Nearly 55, Unemployed, sitting on potential large pension pot

GSP

Thanks all for your responses and advice. One thing is for sure, I have so much to learn.

Peterg1965 - Yes I do need to sit down with someone. Before I do that I feel I need to learn what is probably basic stuff to a lot of you. It does seems the DC part is most accessible. Been reading that I would have trouble finding an IFA who would approve the transfer of a db pension.

Ermine - Likewise to Peter you also suggest using the DC pension. Please see below for gilt question.

CBX1985 - Rates have been historically low for some time now and with us leaving the EU, I cannot see these increasing for another two years at least and only then when GDP hits higher heights. I do believe though that these will start to rise in 4-5 years time.
With my current db pension at just under £20k p.a., I assume my transfer value is roughly 35 times higher. Whether you think that's good enough to accept.

Xylophone - yes i do have a wife and two grown up kids who are working. Know with the db pension when I die she will get half the pension. Don't believe the kids get anything and assume that's where the transfer may come in handy as I would have control of all the money. The db pension ceases when me and my wife die. Any thoughts anyone?

Jamesd - Thank you for coming back to me. In truth your post scares me. Whether I should have this knowledge but if not I am so far off the pace with all this, its a worry how long it might take me to get up to some understanding. Is that right the state pension can be deferred as long as you like. Was thinking if I used the £780k cash transfer money by the time I was 80, but had left the state pension alone until then. This would mean 13/14 years lump sum of state pension from age 67 as it will be then so well over £100k with still the state pension each year after that.

A question for all. Transferring the £780k pot, is there a way I could take the 25% tax free sum which would keep me going "for a while". While I am using it over the years, could I hold back from drawing any more. Was thinking that rates will have to rise sometime, therefore annuity rates should also increase and I could purchase an annuity or drawdown from then.

jamesd

Yes, you can defer the state pension as long as you like.

The option to take a lump sum only applies to those who reached their state pension age before 6 April 2016 so your only option is higher income. That's still a very good thing because it acts as longevity insurance, putting a floor under your worst case income level.

A 35 times transfer value is at the good to excellent range, though it implies that the scheme has quite generous inflation linking or other benefits.

Yes, no problem to take the tax free lump sum from your pot at the start and it's one of the potentially good things to do, though doing it in stages for few years would probably be a better move.

No need to worry about having a fair bit of reading to do. You can get started easily enough by getting on with planning to take the DC pot, since you'll end up doing that anyway.

By law your DB scheme is required to see proof that you've taken professional advice before allowing a transfer. When shopping for an adviser at unbiased.co.uk you should ask them whether they use stochastic analysis to work out safe withdrawal rates. That's what cfiresim is doing and it's important to do it to model the risk of sustained bad market performance.

Adviser prices and services vary, so shop around. With the amount of money involved you would be best served with a fixed hourly rate. This can be paid for out of the pension pot, including out if the DC one, if you buy a product from them, else it takes cash. A product can be a drawdown pension for your DC, say. It's worth sending a private message to IFA dunstonh here to see whether he's interested and what he offers.

GSP

Thanks james. Just seen you have posted more information and appreciate this and will digest. Thanks again.

jamesd

The lifetime allowance was mentioned but it's not a major concern for you because it's easy for you to avoid it. There's usually a 25% charge when you crystallise (take benefits from) a pension that is worth more than the allowance, currently a million Pounds. Only charged on the part over a million. One very common way to take benefits is to take the 25% tax free lump sum from all or part of a pension.

There are two times when the allowance is normally checked. First is early on when you start to take money. Then there's a second check at age 75 on the increase in value of whatever is left in the pension. Easy to avoid that one, just draw enough taxable money so it doesn't increase in value.

You should take out enough taxable money each year to fully use at least your basic rate tax band. If you don't you're likely to end up paying higher rate income tax that you can avoid.

The taxation of investments outside a pension or ISA is less good than inside so it's nice not to shift large amounts outside the pension until needed for living and to fund ISA contributions. You can fund the pair of those needs by taking out up to the edge of the higher rate band of taxable money and the corresponding one third of that as tax free lump sum. For 2017-18 that's £45,000 so you'd take benefits from at least £60,000. £15,000 tax free lump sum, the rest taxable. Conveniently that'll fund £40,000 of income and £20,000 of ISA allowance.

Historic UK investment returns are around 5% for shares and that's about £41,000 a year on average on the money you have, so that roughly takes care of preventing an increase in value.

It is worth crystallising at a faster rate than that and just leaving some of the taxable money in the drawdown account. Just to get ahead of things and increase the safety margin between what you have and the lifetime allowance threshold. But you're so far away from it at the moment that you don't need to be very aggressive and crystallise more than maybe half of it.

You might want to take an extra £20,000 a year of tax free lump sum to fund the ISA allowance for your wife, a good family tax planning move. That would mean accumulating £60,000 a year in the crystallised drawdown account and this would also get you well ahead of any potential lifetime allowance risk.

jamesd

In drawdown you normally have two pension accounts. The first holds uncrystallised money that you can still take a 25% tax free lump sum from. The second holds the crystallised money that's already had 25% taken tax free and is all taxable when taken.

So if you were to do something like crystallise £200,000 you'd have:

1. About £625,000 in the uncrystallised pot account
2. £50,000 of tax free money in your bank account.
3. £150,000 of taxable money in the crystallised pot account. And you'd normally set this to pay you higher rate threshold / 12 in taxable monthly income in your case.

jamesd

If you die after the transfer what happens to money is easy enough. She and the children inherit so she and they still get to have 100% of the income you were getting. All tax free if you die before age 75, else taxable as normal income. What they get is a beneficiary flexi-access drawdown account that they can take money out of at any age, even the day after being born via their guardian. They could take it all out at once if they wanted to but it's in effect a super-ISA with before age 75 death no tax on the money while in there or on the way out and that's way better than just taking it out.

They can say who gets it on their death and those people end up with the same thing, called a successor flexi-access drawdown account.

In effect it's like an inheritable family pension plan that just keeps on going. It's one of the reasons why crystallising the lot by taking maximum tax free lump sum on it all isn't a great idea. Just moves the tax free lump sum part outside this really nice treatment.

GSP

James, from your link current state pension statement to 6 April 2016 is £134.75. Also says below amount I need to contribute another 5 years to get the max £155.65.

jamesd

Thanks, that's good news, better, cheaper for you, than I thought. Assuming that you've been signing on and looking for work you should also get one year of credit for this tax year, with an option to pay a little for any shortfall when not considered to have been looking.

Up to you whether to continue looking for work or not. The credits are nice but you'll also have ample income to just pay for whole years. You have six years from a missed year to buy so no urgency about it, though the price goes up after a few years.

GSP

Thanks James. So much information there and terminology I've got to get to grips with. Trying to get my head around everything.
Understand that most IFA's will not approve a db transfer under "normal circumstances" i.e. okay with health etc. Anyone know the best way to find one that will if I took that route.

xylophone

Have you read through all the links in post 2 and 9 above?