Phased or total crystallisation?

marlot

zagfles wrote: »

It might not be a big deal having unwrapped investments for a while, there's the savings and dividend allowances, the starting rate for savings, and the dividend tax at basic rate is quite low. It could well be more tax efficient than breaching the LTA, in fact is highly likely to be. ...

I agree, and was about to say the same thing. I'm in a similar position myself; with a fair amount of my income coming from unwrapped investments for the next few years, whilst my wife and I gradually move it into ISAs ahead of our main pensions kicking in.

LHW99

If he was happy to do so, he could pay some of the money likely to be in unwrapped investments into your SIPP, if you are not contributing up to your maximum. It would be a third party contribution, but you could claim tax relief. We plan to do similar in the next few years, with an aim of equalising our SIPP moneys, in case of future care needs.

saver_ali

LHW99 wrote: »

If he was happy to do so, he could pay some of the money likely to be in unwrapped investments into your SIPP, if you are not contributing up to your maximum. It would be a third party contribution, but you could claim tax relief. We plan to do similar in the next few years, with an aim of equalising our SIPP moneys, in case of future care needs.

Thanks for the suggestion. We already put £2880 (gross £3600) into my Sipp each year. I don't have any other income apart from drawing my DB, so can't put any more in, unfortunately. Maybe it would have been better to have paid more into my pension over the years but I was only a basic rate tax payer so wouldn't have got the same amount of tax relief.

shinytop

marlot wrote: »

I agree, and was about to say the same thing. I'm in a similar position myself; with a fair amount of my income coming from unwrapped investments for the next few years, whilst my wife and I gradually move it into ISAs ahead of our main pensions kicking in.

I think that would work for me too. If I make enough profit in a couple of years to breach 2 x CGT allowances then I'll gladly pay the tax.

I_want_to_break_free

saver_ali - in a similar position.

£600k DC pot and in 7 years £22k DB pension. My current thinking is to use uncrystallised method to fund retirement each year and then when the £22k DB comes into play I can reduce the draw on the DC pot. The DC pot then 'recovers' as there is less of a draw on it. I'm assuming 6% investment return net. This keeps me the right side of the LTA until aged 75 when the tax kicks (cant avoid the tax then). The DC pot will have more than recovered so can take the tax hit. The DC pot then continues to grow after age 75 and only starts to tail off around age 100. I've used 2.5% for inflation. Of course you change these parameters the model changes. But it looks robust to me. The key for me is to get to the DB pension without breaching LTA and be able to access funds from the DC pot in a tax efficient way to fund or 'top up' retirement each year.

I welcome any comments / suggestions on this or other approaches.

zagfles

I_want_to_break_free wrote: »

saver_ali - in a similar position.

£600k DC pot and in 7 years £22k DB pension. My current thinking is to use uncrystallised method to fund retirement each year and then when the £22k DB comes into play I can reduce the draw on the DC pot. The DC pot then 'recovers' as there is less of a draw on it. I'm assuming 6% investment return net. This keeps me the right side of the LTA until aged 75 when the tax kicks (cant avoid the tax then). The DC pot will have more than recovered so can take the tax hit. The DC pot then continues to grow after age 75 and only starts to tail off around age 100. I've used 2.5% for inflation. Of course you change these parameters the model changes. But it looks robust to me. The key for me is to get to the DB pension without breaching LTA and be able to access funds from the DC pot in a tax efficient way to fund or 'top up' retirement each year.

I welcome any comments / suggestions on this or other approaches.

So you end up paying LTA tax at 75? Why do you consider that a better approach than full crystallisation while you're under the LTA (allowing for the DB pension)?

Not saying that's the right approach, several reasons why it might not be for you.But initial thoughts would be as above - crystallise as much as possible ensuring the DB doesn't tip the LTA.

saver_ali

I_want_to_break_free wrote: »

saver_ali - in a similar position.

£600k DC pot and in 7 years £22k DB pension. My current thinking is to use uncrystallised method to fund retirement each year and then when the £22k DB comes into play I can reduce the draw on the DC pot. The DC pot then 'recovers' as there is less of a draw on it. I'm assuming 6% investment return net. This keeps me the right side of the LTA until aged 75 when the tax kicks (cant avoid the tax then). The DC pot will have more than recovered so can take the tax hit. The DC pot then continues to grow after age 75 and only starts to tail off around age 100. I've used 2.5% for inflation. Of course you change these parameters the model changes. But it looks robust to me. The key for me is to get to the DB pension without breaching LTA and be able to access funds from the DC pot in a tax efficient way to fund or 'top up' retirement each year.

I welcome any comments / suggestions on this or other approaches.

Interesting. I can see that this method makes sure it's the DC pot that takes the LTA hit, rather than the DB pot. I suppose I was hoping we wouldn't need to take any LTA hit at all. It looks like you are already over the LTA though, so slightly different from my husband.

Thrugelmir

I_want_to_break_free wrote: »

I'm assuming 6% investment return net.

What investments are you planning to buy to guarantee that level of return? You'd need 100% equity exposure. To stand any chance I'd suggest.

zagfles

saver_ali wrote: »

Interesting. I can see that this method makes sure it's the DC pot that takes the LTA hit, rather than the DB pot. I suppose I was hoping we wouldn't need to take any LTA hit at all. It looks like you are already over the LTA though, so slightly different from my husband.

The PP is currently just within the LTA: £600k plus £22k*20 = £1040k, LTA is £1055k. Assuming the DB pension isn't revalued by more than the LTA increases between now and when it's drawn, full crystallisation of the DC pot now would avoid the LTA completely. At least until the second test at 75, which can be avoided by drawing down at least all the growth on the crystallised part.

shinytop

Say my DC pot plus 20xDB is £10k over the LTA. What happens if I crystallise all my DC pot now then take my DB pension in a couple of years time? My DB pensions will have increased at the same rate at the LTA and I will be able to draw down any growth on the non-TFLS part of the DC. Will I get a bill for the additional tax on that £10k?