Extra income not sure what to do.

marco_79

Hi Folks,

I'm about to transfer a near £1m pension pot from a DB scheme into a SIPP "following comprehensive advice from a chartered IFA" . I spoke to 4 altogether.


My multiplier was 43 times. I'm 37 years old and with 20 years of growth this pot will hopefully exceed the LTA by some margin meaning there is no point in me putting more money from income into a pension. Our company was bought over and we are being Tupe'd into a DC scheme. Breaching the LTA was the main negative on this transfer.

Now I have about £1200 extra net income per month to put somewhere other than a pension as part of the TUPE agreement for opting out of the DB scheme.

Looking at the following options -

1. Max a 5% savings account with Nationwide (our bank)
2. Contribute to my wife's pension, non tax payer. £2880
3. LISA
4. S&S ISA
5. Blitz mortgage £105k (12 years left, 2.89%)
6. Kids ISAs

I'm favouring the mortgage at the moment but covering this with my IFA shortly. I would however appreciate your advice on what to do with this extra money.


Our emergency fund is low at 1 month because we have always had shares to depend on and a enhanced redundancy package that is transferring with us.


My shares circa £50k worth will be paid out tax free as part of the company sale, significant proportion being from my own previous contributions not capital gain. I'm planning to use half of this to create an emergency fund which I also don't know what to do with.


My minds in a financial whirlpool at the minute. Never had to deal with any of this stuff previously.

Drp8713

Seems crazy to me. Your figures indicate a pension of circa £23k per annum. Well within the LTA, you could have kept it and its lower LTA valuation.

Why would you want a pension near the LTA at 37. By the time you reach retirement, everything over the LTA gets no tax free cash, a tax charge and is subject to income tax (unless you prefer 55% tax upfront).

Is the IFA charging you a percentage to transfer or a fixed fee?

marco_79

Thanks for your thoughts.

A percentage to leave the DB scheme. 1%.

My main reason for transferring out is that the growth in investment is going to give me a much bigger pension on draw down than the DB would at 60 if left to increase by RPI. Assuming the investments go to plan obviously. With the DC scheme we are moving to we would never manage to build this size of pot.

We will be able to draw down a larger pension and still have a decent legacy to pass on to the kids. Our lump sum will also be twice the size it would have been. We can retire at 57 with no discount and possibly much earlier if other investments go the right way. We can phase the draw down to suit what we want to do instead of the flat DB.

My wife and kids would be better off if I die before retirement.

The multiplier may never get this high again. The DB may well become under funded before I retire. The company could even go bust however unlikely.

So there you go that's my reasons why, what do you think now?

Drp8713

Personally, I have not changed my opinion.

Why pay huge tax charges when you can avoid them?
Any excess over the LTA would be taxed at 55% on death.
If you kept the DB pension and got life insurance you would avoid tax charges
Your investment returns over the £1m are going to wiped out by tax such that it may not even beat the index linked DB.
Transfer factors for the DB scheme will be higher nearer to retirement, so why jump so early, wait until a few years before you want to retire and see if tax laws like the LTA are still about and decide then.
If you go ahead, your IFA earning £10k is a huge amount, cant you get a fixed fee agreed for half that? Ive seem £3-5k quoted here often even for large transfers.

Thrugelmir

marco_79 wrote: »

The multiplier may never get this high again.

With returns on Government securities so low it is highly unlikely. The question I would be asking myself is why such high multipliers are being offered. In essence to encourage people people to leave DB schemes.

jimjames

marco_79 wrote: »

Now I have about £1200 extra net income per month to put somewhere other than a pension as part of the TUPE agreement for opting out of the DB scheme.

Looking at the following options -

1. Max a 5% savings account with Nationwide (our bank)
2. Contribute to my wife's pension, non tax payer. £2880
3. LISA
4. S&S ISA
5. Blitz mortgage £105k (12 years left, 2.89%)
6. Kids ISAs

The options don't appear to be mutually exclusive.

Item 1 will take 2 months money and be full so isn't a long term option.
Item 2 would work and avoid LTA issue but again not help for many months.
3, Does LISA count for LTA?
4, I'd definitely do this if it's long term money
5, mortgage at 2.89% should be easy to beat with investments
6, possibly worth it but again only takes part of the money

marco_79

Drp8713 wrote: »

Personally, I have not changed my opinion.

Why pay huge tax charges when you can avoid them?
Any excess over the LTA would be taxed at 55% on death.
If you kept the DB pension and got life insurance you would avoid tax charges
Your investment returns over the £1m are going to wiped out by tax such that it may not even beat the index linked DB.
Transfer factors for the DB scheme will be higher nearer to retirement, so why jump so early, wait until a few years before you want to retire and see if tax laws like the LTA are still about and decide then.
If you go ahead, your IFA earning £10k is a huge amount, cant you get a fixed fee agreed for half that? Ive seem £3-5k quoted here often even for large transfers.

Thanks again.

Also need to factor in that the LTA will increase by inflation from next year, which in 20 years makes a big difference, although as you say the rules could change again. Jumping so early because of gilt yields and subsequent multiplier, I do think they will fall. I will ask about the fee but I don't think they will move.

marco_79

Thrugelmir wrote: »

With returns on Government securities so low it is highly unlikely. The question I would be asking myself is why such high multipliers are being offered. In essence to encourage people people to leave DB schemes.

My company openly admits it wants to reduce future liability and are incentivising people to leave.

marco_79

jimjames wrote: »

The options don't appear to be mutually exclusive.

Item 1 will take 2 months money and be full so isn't a long term option.
Item 2 would work and avoid LTA issue but again not help for many months.
3, Does LISA count for LTA?
4, I'd definitely do this if it's long term money
5, mortgage at 2.89% should be easy to beat with investments
6, possibly worth it but again only takes part of the money

Thanks
I agree 1&2 are only part of the answer but look a good start.
LISA is tax free I believe but would need to confirm.
I see the point of not paying the mortgage but it would be a good feeling.