SIPP or ISA for spare cash and endowment?

Larry_M

ermine wrote: »

No - one personal allowance amount per year. If you have retired you aren't earning from work. Part-time working doesn't play well to getting as much out from a SIPP quickly, unless you have longer to do it. e.g earn 6k and you can draw 6k form your SIPP before hitting the personal allowance if it were 12k, if you do it UFPLS you can draw another 1.5k form the SIPP tax-free per year (but you get no pension commencement lump sum).

Thanks for your time in explaining all this. One last question: are the amounts received from a pension still included in the assessment re the personal allowance? I understand what you're saying about part-time working, but let's say I was retired, not working, and drawing my LGPS pension which was 12k per year and the personal allowance was also 12k, would that mean that I effectively had no allowance left in terms of the SIPP lump sums?

bigadaj

Larry_M wrote: »

Thanks for your time in explaining all this. One last question: are the amounts received from a pension still included in the assessment re the personal allowance? I understand what you're saying about part-time working, but let's say I was retired, not working, and drawing my LGPS pension which was 12k per year and the personal allowance was also 12k, would that mean that I effectively had no allowance left in terms of the SIPP lump sums?

Apart form the 25% tax free allowance from a DC pension then everything else is potentially taxable.

What ermine is suggesting is that rather than retire at 60 you could retire at 58, take the pension over two years to bridge the gap and potentially topped up from savings, isa etc

Then claim your unreduced db pension at 60.

ermine

^ what bigadaj says

It's a missed opportunity to not run down your DC pension to 0 ahead of a DB pension unless your DB pension is less than the personal allowance. Historically you couldn't do that, but Osborne's pension freedoms mean you may be able to extract most of your DC pension savings free of tax, particularly if you have savings as well to bridge the gap between the personal allowance and your annual expenditure.

All pensions (other than the 25% pension commencement lump sum or the UFPLS alternative) are added together with any money you earn in that tax year. The personal allowance is taken off, £11,500 this year and you are taxed at 20% on what is left between £11500 and the total amount,, unless you earn above the higher rate tax threshold of £45k.

Income from employment (but not pension income) is subject to national insurance unless you are over State pension age, the result is that employment income tends to see tax rates of ~ 30% over the personal allowance if you count NI as well.

You should seek advice or read your pension Scheme booklet to see how your Prudential AVC works with your main scheme. Often the point of an AVC (which is a DC pension) running together with a public sector DB pension is that the total combined sum of DB and DC fund is used to qualify the 25% tax-free lump sum. That way you get to take all of it from the DC AVCs leaving your DB pension alone, which massively maximises your tax free lump sum. A very rough guide to the notional capital behind your DB pension is 20x the gross pension payable at Scheme normal retirement age. Your aim therefore is to target your Pru AVC at 1/3 of 20x(scheme pension at NRA) such that your Pru AVC is the entire tax free lump sum. But that all depends on your AVC being linked to the main DB pension, seek workplace advice on that.

If it isn't linked, you can transfer the AVC to a SIPP and use the total as your DC pot to run down, deferring your main pension to NRA. That is what I did - I gave up the ability to take my AVC as my tax-free PCLS at retirement age and shifted it to a SIPP, running it out at the personal allowance over several years and topping it up with the dividend income from my ISA. That way I eat no actuarial reduction on drawing my DB pension, but I get no PCLS either.

ermine

Larry_M wrote: »

would that mean that I effectively had no allowance left in terms of the SIPP lump sums?

That is correct, you have no personal allowance left. But the 25% pension commencement lump sum is tax-free read more from the pensions advisory service so it's your lucky day - it doesn't matter that you have rammed your personal allowance. That's what it's there for, to extract as much cash as possible tax-free

Incidentally, you can talk to pension wise for free if you are over 50

Pension Wise is a free and impartial government service about the different ways you can take money from your pension

although having a DB pension makes things more complex (in a good way for you) and they may bat you back to your workplace pension trustees, but you should be able to substantiate the specifics about your DC pensions. See if your workplace has a finacial advice scheme for people close to retirement, too.

Larry_M

Thanks all for your contributions, it is much appreciated.