Pension / LS decisions

Worried_of_wakefield

So, finally resolved Db pension statement received from Willis Towers Watson, the generous annual increases ( when in payment) offered in the statement pack was evidently sent in error, revised offer now equates to a measly 35% of previous years CPI / RPI.

Choices I am considering are £20k pension + £40 TFLS against £15k + £100k TFLS.

I'm 64 in Dec, enjoy extremely good health, my wife 10yr younger self employed P/T @£10k

I'm non tax payer and (advice from this bb) applied to transfer a portion of wife's unused PA to me ( £1200)

Have taken onboard ( advice from this bb) and plan to add £2880 to mine and a new wifes SIPP on an annual basis.

My lifetime spreadsheet!!! suggests any LS taken would eventually be needed in the distance future to drawdown from if inheritances are eaten up in care home fees

Question - in light anticipated poor increases on my annual pension would locking away for say 5 / 10 years earn me more ( at nil risk) on the £60k LS difference. If marginal I'll probably go for higher pension

Dazed_and_confused

I'm non tax payer and (advice from this bb) applied to transfer a portion of wife's unused PA to me ( £1200)

I presume you mean your wife (or you pretending to be your wife ) applied for this as anyone who applied is giving up part of their Personal Allowance not gaining anything. And you are a non taxpayer because of this, there would be no point if you were a non taxpayer anyway.

Choices I am considering are £20k pension + £40 TFLS against £15k + £100k TFLS.

Have you taken into account that the additional £5k pension is only actually worth £4k to you after tax? Based on current and known future tax rates.

Worried_of_wakefield

I presume you mean your wife (or you pretending to be your wife ) applied for this as anyone who applied is giving up part of their Personal Allowance not gaining anything. And you are a non taxpayer because of this, there would be no point if you were a non taxpayer anyway.

The wife brought tea whilst I completed the application for her!!
Through choice she will never earn more than £10k, I'm trying to pre-empt 'other' taxable money coming my way in December that will tip me over this years PA plus the start of my Db pension in January 19. Also, during the application process it appears we can retrospectively claim for a period when I was working. Do I (she) have apply every new tax year?

Dazed_and_confused

Also, during the application process it appears we can retrospectively claim for a period when I was working. Do I (she) have apply every new tax year?

Whether you are "working" or not has no relevance as far as Marriage Allowance is concerned. It is all based on income and what rate of tax you pay.

So husband and wife both earning £40k are both eligible to and could sucessfully apply for Marriage Allowance. But there would be no benefit in doing this, one would pay £238 less tax and the other £238 more (current tax year).

If your wife applied for the current tax year than it will just continue for the future until either of you cancel it (be very careful before doing this, if the wrong person cancels it it goes all the way back to the start of the claim) or one of you is a higher rate payer.

Retrospective years (2015:16, 2016:17 and 2017:18) have to be applied for a year at a time and are specific to those individual tax years. Before doing this it is worth taking five minutes to ensure that as a couple you will benefit.

If either of you paid higher rate tax for a year then you cannot have Marriage Allowance for that year.

And keep a close eye on your wife's income. It may be worth her applying for your overall benefit as a couple but she personally could end up with a bill that she would have to pay direct to HMRC i.e. 2015:16 she earns £10,000 and after applying has a reduced Personal Allowance of £9,540 so will be sent a tax bill for £92. But you will be entitled to a tax credit of £212 off your 2015:16 tax liability so overall as a couple you are £120 better off.

kidmugsy

Worried_of_wakefield wrote: »

Choices I am considering are £20k pension + £40 TFLS against £15k + £100k TFLS.

So you'd get £60k more tax-free capital (for which you don't seem to have any urgent need) at the cost of giving up £4k net p.a.

If you were to use that £60k to buy an annuity, with whatever widow's portion your pension gives, what would it return? Less than £4k net p.a. I'd think. And that would be a level annuity whereas the extra pension pays some inflation-protection, albeit at a feeble rate.

It doesn't matter that you have no intention of buying a commercial annuity: the logic is a useful guide to the truth, or untruth, of the belief that the extra lump sum comes at a very high price in income forgone.

I suggest you visit an annuity website to see whether my guess was right namely that the extra pension is much better value then the lump sum.

If you had a compelling use for the lump sum, that might be different.

Albermarle

You do not say if the DB pension offers a 50% spouses pension if you die .They usually do.
If this is the case then taking the extra lump sum seems a bad deal even though the inflation linking is restricted .
AS Kidmugsy explains , if you were to try and buy a pension income with the £60K , you might be surprised at the poor level offered.

Worried_of_wakefield

If you were to use that £60k to buy an annuity, with whatever widow's portion your pension gives, what would it return? Less than £4k net p.a. I'd think. And that would be a level annuity whereas the extra pension pays some inflation-protection, albeit at a feeble rate.

No need to eat into LS for many years to come, widows pension £12k no matter which option I take and 'enjoys' same annual increases.

AS Kidmugsy explains , if you were to try and buy a pension income with the £60K , you might be surprised at the poor level offered.

Yep pretty much in line with my own limited financial wizardry!
I've also read an excellent opinion on here ( could have been you Kidmugsy) regarding inflation, in that its unlikely the CPI basket fully applies to the average man ie inflation is a personal thing so the miserable annual increases offered may not in fact be too far adrift

Thanks guys

xylophone

Does your wife (aged 54) who is self employed contribute to a pension?

If not, perhaps you should be gifting her the money to do so?

kidmugsy

Worried_of_wakefield wrote: »

I've also read an excellent opinion on here ( could have been you Kidmugsy) regarding inflation

Not me! I have somehow omitted to develop a View on inflation indices.