Taking DB pension and putting it into SIPP

Pursuit

I know this subject has been asked before but a lot seems to depend on personal circumstances.


I'm 55 and have a deferred FS pension. I was thinking of taking it at 56 (£11500PA 70k Lump Sum) and putting it into a SIPP and also increasing my workplace pension contributions so that I contribute the max £40k per year for several years using the lump sum to supplement my reduced income for those several years due to the higher % contribution into my workplace pension. I'm thinking this may have the potential to provide a tidy sum whilst also having the DB pension still there as a backup.


I earn 53.5k employer pays 9.5% max into pension. I intend to work until I'm 67 but may reduce my hours slightly if things work out. Spouse in reasonably paid job with good workplace pension (puts 24% into her pension) and is 44 year old.


Any thoughts appreciated.





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xylophone

https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/recycling-of-tax-free-cash/

BoGoF

What is the NPA of the deferred pension and what will it pay at NPA?

Pursuit

Quote from financial times regarding DB scheme recycling.


"Members of DB schemes, meanwhile, are able to work full time and take their full DB pension without any limit on DC contributions beyond the standard annual allowance (£40,000 a year for most people).


Ruban Sanmuganathan, a chartered financial planner with Plutus Wealth Management, pointed out that any contribution to a DC scheme would receive full tax relief, according to the individual's marginal rate.
That, he said, meant a DB member could in theory recycle their DB benefits into a DC scheme and claim the full tax relief.


He said people were taking full advantage of this apparent loophole"


NPA is 65. They refuse to tell me what it will pay at NPA. You are given a statement when you leave and that is the only statement you are entitled to apparently.

wjr4

Why would you take the DB pension early and suffer an early retirement factor when you do not need the income? We often have clients who take the income at NRA and recycle the income back into a DC pension but they are not affected by the early retirement factor. I'd just increase your DC pension contributions as much as possible.

Pursuit

I suppose I'm thinking the same as everyone else thinks who currently does this. This seems to be a tax loophole.


I could put 40k a year into a pension for 7 years. that's 280k. I might even get some growth? Now I have both a moderate DB pension plus a sizeable DC pension which I can draw down on and also the advantage of possibly leaving my spouse money or my children an inheritance.

Linton

Until you have a figure as to how much you are losing by taking the pension early it is impossible to say whether your plan makes sense. The scheme should be able to tell you the reduction they have imposed such as 5%/ year but if you have nothing else surely you can get some idea from the rules of the scheme and the time you have been a member.

Pursuit

The wont tell me the reduction rates. Only the current year i.e. at 55 it is 57%


at 65 figures are probably somewhere between 23.5kPA plus 87k lump sum or 26.5k plus 100k lump sum.

Audaxer

Pursuit wrote: »

at 65 figures are probably somewhere between 23.5kPA plus 87k lump sum or 26.5k plus 100k lump sum.

If these figures are correct, it seems like a big reduction if you will only get (£11500PA 70k Lump Sum) at 56. I would definitely leave it to 65 in your position if I could afford to.

Albermarle

If you are still working and earning £53K , the taxman will tax your DB pension income at source at 40% .
Will this not affect your plan ?

Pursuit

It is my understanding that I can put this into a SIPP and claim the tax back. I'm sure I read this on this forum a while ago.


At 65 the 11.5KPA pension would rise to 15k so I'm 8-11k worse off. But on the other hand I'm getting 130k over the next 9 years plus a 70k lump sum now and the added tax benefits that go along with it


My point is in seven years I might cobble 300-350k together all the while having the safety net of the 15k PA at 65. If the 300-350k does not pan out in 7 years due to market conditions its highly likely I will still be in a great job on a good salary and have 5 years until NRA and plan B will come into effect.