Defined Benefit Cash Balance vs defined contribution pension

kidmugsy

Cottage_Economy wrote: »

He has some RM shares, so considering whether to sell them, take the tax and NI hit and put them in his SIPP pension now rather than wait another couple of years and get them tax and NI free. We'd get tax back so just the NI at 12%.

No. If he wants to sell them fair enough, but it would be mad to buy them back within his SIPP. He'd be betting his career, his pension, and his SIPP all on the same company.

Cottage_Economy

kidmugsy wrote: »

No. If he wants to sell them fair enough, but it would be mad to buy them back within his SIPP. He'd be betting his career, his pension, and his SIPP all on the same company.

Sorry, I've realised I phrased that incorrectly. No, we don't want to buy them back. I meant invest the money from selling the shares.

kidmugsy

Cottage_Economy wrote: »

He has some RM shares, so considering whether to sell them, take the tax and NI hit and [replace with different shares] in his SIPP pension now rather than wait another couple of years and get them tax and NI free. We'd get tax back so just the NI at 12%.

Personally I'd be loathe to give up the tax/NI advantages unless I very much wanted to move my money out of equities into something else (gold?).

What do you mean by "We'd get tax back"?

dasherman

Cottage_Economy wrote: »

I cannot fathom how they got £37k for NRA 60. That's only three years contributions for DH? What on earth got stuck in that calculation to go from about £15,500 (and that's optimistic) to £37k?

I've not got that wrong have I?

The illustration stated around £47k for the NRA 65 figure, I came out at about £38k, so approaching the ballpark.

The illustration assumes he takes his full 25% tax free lump sum, which would be made up of his 'cash balance' with the rest being made up from commuting some of his pension. But that is just one option.

dasherman

kidmugsy wrote: »

Personally I'd be loathe to give up the tax/NI advantages unless I very much wanted to move my money out of equities into something else (gold?).

What do you mean by "We'd get tax back"?

I assume she means he'll have to pay tax on selling his shares, as they're held in a Share Incentive Plan and yet to reach their 5 year milestone, and then he'd get tax relief when putting the money in the SIPP?

Cottage_Economy

dasherman wrote: »

I assume she means he'll have to pay tax on selling his shares, as they're held in a Share Incentive Plan and yet to reach their 5 year milestone, and then he'd get tax relief when putting the money in the SIPP?

Yes, the 'free' shares can be sold after the third anniversary but we will pay tax and NI on the proceeds. After their fifth anniversary we would not. Whichever option we choose the proceeds are destined for the SIPP.

Cottage_Economy

dasherman wrote: »

The illustration assumes he takes his full 25% tax free lump sum, which would be made up of his 'cash balance' with the rest being made up from commuting some of his pension. But that is just one option.

Ahhhh...that makes sense. I thought for one wonderful moment Royal Mail had added some extra in as a 'sorry for !!!!!!ing up the pension'.

kidmugsy

dasherman wrote: »

I assume she means he'll have to pay tax on selling his shares, as they're held in a Share Incentive Plan and yet to reach their 5 year milestone, and then he'd get tax relief when putting the money in the SIPP?

Ta, dasherman. That, dear OP, isn't logical. The SIPP gives you only a little tax relief, the rest is tax deferment. In other words you get 25% out tax-free but the rest is exposed to tax as ordinary income in the tax year you withdraw it. So, unless I've misunderstood dasherman's point, you'd be losing by selling now.

I suppose if I were an investing sophisticate I'd know how to hedge the risk of the RM shares falling in value before I cashed them in. I know the expression "futures and options" but not the reality. Would anyone care to help?

Cottage_Economy

kidmugsy wrote: »

Ta, dasherman. That, dear OP, isn't logical. The SIPP gives you only a little tax relief, the rest is tax deferment. In other words you get 25% out tax-free but the rest is exposed to tax as ordinary income in the tax year you withdraw it. So, unless I've misunderstood dasherman's point, you'd be losing by selling now.

I wouldn't really be losing, even though that is how I phrased it. These shares are the 'free' shares given to DH so they don't stand us in at anything so we can't actually lose.

The reason I'm thinking about 'getting the tax back' is that it will help grow a slightly bigger pot over time, even if we do have to pay tax on it at some point in the distant future.

I want to get lump sums into his SIPP sooner, rather than later, to stand a chance of it growing to something worthwhile to plug some of the gap by the time he retires.

Cottage_Economy

Dasherman (and any one else who might know) - have you ever come across a clause in the Royal Mail pension stating that if the surviving spouse is more than 10 years younger than the RM employee will not be entitled to the normal proportion of the benefits if their spouse dies?

I read it in a pension document from Royal Mail many years ago but have never been able to find it again anywhere and the document has since been thrown out. The newer documents over the last 5 years or so do not have this clause in them, but I know I saw it. I didn't imagine it.

I remember thinking at the time that I might be stuffed as I'm 12 years younger, but now I'm not sure whether that was relating to a death in service benefit or the actual pension.