pensions in aviva wrap

hayabusaman0

Hi Learned peeps! I am 62 years old & my wife is 60.We are both still working although my wife is part time. We both have our pensions in the aviva wrap, we are debt free,own our house & we also have another house which is rented out for £560 p/m & worth about £130k(no mortgage) My wrap is worth £70k having increased by £3.3k 20/12/13-19/6/14, paying in £100 p/m. My wifes is £18.3k, increased by £576 20/12/13-19/6/14.

I am thinking of retiring next year, I would just like to get a general idea of what you think, of rearranging my finances or leave them in the wrap until I'm 65. If possible I will be able draw enough money from my business to live on as I don't want to rely on my savings(we have about £30k in savings & isa's)

Thanks in advance

Hayabusaman

pipkiksass

Hi!

Pension flexibility is coming in April 2015, so you can effectively draw any level of income you want from the uncrystalised pot, of which 25% of any withdrawals will be tax-free, and the remaining 75% will be taxed at your highest marginal rate. This is all while leaving the pot untouched as a personal pension.

You don't have to take your funds out of the Aviva wrap platform at all, they should allow you to place the funds in one of their income drawdown products. When you move part of your pension pot into drawdown you have the option to receive up to 25% tax-free. Once in drawdown, from April next year you will be able to take whatever withdrawals you like, but these will be subject to income tax at your highest marginal rate.

If you don't need the tax-free cash, I'd take it and invest it in an ISA within your wrap, then keep the remaining funds invested in an Aviva drawdown plan.

mania112

Yeah, you can move you funds into a post-retirement pot which enables you to take up to 25% tax free cash and then a taxable income thereafter. There are no additional charges to do this.

jamesd

It doesn't appear sensible to use savings outside the pension to delay taking money from the pension. If you were to pay the £30,000 into a pension you'd get pension tax relief on the way in and be able to take out 25% of it tax free. You do need to have a high enough earned income (essentially PAYE) to cover the value of the contribution.

Since you are both at least 55 years old you can both get at pension pots now. Assuming that the planned rules changes happen in April 2015 you can draw an unlimited amount out from then, with the portion above the 25% tax free lump sum taxed as normal taxable income.

It might be useful to consider using a mortgage to increase the value of your pension contributions. The £40,000 annual cap on pension contributions, with some possible left over from the past three years, may make that impractical now when combined with the earned income requirement.

You mention your business. Do you mean something other than your property letting business? If so the business-related tax savings from pension contributions can make them even more valuable as a way of reducing total taxation.

It hasn't been necessary to buy an annuity for many years now so you can just draw money from your pension as you require, under one of three different plans:

1. Uncrystallised funds pension lump sum (UFPLS). Take a lump sum, 25% tax free, 75% added to your taxable income for the tax year, remainder of the pension pot remains uncrystallised so better inheritance treatment. Available from 6 April 2015.
2. Capped income drawdown. Put all or part of the pot into capped drawdown, take 25% tax free lump sum and up to the GAD limit in lump sum or income each year. GAD limit is perhaps 6-8%, depends on age and a particular government interest rate, higher as you get older. Available from age 55.
3. Flexi-access drawdown. Available from 6 April 2015. Take 25% tax free and any amount from the rest, which will be added to taxable income for the tax year in which it is taken.