Several pensions

Jlretiree

I am 62 and receive a widow's pension of approx. £11,500 p.a. I have a DB pension of approx. £35,000 p.a. that I intend to draw at 65. I have a DC pension pot of approx. £85,000. I am retiring 18 months before my 65th birthday and plan to use the 25% tax free lump sum from the DC pot (and widow's pension) to tide me over until I draw my DB pension. Is that a sensible approach since any further drawdown from the DC pot will be taxed at 40%?

kidmugsy

Do you have children and grandchildren to whom you'd like to leave the DC pension outside your estate (and thus not subject to inheritance tax)?

If so you might prefer to leave the DC pension alone and instead take the DB pension 18 months early. This might make sense if your estate is going to be liable to IHT.

If you like this idea you could make substantial contributions to the DC pot while you are still working, assuming that you feel you can afford them (or would be happy to borrow to fund them).

Otherwise the plan you suggest seems entirely rational to me.

Triumph13

If you don't want to leave money in the DC pot for IHT purposes, the obvious thing is to take as much as possible taxed at 20% during the 18 months before your DB kicks in.
As an example, if the whole of the tax year 2017-18 fell within that 18 months, your widow's pension would use up the £11,500 personal allowance, but you could then draw out the full £33,500 of basic rate band as well as the 25% lump sum.

Jlretiree

Thank you both for your suggestions, both of which are extremely useful. I have 3 adult children and I would prefer them to benefit rather than the taxman! I'm also hoping to retire earlier than my planned date, I.e this year so the comments have helped me rethink when I take my DB pension.

kidmugsy

You could always look on the DC pension as a financial long-stop; you could plan to take the Tax-Free Lump Sum if some emergency arises, expecting to leave the rest for your children/grandchildren.

Once your State Retirement Pension begins and you begin to find 40% income tax a burden you could contribute £2880 p.a. to the DC pension, thus building it up by £3600 p.a. after it receives its tax rebate, while also reducing your own tax bill by £720 p.a.

neilvw

What is the Normal Retirement Date for the DB pension? What difference will taking it early/late make to the annual pension?

Jlretiree

The normal retirement date is age 65. The pension scheme was closed a few years ago (hence the DC scheme). The annual increase in its value is currently approx. £1,500 but the % increase is due for a review in 2 years. So in 2018 it will be approx. £33,700 and in 2020, when I hit 65, it will be approx. £37,000