Pension strategy

ajbell

I am 54 hoping to retire in 18 months at 56, house £300k paid for and no debts, £130k in savings, increasing at 2k a month.
I have a deferred DB pension that will pay me £16k a year at 60 with a guaranteed 5% yearly increase, I will take this at 60 (max age).
I also have a current DB pension which will pay £4900 in 18 months or £215,000 if I take it as cash (this is offered on the company website). If I take the cash and add it to my SIPP then that would be £230,000, take 25% and add it to my savings, that would leave me £172,000 to draw down.
So when I retire it will be 44 months before I am 60 and can claim the £16k DB pension so I will draw down up to the threshold (£1000 ish per month) to finance the 44 months and that will leave around £130,000 in my SIPP. I can live comfortably on £1000 per month.
How does the above sound? and have I missed anything?
What do I do with the remaining £130K in my SIPP?

midlandsimon

Depends what you want that £130k to do? To grow? To preserve?


Do you want to access it at some point? Plan to leave for beneficiaries?

ajbell

Its more about the most tax efficient way to get it out, I don't really need it for day to day living.

Linton

mmm. You say your current DB pension benefits include the option to transfer the cash value to another pension. Whether that avoids with the legal requirement that transferring out of a DB pension to a DC pension requires advice from an IFA having been received I dont know. You may well have to get the advice before your SIPP supplier will accept a transfer-in.


£1000/month sounds pretty frugal but you will eventually be on a gross income of £24K-£25K once you get your state pension so you should be living a life of unaccustomed luxury. Why not draw down more than £1K/month so its not so much of a shock?


You havent mentioned a spouse.


If you can live happily without the £130K then I suggest you leave it invested in the SIPP at a moderately high risk level. This will provide some protection should inflation exceed 5%.

ajbell

I already live on around £1000 per month and just put the other £2000 in savings each month.
I wouldn't describe my spending as frugal, I have everything I want and the things I like doing cost nothing as I like to walk, run and cycle.
I am open to the idea of drawing down more, my question was more about whether this was the best strategy tax wise.

Audaxer

ajbell wrote: »

I already live on around £1000 per month and just put the other £2000 in savings each month.
I wouldn't describe my spending as frugal, I have everything I want and the things I like doing cost nothing as I like to walk, run and cycle.
I am open to the idea of drawing down more, my question was more about whether this was the best strategy tax wise.

When you retire and start drawing down from your SIPP, you can withdraw up to £12,500 (your Personal Tax Allowance) each year tax free, and what you don't need for spending you can immediately reinvest it within the same investments in an S&S ISA. That means that when you do want to draw money from your investments to spend, you can withdraw it tax free from your S&S ISA.

enthusiasticsaver

ajbell wrote: »

I am 54 hoping to retire in 18 months at 56, house £300k paid for and no debts, £130k in savings, increasing at 2k a month.
I have a deferred DB pension that will pay me £16k a year at 60 with a guaranteed 5% yearly increase, I will take this at 60 (max age).
I also have a current DB pension which will pay £4900 in 18 months or £215,000 if I take it as cash (this is offered on the company website). If I take the cash and add it to my SIPP then that would be £230,000, take 25% and add it to my savings, that would leave me £172,000 to draw down.
So when I retire it will be 44 months before I am 60 and can claim the £16k DB pension so I will draw down up to the threshold (£1000 ish per month) to finance the 44 months and that will leave around £130,000 in my SIPP. I can live comfortably on £1000 per month.
How does the above sound? and have I missed anything?
What do I do with the remaining £130K in my SIPP?

It sounds like a solid plan to me but I am staggered that there is a CETV of £215,000 on an annual DB pension of just £4900. You will need to take advice and probably pay a pension transfer specialist as it is worth more than £30k.

It sounds like you can withdraw more than £1k per month but obviously you would have to pay tax on it so I assume you would just leave the £130k invested in your sipp.

ffacoffipawb

enthusiasticsaver wrote: »

It sounds like a solid plan to me but I am staggered that there is a CETV of £215,000 on an annual DB pension of just £4900. You will need to take advice and probably pay a pension transfer specialist as it is worth more than £30k.

It sounds like you can withdraw more than £1k per month but obviously you would have to pay tax on it so I assume you would just leave the £130k invested in your sipp.

Similar to what I had. An early retirement pension of £9.5k or a CETV of £395k.

Similar multiplier.

I took a reduced pension of £7.5k and PCLS of £49k.

Due to LTA issue, the CETV didn't appeal.

The DB in payment can be the equivalent to a bond constituent of my overall pension provision.

Albermarle

I also have a current DB pension which will pay £4900 in 18 months or £215,000 if I take it as cash

Due to strict rules governing the transfer out of DB pensions and the giving up of guaranteed rights , it will be necessary to go through an exercise with an IFA who is a pension transfer specialist . So first you have to find one ( not easy ) and then pay them a few Grand.

that would be £230,000, take 25% and add it to my savings, that would leave me £172,000 to draw down.

Why take the tax free cash out from the investments in the pension and put them in a low interest savings account ? You should consider leaving it where it is and taking the tax free cash later ( as you do not actually need it ) OR taking the tax free cash in stages , along with some taxable income .