (even at the lowest 20% relief, approx. 55% - 20% = 35%). As mentioned earlier, no IHT is usually payable on pensions as funds are distributed via a discretionary trust.

d.white

I take all the points about the benefits of pensions, but really want to keep control and flexibility over as much as possible, so am willing to miss the tax breaks in order to be able to move the cash around or gift it or put it in trust or whatever.

So putting the pension debate to one side how much just with maxing the ISA and savings to target for an income of £40,000 p.a. without depleting the capital?

Your_Hero

I gave you the target amount in post #3. Just work out how to get to that amount now.

atush

the children can be gifted from your pension, either thru the LS or by you taking larger bits out on occasion.

In your case though, i'd take them out over a longer period and build it up elsewhere (S&S isa maybe) so as to reduce the amt of tax paid.

So you could look at the money in t he pension as being for your spouse (as they inherit the pot tax free as a pension and the kids could inherit some of the other assets), or have several pensions and keep one uncrystallised for dependants to inherit.

d.white

atush wrote: »

the children can be gifted from your pension, either thru the LS or by you taking larger bits out on occasion.

In your case though, i'd take them out over a longer period and build it up elsewhere (S&S isa maybe) so as to reduce the amt of tax paid.

So you could look at the money in t he pension as being for your spouse (as they inherit the pot tax free as a pension and the kids could inherit some of the other assets), or have several pensions and keep one uncrystallised for dependants to inherit.

Thanks for the suggestions. What is 'LS' and what is 'S&S'?

d.white

Your_Hero wrote: »

I gave you the target amount in post #3. Just work out how to get to that amount now.

Yes you did thank you.

I was wondering if anyone else may have other opinions or methods for estimating an amount. Other replies so far suggested nearer £800,000 but I think those were based on pension income and/or reducing the fund rather than maintaining its value.

Daniel54

d.white wrote: »

I take all the points about the benefits of pensions, but really want to keep control and flexibility over as much as possible, so am willing to miss the tax breaks in order to be able to move the cash around or gift it or put it in trust or whatever.

So putting the pension debate to one side how much just with maxing the ISA and savings to target for an income of £40,000 p.a. without depleting the capital?

In Atush's post ,the abbreviations are for Lump Sum and Stocks and Shares.

If IHT mitigation is such a strong driver for you,then I would suggest spending some time and money for advice from a suitably qualified IFA would be money well spent - as you would seem to be in danger of making some sub-optimum investment decisions otherwise.You don't say your age so it is unclear whether this is long range planning or not.Certainly IHT mitigation can get pretty complex and normally involves losing some control of capital and/or income.

Do bear in mind that ISA's are efficient for income and CGT sheltering,but that the tax wrapper drops away on death.All the more reason to draw ISA capital as income and keep alternative capital sheltered elsewhere or gifted away.

For your £40k I would take Your Hero's numbers ( unless you disagree with the assumptions) and add on 10% for safety.

Thrugelmir

d.white wrote: »

Other replies so far suggested nearer £800,000 but I think those were based on pension income and/or reducing the fund rather than maintaining its value.

To be conservative the fund would have to be of a far higher value. As at some point in time it's highly possible that you may be eating capital to supplement your income. Once gone very difficult to replace the capital lost.