Full pension withdrawal avoiding 40% rate

kidmugsy

jamesd wrote: »

Maybe you could work out the percentage rates for the various options?

Pretend, for the sake of comparison, that all the £47655 could be used for deferral. At 5.8% that would yield £230 p.m. with CPI-linking and 50% spouse's pension. Call that option E. By comparison we have

A. £245.25 per month fixed. Guarantee period: 5years. Dependant's pension: None
I PREFER E BY MILES. True there's no five year guarantee but there is the spouse's pension and the inflation protection.

B. £167.68 per month. Escalation:3%. Guarantee period: 5years. Dependant's pension: None
E BY FAR THE BETTER with a far larger initial monthly pension and a spouse's pension.

C. £225.21 per month fixed. Guarantee period: 5years. Dependant's pension: 50%
THE WINNER IS E because the monthly pension starts bigger and then will increase by inflation.

D. £149.65 per month. Escalation: 3%. Guarantee period: 5years. Dependant's pension: 50%
SURELY E WINS AGAIN: a far higher monthly pension initially, and at 0% inflation D would take 14.6 years just to catch up with the monthly pension: the cumulative total would still be miles behind. Surely nobody would want to bet on decades of zero inflation? Personally, I wouldn't be too surprised by years of low inflation, but still I'd sleep better if I had inflation-protection.

Conclusion: defer state pension for (say) four or five years and live off the capital in the meantime, plus any earnings. Jamesd is an enthusiast for deferral and will probably opine when he's free.

jamesd

webtrekker wrote: »

Pension Pot: £63,535.80 Therefore TFLS is: £15881.45

Are the annuity options using the whole pot size or just the three quarters of it left after taking a lump sum?

What is your expected state pension level? Needed to get some idea of how long deferring the state pension will be sensible to determine whether the whole 75% or whole 100% could sensibly be used for deferral.

A. £245.25 per month fixed. Guarantee period: 5years. Dependant's pension: None
4.6% of whole, 6.18% of 75%. No inflation linking so it'll drop in real value over time, clearly beaten by state pension deferral initially at 5.8% for at least a few years because that is inflation-linked.

B. £167.68 per month. Escalation:3%. Guarantee period: 5years. Dependant's pension: None
3.16% of whole, 4.22% of 75%. Inflation linking is safer than 3%. Way beaten by 5.8% initially for state pension deferral.

C. £225.21 per month fixed. Guarantee period: 5years. Dependant's pension: 50%
This is A but with the payment reduced to pay out a pension for your spouse if you die first. If you want a spousal pension it looks like a better deal to defer yourself and spend half as much to defer for spouse and have the benefit while both are alive.

D. £149.65 per month. Escalation: 3%. Guarantee period: 5years. Dependant's pension: 50%
This is B but with the payment reduced to pay out a pension for your spouse if you die first. If you want a spousal pension it looks like a better deal to defer yourself and spend half as much to defer for spouse and have the benefit while both are alive.

None of the choices appears to beat the state pension deferral option so the next step is to see how much of that is sensible based on your state pension, with up to five years worth being a fairly easy decision if in normal good health.

Do you have a spouse? What is their rough age and rough health vs reasonably normal good health? When are they expected to reach their own state pension age? Before 5 April 2016 would be very interesting. What state pension are they expecting from their forecast?

jamesd

kidmugsy wrote: »

A. £245.25 per month fixed. Guarantee period: 5years. Dependant's pension: None
I PREFER E BY MILES. True there's no five year guarantee but there is the spouse's pension and the inflation protection.
...
C. £225.21 per month fixed. Guarantee period: 5years. Dependant's pension: 50%
THE WINNER IS E because the monthly pension starts bigger and then will increase by inflation.

Those are fixed, ie. level options. No inflation-related increases. Doesn't change the conclusion that deferral is the better deal, just makes it a more clear winner.

webtrekker

Do you have a spouse? What is their rough age and rough health vs reasonably normal good health? When are they expected to reach their own state pension age? Before 5 April 2016 would be very interesting. What state pension are they expecting from their forecast?

Yes. My wife is 61 in April this year. She's in good health with no major ailments. She will reach her state pension age in April 2021 (66yrs old) and has been quoted a state pension of £142.24 + COPE of £22.30 = £164.54 a week.

My own quote is for:

Age 65 in January 2017 and eligible for state pension then. I will receive a state pension of £136.04 + COPE of £33.70 = £169.74 a week.

I'm beginning to understand the advantage of deferral of my state pension now!

jamesd

Thanks. Seems as though state pension deferral is the best value for money in spite of there being a GAR so I suggest that you take that route.

Assuming you have proof of having taken advice you can go ahead with the transfer to allow you to do the drawdown needed to replace the state pension money while deferring.

webtrekker

Ok. Many thanks for your work and I'm becoming convinced that deferral is the best option.


Just one final last point though.:think: ............

Let's suppose I pack in my low paid self-employed job at the beginning of April 2016.

I will be getting my state pension in January next year so have reckoned that to be 13 weeks @ £170 up to April 5th, 2017, which will give me £2,210.

Let's say my private pension pot is £64,000, of which £16,000 is taken as a TFLS. That leaves £48,000 + £2,210 = £50,210 total 'earnings' for the 2016-17 tax year. If I then subtract £11,000 Personal Allowance that will leave me with £39,210 BEFORE TAX. Since the 2016-17 40% threshold is £42,700, then I will be BELOW the threshold and will therefore only be required to pay £39,210 @ 20% = £7,842 tax for this year, leaving me with my TFLS of £16,000 + around £40,000 still left in the pot for me to invest or spend as I like.

(All figures rounded up for illustration).

Can anyone see any glaring problems with this?

I know it means stopping work (at least for 2016-17) but then I'll have a year off and not lose any money due to the 40% tax rate. The other bonus would be that, should I die prematurely, my family will still have access to that money and it won't stop with my death.

I'd love to hear different points of view on this. I want as little of my money as possible to be trousered by HMRC, Government, Pension provider, etc. :j

RADDERS

I have copied this from the government website it explains exactly how the tax codes work.

Taxable income above your Personal Allowance
Basic rate 20% £0 to £31,785
People with the standard Personal Allowance start paying this rate on income over £10,600
Higher rate 40% £31,786 to £150,000
People with the standard Personal Allowance start paying this rate on income over £42,385
Additional rate 45% Over £150,000

kidmugsy

webtrekker wrote: »

Let's say my private pension pot is £64,000, of which £16,000 is taken as a TFLS. That leaves £48,000 + £2,210 = £50,210 total 'earnings' for the 2016-17 tax year. If I then subtract £11,000 Personal Allowance that will leave me with £39,210 BEFORE TAX. Since the 2016-17 40% threshold is £42,700

You seem determined to foul this up. I repeat, 40% tax sets in at £43k. The width of the 40% band is £32k. What you've suggested will get you paying 40% tax on £7210.

jamesd

Why pay any income tax at all? Just take the 75% taxable part more slowly over several years while deferring the state pension and stay within the personal allowance. No need to pay any income tax at all, just don't be in a hurry to get the money out.

webtrekker

Going back to my original post, my financial advisor has not been able to arrange a drawdown plan and just keeps saying the GAR is the best bet and seems scared to give any other advice for fear of future reprisals (think PPI).

So how do I arrange a suitable drawdown plan without searching in the dark, and paying for, financial advice in the hope I'll hit on the right person without giving away all my money in fees?