It's time to start digging up those Squirrelled Nuts!!!!

sheslookinhot

ex-pat_scot said:

MallyGirl said:

We are also not particularly thinking about inheritance tax - with just one child she will get a lot anyway even if there has been tax deducted. We are planning on living a good few years and have a full set of parents still doing well (some good for age in 80s and some just fit as a fiddle) so we will support her but prioritise ourselves for a while.
I will be withdrawing just under the 20% threshold from DC then adjusting for the tiny DB that starts at 60, OH will be doing some LTA management and taking just under the 40% threshold. What we don't spend (if any) will go into ISAs, PBs and savings accounts.

Sensible.

In general principle, there is a balance between the desire to retain funds in pension wrapper until required, from IHT perspective, set against the desire to minimise LTA impact (particularly the age 75 BCE).
I haven't researched in detail yet, but the broad plan is to deplete up to top of BR tax each year, from 55, and use any surplus in ISA / PB / offset mortgage (if not paid off).

It's important to be aware of the broad tax implications of the strategy, but not get too wound up in the detail and end up having the tax tail wag the dog.

Can you provide some explanation please as to what to be aware of ? Cheers

BarbaraG2000

@Sea_Shell ah, I understand your confusion - that paragraph only referred to the part of the pot with the discretionary fund manager.  That is £450K.

We also have separate ISA’s, currently close to £200K between us, from which we will be drawing our “income”.  So ISAs total around £650K. 

And then the DC pension pots, his currently £320K and mine £180K.

Cash currently £24K, but if I get my way we’ll be spending up to £10K of that on a whizz bang solar PV and storage system plus the car charger. We have already spent about £6K on things for the house.

So the total “pot” is <gulp> £1.17m,  and then DB plus full SP for both of us, which will give him £16K and me £20K in today’s money when all in payment, assuming no lump sum taken.

ex-pat_scot

sheslookinhot said:

ex-pat_scot said:

MallyGirl said:

We are also not particularly thinking about inheritance tax - with just one child she will get a lot anyway even if there has been tax deducted. We are planning on living a good few years and have a full set of parents still doing well (some good for age in 80s and some just fit as a fiddle) so we will support her but prioritise ourselves for a while.
I will be withdrawing just under the 20% threshold from DC then adjusting for the tiny DB that starts at 60, OH will be doing some LTA management and taking just under the 40% threshold. What we don't spend (if any) will go into ISAs, PBs and savings accounts.

Sensible.

In general principle, there is a balance between the desire to retain funds in pension wrapper until required, from IHT perspective, set against the desire to minimise LTA impact (particularly the age 75 BCE).
I haven't researched in detail yet, but the broad plan is to deplete up to top of BR tax each year, from 55, and use any surplus in ISA / PB / offset mortgage (if not paid off).

It's important to be aware of the broad tax implications of the strategy, but not get too wound up in the detail and end up having the tax tail wag the dog.

Can you provide some explanation please as to what to be aware of ? Cheers

Simplistically - this is not my area of expertise, and I'm not immersed in the detail as I'm not quite old enough for it to be relevant.

1. Inheritance tax.  
DC funds uncrystallised are outside your estate for IHT purposes.
If you have property and other assets, then you might hit IHT thresholds, and therefore from an IHT perspective it might be preferential to leave DC funds alone.

2. Lifetime allowance. LTA
Every time you take money out of your pension, you crystallise it and use up a portion of the LTA.
There are lots of scenarios (Google "BCE") where your withdrawal is tested against LTA. Once you have used up 100% of the LTA, further withdrawal is subject to tax surplus. This varies on whether the excess over LTA is withdrawn as lump sum or not. 
If you take out in excess of the LTA (currently £1,073m) as income, then the tax on this income is effectively 40%.

So the sensible thing to do would be to
a) take out sufficient each year to ensure your Personal Allowance (just over £12,500) (ie the income you can receive before basic rate tax kicks in at 20%) is fully used; either from pension income, employment etc.
b) if this is more than you need, then you can invest the surplus in an ISA. This way there will be no tax to pay on it or any future growth.
c) if your total pension pot is sufficient (look for threads on the 4% safe withdrawal rate), then you can take more out, and the next £37,500 of withdrawal pa will be taxed at 20%
d) if you realistically are going to be a basic rate taxpayer in retirement, then it makes sense to take the max out, up to the top of the basic rate band. Again any surplus can be invested in an ISA

Why take more than you might need?
There is a nasty wrinkle when you get to 75, when your remaining pension is tested against the remaining LTA, whether you have used up none or all of the LTA. Any excess is subject to a tax charge.
This means that the sensible thing if your pension is likely to use most or all of the LTA is to take out as much of it as early as you can, and reinvest any unspent in an ISA, where the subsequent growth is outside the reach of LTA.

You can take much more than the basic rate amount- if you took out £100,000 in one year then half of it would attract 40% tax, which is not a terribly efficient way to access it.

What other considerations?
If you have some money in ISAs and some in DC pension, and LTA is likely to be an issue, then the sensible thing is to minimise the growth in the pension fund (as the growth will get taxed at 75 if it takes you above LTA).
If your investment risk appetite / strategy is a mixture of equities, bonds and cash for example, and these are spread across ISAs and pension, it would make sense for your growth assets be in the ISA portion of your wealth, and for the defensive assets to be sheltered in the pension.

There is naturally a lot of detail below these principles, and lots of further reading is required, but they are serving me as a broad strategy at the moment. When I approach decumulation, I'll spend a lot of time refining this.

BarbaraG2000

@ex-pat_scot thank you for that explanation, I found it helpful.

Re the LTA - do DB pensions count towards that as well? I have a vague recollection of seeing %of LTA mentioned on one of my annual statements.

My hunch is that we are nowhere near that, and (probably) won’t be adding to pensions now. I would hope that if it was an issue, our IFA would have mentioned it.

QrizB

BarbaraG2000 said:

@ex-pat_scot thank you for that explanation, I found it helpful.

Re the LTA - do DB pensions count towards that as well? I have a vague recollection of seeing %of LTA mentioned on one of my annual statements.

DB pensions count towards the LTA as 20x the annual pension plus any PCLS.

So a DB paying £10k pa plus £40k lump sum would count as [(20 x 10) + 40 =] £240k.

michaels

QrizB said:

BarbaraG2000 said:

@ex-pat_scot thank you for that explanation, I found it helpful.

Re the LTA - do DB pensions count towards that as well? I have a vague recollection of seeing %of LTA mentioned on one of my annual statements.

DB pensions count towards the LTA as 20x the annual pension plus any PCLS.

So a DB paying £10k pa plus £40k lump sum would count as [(20 x 10) + 40 =] £240k.

Which is bargain of the century considering an equivalent annuity would probably require a DC pot of twice the size.

michaels

On the question of whether it is better to move money out of a sipp into an isa, if you think the basic rate of tax may increase in the future then it makes sense to draw any out that will be subject to tax sooner rather than later.

Sea_Shell

BarbaraG2000 said:

@Sea_Shell ah, I understand your confusion - that paragraph only referred to the part of the pot with the discretionary fund manager.  That is £450K.

We also have separate ISA’s, currently close to £200K between us, from which we will be drawing our “income”.  So ISAs total around £650K. 

And then the DC pension pots, his currently £320K and mine £180K.

Cash currently £24K, but if I get my way we’ll be spending up to £10K of that on a whizz bang solar PV and storage system plus the car charger. We have already spent about £6K on things for the house.

So the total “pot” is <gulp> £1.17m,  and then DB plus full SP for both of us, which will give him £16K and me £20K in today’s money when all in payment, assuming no lump sum taken.

Wow that's a lot of nuts!!!!    I don't think you have anything to worry about in regards to affording retirement.  

Which is, to be honest, what this thread was started to be all about.    Affordability.

A couple retiring before they're each both 50, with a pot of only £500,000.    Can it be done?  How easily can it be done?   Did we get it right, or have we made a complete mess of it?

As you say, you have an IFA that's sorted that all out for you, stress tested it, the lot.   This thread is about doing it by the seat of your pants!!!

So, I think you can sit back and enjoy your retirement, and the numbers will take care of themselves.

quirkydeptless

Sea_Shell said:

Wow that's a lot of nuts!!!!  

.........

Sea_Shell

In spending news...just treated myself to a pair of North Face walking shoes.

Usual price £115, but £75 in the Blacks sale!! 😁


I have proper boots, but wanted something more lightweight, but still waterproof, for trails.