What do I do with my Pension Pots?

Marco_Polo

kidmugsy wrote: »

So remortgage. There's no need to pay it off, is there?

To be honest, I hadn't considered that. I always assumed that after 65, getting another mortgage would not be possible. I'll look into that. Good idea!

kidmugsy

Have a look at National Counties BS, Monmouth BS, Bath BS and a few others.

atush

Marco_Polo wrote: »

To be honest, I hadn't considered that. I always assumed that after 65, getting another mortgage would not be possible. I'll look into that. Good idea!

You could also talk to your current lender, tell them you aren't retiring for another year or so and get them to extend it? They dont like to extend if you are retired, they dont mind as much if you are still working and earning?

mania112

As has been said before, I prefer to see mortgages paid off, so the debt is clear.

If you think along the same lines (its a lifestyle decision, not a financial one) then you could recycle your income from the FS into your Personal Pension and thus neutralising the 40% tax paid on receipt (and gaining another 25% Tax Free pot).

kidmugsy

mania112 wrote: »

you could recycle your income from the FS into your Personal Pension and thus neutralising the 40% tax paid on receipt (and gaining another 25% Tax Free pot).

True, but the OP would have to be careful not to fall foul of the rule against lump sum recycling. It might be less hassle to try atush's stunt of asking for a brief extension of the mortgage. After all, this isn't a proposal to gear up investments by virtue of retaining debt, it's just a legit tax-avoidance stunt.

One more question for the OP. Does your FS pension accrue extra benefits if you defer taking it for a year or two? (If it does, that might conclusively tip the balance of the decision.)

Marco_Polo

kidmugsy wrote: »

True, but the OP would have to be careful not to fall foul of the rule against lump sum recycling. It might be less hassle to try atush's stunt of asking for a brief extension of the mortgage. After all, this isn't a proposal to gear up investments by virtue of retaining debt, it's just a legit tax-avoidance stunt.

One more question for the OP. Does your FS pension accrue extra benefits if you defer taking it for a year or two? (If it does, that might conclusively tip the balance of the decision.)

No, it does not accrue extra benefits if I defer taking it, but deferring is not one of the options listed. My benefit options are shown as (1) taking the full pension, (2) receiving the maximum lump sum with a reduced pension or (3) taking a smaller lump sum with a higher reduced pension. No mention of being able to defer in any of the papers just received in the 'retirement pack'.

kidmugsy

Fair enough. A good idea is to look at the choice of 100% pension versus smaller pension + lump sum. Calculate the ratio of the lump sum to the annual pension forgone if you take the lump sum, i.e.

lump sum/(100% pension - smaller pension). That's the "commutation ratio". If it's about 10 or 12, the lump sum is rotten value. If it's about 25 it's pretty good value. At about 20 I reckon it's still decent value, but not everyone would agree. It probably depends on the detail of the inflation-protection.

The other thing to take account of, of course, is your expected income tax band in retirement. You might recoil from giving up a lump sum just to find yourself paying 40% income tax on a chunk of your pension.

Marco_Polo

My commutation ratio works out to 10.45 using your formula.


When I do stop working (which may not be too long after normal retirement age if today's frustrations continue much longer!), I will revert to basic tax rate.

kidmugsy

Marco_Polo wrote: »

My commutation ratio works out to 10.45 using your formula.

When I do stop working (which may not be too long after normal retirement age if today's frustrations continue much longer!), I will revert to basic tax rate.

Good grief, what a stinker. Many people would suggest that you forgo the lump sum and enjoy the bigger pension, unless (i) you don't want the widow's pension, (ii) you have objective reason to think you won't live for long, (iii) you have a compelling need for capital. It would have to be very compelling: your commutation ratio says you're prepared to pay about 9.6% p.a. index-linked to lay your hands on capital. True it's an annuity-like rate rather than an interest rate (since taking the 100% pension means saying goodbye to the capital of the TFLS for ever), but still. I'll bet your mortgage is cheaper, eh?


If in retirement you chose to drawdown the money-purchase pensions at as fast a rate as is compatible with avoiding 40% income tax, and if you devoted your surplus income to overpaying, how quickly could you rid yourself of it?

mania112

In my example there is no lump sum recycling (that's going to pay off the mortgage).

Recycling the regular income is not a problem.

I'm not quite sure, however, if taking benefits from a FS (after April 2015) will trigger a reduced annual allowance (from £40k to £10k)? If so, you can't 'recycle' more than £10k pa.