Transfer valuation from DB Pension - advice

Mick70

Think the LTA bit is far far clearer now, at 75 you get a one off 25% charge on TOTAL value of your pot and any growth on your drawdown (although if using it it’s likely to fall but rise ) and then no more LTA worries after that event .

On subject of drawdowns , I’m assuming the scheme puts that money aside into some pot then whenever you need to access some the scheme just deducts income tax and pays you/me the balance into your bank ? Or have I got that wrong and loads of hidden charges ?

I owe a couple on here a pint or ten for all this advice :beer:

Albermarle

On subject of drawdowns , I’m assuming the scheme puts that money aside into some pot then whenever you need to access some the scheme just deducts income tax and pays you/me the balance into your bank ? Or have I got that wrong and loads of hidden charges ?

Some pension providers have an all in service . You pay a % of the pot each month and there are very few , if any extra charges. This would include all Personal Pensions as far as I know and a couple of SIPPS ( HL & Fidelity) . Other SIPPs tend to have lower regular charges but charge for withdrawals.
In any case I presume with this very large amount of money to manage , you will be working with an IFA and they will have their own suggestions who to best work with . One advantage of an IFA they can access a wider range of pension providers than you can do personally and in the case of personal pensions get better deals.

Mick70

my current company has a dc sheme with Royal London so would probably transfer the CETV into there I imagine

jamesd

Mick70 wrote: »

Think the LTA bit is far far clearer now, at 75 you get a one off 25% charge on TOTAL value of your pot and any growth on your drawdown (although if using it it’s likely to fall but rise ) and then no more LTA worries after that event .

Yes, though to be clear it's 25% or 55% on the total value of the so far untouched pot and on the growth of the touched pot.

You can arrange to touch - crystallise - it all if that seems beneficial. Like maybe using the part over the lifetime allowance partly for some annuity buying. Not going to be any growth on any spent for annuity buying so it'll be a one off 25% lifetime allowance charge then taxable income.

Mick70 wrote: »

On subject of drawdowns , I’m assuming the scheme puts that money aside into some pot then whenever you need to access some the scheme just deducts income tax and pays you/me the balance into your bank ? Or have I got that wrong and loads of hidden charges ?

Probably some small charges, a few tens of Pounds.

If doing it yourself I suggest income versions of funds and selling something once or twice a year to top up the cash balance in the account. Income versions pay monthly, quarterly, twice or once a year depending on the fund but the amounts aren't likely to be the same each time.

An adviser could do it for you, for a cost.

It'd probably just be cash in the drawdown account, not a different account.

The rest of this post is about tax on investments that are outside a pension or ISA. It doesn't apply inside them.

Since you'd be targeting withdrawing at least the basic rate band to avoid growth inside the pension that would be your first choice for income. To get more, that can come from money already withdrawn, notably the part not already moved into the ISA tax wrapper.

Each person has annual tax free allowances outside any tax wrapper of 1k for interest and 2k for dividends. In addition there's the starting rate for savings interest that you can't benefit from because you have too much income but your wife could. These tax free interest allowances also apply to bond fund and peer to peer lending interest.

Also notice that the dividend tax rate is only 7.5% while in the basic rate band. Which your wife will presumably have plenty of.

There's also a tax on capital gains. You reduce or eliminate the effect of this one by using the tax free allowance, currently 12k, every year so you don't accumulate big gains that might be subject to tax. You might sell some of a global tracker fund that has gone up and buy a different brand of global tracker.

You'd still want to avoid these taxes by getting money outside the pension into an ISA as fast as possible but the allowances or low initial dividend rate mean that it's not instant high tax outside the pension. You can also spread taking the pension tax free lump sum over a few years to limit how much you accumulate outside ISAs.

squirrelpie

I'd never even heard of the starting rate for savings, so thanks for that, James!


I take it that the current 'starting rate for savings' is zero, although it could be adjusted to non-zero whenever 'they' want? What the .gov page doesn't make clear is which allowance takes precedence. The way it's phrased suggests your starting rate for savings is used before your personal savings allowance, but I've never seen that mentioned anywhere else and it would become more important if they ever did increase the starting rate.



It all goes to show just how ridiculously complex our tax system is.

ukdw

A few small points I haven't spotted being mentioned in this very interesting thread are likely increases between age 50 and 55:



If for example CPI is an average of 2.1% for the next 5 years - then the LTA amount will probably have increased from £1.055m to about £1.17m by age 55 - so 25% PCLS would be about £292k.



Also if the £1.7m is invested then it may well be a fair bit larger by age 55 - if for example it achieves an average compound growth of 5% PA then the £1.7m could have increased to well over £2m



Hopefully the £50k basic rate tax band will have increased a bit by that time too - might even be as much as £80k;)

jamesd

squirrelpie wrote: »

I take it that the current 'starting rate for savings' is zero, although it could be adjusted to non-zero whenever 'they' want? What the .gov page doesn't make clear is which allowance takes precedence. The way it's phrased suggests your starting rate for savings is used before your personal savings allowance, but I've never seen that mentioned anywhere else and it would become more important if they ever did increase the starting rate.

Starting rate for savings is currently zero and is used before personal savings allowance and if there's enough starting rate available to cover all interest no PSA is used. A 2018-19 tax return calculation can have these entries for interest:

Starting rate                   amount x 0%
Basic rate band at nil rate     amount x 0%
Basic rate                      amount x 20%
Higher rate band at nil rate    amount x 0%

The "at nil rate" ones are the PSA and there's one for each tax band because less is available at higher rate and someone could be part in each band. The starting rate amount is used before any PSA band.

Mick70

out of interest, i may need to use the advisor our company uses , if he recommends a transfer and recommends he manages it , rather than it going into our current company DC fund with royal london , should that set alarm bells ringing ?

jamesd

No. He'll need to justify using Royal London.

Nothing can strictly require you to use that adviser. The main initial concern would be if it's an FA instead of an IFA. Then that they might know nothing useful about income drawdown and safe withdrawal rates or how spending tends to decline with age. That might cause them to rely solely on the FCA mandated transfer value analysis which assumes that you will spend the money to buy annuities which match the DB benefits, which pretty much means ignoring most of the reasons for transferring.

If they just don't know much about drawdown rules, better to use someone else. You do need someone who understands them if they are going to be managing your money in drawdown.

Mick70

jamesd wrote: »

No. He'll need to justify using Royal London.

Nothing can strictly require you to use that adviser. The main initial concern would be if it's an FA instead of an IFA. Then that they might know nothing useful about income drawdown and safe withdrawal rates or how spending tends to decline with age. That might cause them to rely solely on the FCA mandated transfer value analysis which assumes that you will spend the money to buy annuities which match the DB benefits, which pretty much means ignoring most of the reasons for transferring.

If they just don't know much about drawdown rules, better to use someone else. You do need someone who understands them if they are going to be managing your money in drawdown.

I was just going to be using the advisor simply to advise if the transfer was in my best interests or not and then IF was to send all the relevant paperwork to my old DB pension provider who would then do the transfer if they were happy. I would feel bit happier if it went into our current Royal London dc scheme that all staff have and I assume Royal London then manage and invest it , hopefully I be working until about 57/58 so another 7-8 years