Income drawdown

tgon

In discussing my early retirement with my IFA, it was suggested that a small DC pension I have could be used as income along with savings until, optimally, my DB pension kicks in at 65 and my state pension the year after. I'm 60 now.

It's a relatively small DC pension with a value just over £31k (Aviva (Stakeholder) (Pre 13.12.04)) that I'd like to draw £10k pa (< tax free allowance) for the next 3 years, until depleted. No lump sum, just a fixed amount. Currently, there is no other "income" except ISA savings to top-up and meet my cost of living which is about £12k pa.

Not debating my IFA or the suggestion itself but if I did do so, is there significant benefit in comparing and transferring to a better performing fund or, because the pot is so small, just make such arrangements directly with Aviva?

Noob e&oe. Thanks in advance.

Linton

You do not want to look for a better performing fund. The higher the long term average performance the more likely it is that it will fall in value in the short term during the 3 years. From what you say this could make life difficult. I think that you should keep the money in a low performance safe fund, ideally cash or as near to cash as the options available to you allow.

xylophone

just make such arrangements directly with Aviva?

Will Aviva permit access on this basis or would you need to transfer to an arrangement permitting drawdown?

For example, you might transfer the £31,000 to a SIPP with HL and take the PCLS immediately, leaving the remainder within the SIPP - the money could be invested but you might prefer to leave it in cash - the interest would be minimal but you would have certainty of capital and, with HL, no charge for the SIPP.

You could then use the PCLS to finance your living costs (you might open a couple of Tesco current accounts, £3000 in each and earn some interest), gradually drawing out the money as required.

You can subsequently draw down as best suits your tax position, refilling the current accounts as you go?

tgon

xylophone wrote: »

Will Aviva permit access on this basis or would you need to transfer to an arrangement permitting drawdown?

I suspect the latter...

dunstonh

Will Aviva permit access on this basis or would you need to transfer to an arrangement permitting drawdown?

Doesnt really matter if they dont as there is an IFA involved. The IFA will just move it to one that does.

is there significant benefit in comparing and transferring to a better performing fund

Performance is irrelevant. With that short period you will be in cash or near cash investments. I have someone in virtually the same situation doing it over 3 tax years (so a little under 3 years) and that has just gone into deposit. It wont make much, if anything (beyond the profit share) but the there isnt the time to recover any loss that you would get with higher risk investments.

What is more important to you. Being able to do the objective or putting it at risk because you are short of money because you have just lost 20% of your fund value? (i.e. can you afford the risk - doesnt sound like it from your description)

kidmugsy

Be sure to make contributions into a pension. Even in the tax years when you have no earnings you can contribute up to £2880 net, which HMRC makes up to £3600 gross. Later you will withdraw the money again during the gap until your DB pension begins.

jamesd

tgon wrote: »

In discussing my early retirement with my IFA, it was suggested that a small DC pension I have could be used as income along with savings until, optimally, my DB pension kicks in at 65 and my state pension the year after. I'm 60 now.

That's usually an excellent plan. The main reason is that there is usually an actuarial reduction for taking a defined benefit pension before the normal retirement age for the scheme, so using DC pots to bridge the time can be excellent value for money. For this reason it's usually the approach that is suggested here as well.

Do continue to make pension contributions in the meantime. There's between £180 and £720 of extra income a year available, depending on how much income tax personal allowance you have unused.

Depending on the level of actuarial reduction it can also pay to do things like using 0% for p purchase credit card deals, extending a mortgage term or using the type of equity release that allows you to withdraw money then repay it later over time. In the cases where it pays, the increased pension value is higher than the cost of the borrowing. Can't say whether it's good or bad for you because we don't know the actuarial reduction or the handling of a tax free lump sum from the work pension. Some DB pensions have good lump sum deals that make repaying borrowing easy, or mandatory lump sums, others have bad deals. So to some extent it depends on the specifics of your pension. An IFA probably doesn't hold the permissions required to advise on equity release, pension or credit card products but we don't have to worry about that when commenting here. But an IFA may be constrained not to comment much if at all on them.

tgon wrote: »

It's a relatively small DC pension with a value just over £31k (Aviva (Stakeholder) (Pre 13.12.04)) that I'd like to draw £10k pa (< tax free allowance) for the next 3 years, until depleted.

Just use cash. With that timeframe and the need to draw the money it's unlikely to be appropriate for you to take much investment risk.

tgon

jamesd wrote: »

...Some DB pensions have good lump sum deals that make repaying borrowing easy, or mandatory lump sums, others have bad deals. So to some extent it depends on the specifics of your pension.

My IFA has advised, and I understand this, that I need to preserve my DB pension (Civil Service Nuvos, current value £12k pa) as long as possible. I am mortgage free but your comments on bridging any short term gap with 0% credit, etc was also made by my IFA. I'm impressed with the consistency!

My ISA (£32k), my DC drawdown and a little thriftiness should see us through to 65. My wife is 2 years older than me so that will also help.

bigadaj

tgon wrote: »

My IFA has advised, and I understand this, that I need to preserve my DB pension (Civil Service Nuvos, current value £12k pa) as long as possible. I am mortgage free but your comments on bridging any short term gap with 0% credit, etc was also made by my IFA. I'm impressed with the consistency!

My ISA (£32k), my DC drawdown and a little thriftiness should see us through to 65. My wife is 2 years older than me so that will also help.

You seem to have found quite a clued up ifa!

xylophone

Have you and your wife obtained new state pension statements?

Your wife is still working?

What is her pension position?

tgon

xylophone wrote: »

Have you and your wife obtained new state pension statements?

Your wife is still working?

What is her pension position?

Yes we have and no she isn't. There are no other pensions.