Pension Plan. Are my assumptions right?

Moby

I'm in my early 50's and have at this point 23 years of a LGPS defined benefit pension to look forward to. I'm planning to retire early though if possible, (in two or three years hopefully, once I've built up about 25 years of this pension and AVC's). Of course I will need to avoid taking my LGPS pension as long as possible, (until I'm 60 at least) to minimise the actuarial reduction. In order to bridge the gap I'm also saving in a SIPP and ISA's. I'm aware that from April 2015 the tax free annual allowance is £10 500. I've kept a record of my expenditure for years now and have worked out that I can live comfortably on £13 500 a year (all in). Luckily my wife is richer and has her own pot. So is this next bit feasible?......If I use my SIPP from say the age of 56 onwards to provide a monthly income for say 5 years making sure the drawdown keeps me under the tax free threshold....say a drawdown arrangement of £750 a month? I would then top up the difference between this (ie 9K per annum) and the £13 500 I need to live on using ISA savings. I would therefore not pay any tax? Of course I realise I'd be running down the pension completely but the aim is to bridge the gap until the main pension kicks in?

1. Is my assumption right and will my provider (Fidelity) allow me to draw down my pension for this purpose under the new more flexible pension rules?
2. Am I right in thinking that with the new pension rules it now makes sense for me to pile as much of my income as possible into my SIPP until I retire .....instead of sticking a portion into NISAS?

RichandJ

Moby

1 you would have to ask Fidelity that unless our resident IFAs know;

2 again that's an IFA question.

Hopefully dunston or YourHero will be along shortly to edumacate both you & the rest of us.

atush

It seems to me, 2 is Yes. with the new rules, you'll want to whack as much in as possible.

Your_Hero

Moby wrote: »

If I use my SIPP from say the age of 56 onwards to provide a monthly income for say 5 years making sure the drawdown keeps me under the tax free threshold....say a drawdown arrangement of £750 a month? I would then top up the difference between this (ie 9K per annum) and the £13 500 I need to live on using ISA savings. I would therefore not pay any tax? Of course I realise I'd be running down the pension completely but the aim is to bridge the gap until the main pension kicks in?

That's right. Depending on the pot involved and the cost of doing it, if you didn't need to maximum tax-free cash up front from your SIPP then you may not need to enter drawdown at all. Theoretically, you could simply designate how much you need, say £10,000 to draw out, and 25% of this is tax-free (this is your tax-free lump sum in stages). This has the added benefit of not crystallising your whole pension pot (and therefore maximising death benefits), but the downside is you can't take the maximum tax-free cash upfront. This is similar to how 'phased drawdown' works but with the new pension freedom, this should be possible in theory.

1. Is my assumption right and will my provider (Fidelity) allow me to draw down my pension for this purpose under the new more flexible pension rules?

Almost certainly.

2. Am I right in thinking that with the new pension rules it now makes sense for me to pile as much of my income as possible into my SIPP until I retire .....instead of sticking a portion into NISAS?

Based on what you've described above on your plans at 56, it would be better to use the SIPP as you would extract the tax-relief out of your pension tax-free under the personal allowance and lump sum.

kidmugsy

If you draw £10500 tax-exposed, but as it happens untaxed, you could take along with it £3500 tax-free lump sum. Bingo!

Charges might mean that it's more economical to do the transaction once per annum rather than scattered over twelve months. No doubt all the providers will be publishing new lists of charges before the next tax year begins.

Moby

Thanks for the replies. So just to confirm I don't have to crystallise the SIPP and go into drawdown. I could choose to draw say £10 000 a year from it, (a quarter of it being tax free lump sum) each drawdown. I could live off off that with ISA top ups for about 5 years until my main pension started and thereby avoiding paying any tax so long as my draw down each time doesn't go over £10 500? (to stay within the tax free allowance). I assume the rest of the SIPP would remain invested?

System

Hi

I think that you dont/wont qualify under the Rule of 85, and at aged 60 you will have an actuarial reduction of around 25% applied to your LGPS pension and about 14% on your lump sum.

These amounts could be varied by GAD before you come to retire.

jamesd

Correct. No need to limit it to your current plan. So long as you're willing to put in the money you can retire whenever you like.

Moby

johndough wrote: »

Hi

I think that you dont/wont qualify under the Rule of 85, and at aged 60 you will have an actuarial reduction of around 25% applied to your LGPS pension and about 14% on your lump sum.

These amounts could be varied by GAD before you come to retire.

I thought if I work until 2016 I will have done 25 years. 25 years and my age when I would plan to take my LGPS, (60) is 85. I think the rules are that the actuarial reduction would apply to post 2008 pension but pension accumulated before then would be paid without the actuarial reduction and tthe actuarial reduction would not apply to the lump sum because the lump sum was accumulated pre 2008 when the pension rules changed............. I think?

Teaandscones

Moby wrote: »

I thought if I work until 2016 I will have done 25 years. 25 years and my age when I would plan to take my LGPS, (60) is 85. I think the rules are that the actuarial reduction would apply to post 2008 pension but pension accumulated before then would be paid without the actuarial reduction and tthe actuarial reduction would not apply to the lump sum because the lump sum was accumulated pre 2008 when the pension rules changed............. I think?

Correct. The rule of 85 is the age plus years of service plus years deferred until the pension is drawn. It will apply for service up to 2008 but not thereafter. You will have an actuarial reduction for service accrued from 1st April 2008.

System

Hiya

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I'm in my early 50's and have at this point 23 years of a LGPS defined benefit pension to look forward to.
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If you will be under age 60 by 31 March 2016 and choose to draw your pension before your protected Normal Pension Age, then, provided you satisfy the 85 year rule when you start to draw your pension, the benefits you’ve built up to 31 March 2008 will not be reduced. Also, if you will be aged 60 between 1 April 2016 and 31 March 2020 and meet the 85 year rule by 31 March 2020, some or all of the benefits you build up between 1 April 2008 and 31 March 2020 will not have a full reduction.
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My thoughts were that you are early 50's and need to be 60 by 31/03/2020 to avoid the reduction.
I realise the service will be accrued shortly, but the age factor is the stumbling block to avoid a reduction being applied.