Pension increase exchange advice

enthusiasticsaver

Audaxer wrote: »

I considered it on a DB pension, but I didn't like the fact that most of my pension wouldn't increase each year. It may also mean that the surviving partner would only get 50% of the increased pension with no further increases or limited further increases.

I also think pension schemes offer it as incentive as it benefits them, as on the whole people are living longer. So unless you really need the higher pension early I would go for the normal pension. If you do want more pension money upfront, you could even consider a reduced pension with a lump sum if there is an option to take a lump sum at a good commutation rate.

My husband is already taking his pension and we took the 25% lump sum. Some is invested and some is in cash reserves which we are drawing on as needed.

kidmugsy

enthusiasticsaver wrote: »

our state pensions pay out in 2024 and 2026 although part of my husbands pension reduces as he took a levelling pension which reduces when his state pension pays out. What would others do and is there anything I haven't considered?

What I would do is read the T&Cs of the scheme carefully, and then get written confirmation regarding the following possibility -

Is it the case that if your husband were to defer drawing his State Retirement Pension then his DB pension scheme would not impose its reduction until he did indeed start to accept the SRP? If it were the case then there you have a lovely opportunity.

Spend your new after-tax income on pension contributions to a private pension - e.g. a SIPP - for you: £2,880 per annum net, with you later withdrawing £3,600 per annum gross - all of it tax-free because you have enough Personal Allowance to cover it. This way you add £720 per annum to the value of his extra pension before you fire ahead and spend the money on house and garden, and whatnot. He could also contribute £2,880 net to a personal pension of some sort for himself, planning not to draw from it (save in emergencies), and with the intention that it would pass on death to you, or the children/grandchildren ....

When your husband reaches SRP age he simply does not start the SRP. Then (we hope) the raised DB pension continues. After a few years he may feel he'd like more income so he starts his SRP which has increased by 5.8% for each year of deferral. Bingo! He now has a bigger index-linked SRP than he had expected.

Note that once he is 75 he can no longer contribute to his private pension so that might be a guide to the longest time for which he would choose to defer his SRP. If he is to avoid 40% tax perhaps his deferral would need to be shorter than that.

Note that this deferral advantage doesn't depend on his having done the exchange but it will perhaps be more practical because he has.

Once you are a taxpayer the money-go-round wheeze with SIPPs won't appeal so much. You too could consider deferring your SRP to increase your IL pension income if you want to. It would also let you enjoy continuing the money-go-round.