Take DC or DB first

WYSPECIAL

Just turning 55 so can access my pension pots and need a lump sum to clear a Mesher arrangement but want to be able to continue to maximise payments into the DC schemes without recycling limits.

If I access the closed DB scheme from a previous employer now I would have a much bigger lump sum than I needed but as I understand it this wouldn’t restrict what I could pay into DC schemes in the future. The income it will pay if taken early will, along with state pension, be more than I plan to need to live on in retirement so no reason not to take it from that point of view.

I have a DC scheme from a previous employer and a SIPP which could be used as an alternative source for the lump sum and would be less than 25% of the combined value.

what would be the better option given that I want to continue saving as much as I can inti my current employers DC scheme? I have no plans to retire in the foreseeable future.

Thanks

Dazed_and_C0nfused

Knowing what the actuarial reduction and normal retirement age is for the DB pension might be useful.

L9XSS

Hi, pardon my ignorance but what is a “Mesher arrangement”? Firstly the lump sum from the DB pension, is it good value, ie in terms of guaranteed pension being given up for cash, something known as the commutation.
is there any way you can access savings or a low cost loan to pay off the debt rather than access pension money. Could you look at taking a loan against a mortgage if you still have one, as interest rates are quite low?
regarding recycling, then yes I believe you will be restricted to £4000 per year but I’m Not  100% sure about this, another poster may clarify.

Dox

L9XSS said:

Hi, pardon my ignorance but what is a “Mesher arrangement”? Firstly the lump sum from the DB pension, is it good value, ie in terms of guaranteed pension being given up for cash, something known as the commutation.
is there any way you can access savings or a low cost loan to pay off the debt rather than access pension money. Could you look at taking a loan against a mortgage if you still have one, as interest rates are quite low?
regarding recycling, then yes I believe you will be restricted to £4000 per year but I’m Not  100% sure about this, another poster may clarify.

A Mesher Order is a Court Order that governs how the family home will be dealt with after divorce. 

L9XSS said:

regarding recycling, then yes I believe you will be restricted to £4000 per year but I’m Not  100% sure about this, another poster may clarify.

You are only restricted to £4K Money Purchase Annual Allowance per year contributions to a defined contribution scheme (no restriction on contributions to a DB scheme) if you 'flexibly access' your DC benefits i.e. you take any cash out over and above the 25% tax free lump sum. If you take DC benefits as tax free cash + annuity, the MPAA isn't triggered. Cashing in a 'small pot' (i.e. a pension with a capital value of no more than £10,000) doesn't trigger the MPAA either.

squirrelpie

WYSPECIAL said:

what would be the better option given that I want to continue saving as much as I can inti my current employers DC scheme? I have no plans to retire in the foreseeable future.

I think you need to clarify and/or explain more about your overall goals. If your DB scheme plus your state pension gives you more than you need, then you can spend all your DC pensions before you reach SP age and I don't understand why you aren't thinking about when you can retire?

For your problem as stated, though, you can do it either using the old DB pension as you say, or you can transfer your old DC scheme into your SIPP, then crystallise four times the amount you need and withdraw just the 25% tax free part. If your current SIPP provider doesn't offer that, you might need to transfer to one that does.

As to which way to prefer, that depends on the numbers Dazed_and_C0nfused asked for.

jamesd

WYSPECIAL said:

need a lump sum to clear a Mesher arrangement but want to be able to continue to maximise payments into the DC schemes without recycling limits...

DC is almost certainly best and it's abundantly clear from your situation that you're satisfying a court order, not recycling. In addition, your newly divorced state can be expected to lead to a change in contributions.

DC because unless 55 is the scheme normal retirement age you'll have an actuarial reduction. Occasionally this is low enough to take it anyway.

If you might exceed the lifetime allowance more information is needed because taking an actuarial reduction can be a useful way to avoid or reduce your lifetime allowance charge. It can also provide more income to explain an increase in pension contributions.

WYSPECIAL

Dazed_and_C0nfused said:

Knowing what the actuarial reduction and normal retirement age is for the DB pension might be useful.

Normal retirement age is 65 but acturially reduced figure if taken at 55 will be sufficient income with SP when it comes to it. Commutation rate is 20. Is that good value?

WYSPECIAL

Dox said:

L9XSS said:

Hi, pardon my ignorance but what is a “Mesher arrangement”? Firstly the lump sum from the DB pension, is it good value, ie in terms of guaranteed pension being given up for cash, something known as the commutation.
is there any way you can access savings or a low cost loan to pay off the debt rather than access pension money. Could you look at taking a loan against a mortgage if you still have one, as interest rates are quite low?
regarding recycling, then yes I believe you will be restricted to £4000 per year but I’m Not  100% sure about this, another poster may clarify.

A Mesher Order is a Court Order that governs how the family home will be dealt with after divorce. 

L9XSS said:

regarding recycling, then yes I believe you will be restricted to £4000 per year but I’m Not  100% sure about this, another poster may clarify.

You are only restricted to £4K Money Purchase Annual Allowance per year contributions to a defined contribution scheme (no restriction on contributions to a DB scheme) if you 'flexibly access' your DC benefits i.e. you take any cash out over and above the 25% tax free lump sum. If you take DC benefits as tax free cash + annuity, the MPAA isn't triggered. Cashing in a 'small pot' (i.e. a pension with a capital value of no more than £10,000) doesn't trigger the MPAA either.

So taking the DB scheme wouldn't restrict what I could pay into a DC scheme going forwards?

WYSPECIAL

jamesd said:

WYSPECIAL said:

need a lump sum to clear a Mesher arrangement but want to be able to continue to maximise payments into the DC schemes without recycling limits...

DC is almost certainly best and it's abundantly clear from your situation that you're satisfying a court order, not recycling. In addition, your newly divorced state can be expected to lead to a change in contributions.

Been divorced for years so nothing has changed recently.

garmeg

WYSPECIAL said:

Dox said:

L9XSS said:

Hi, pardon my ignorance but what is a “Mesher arrangement”? Firstly the lump sum from the DB pension, is it good value, ie in terms of guaranteed pension being given up for cash, something known as the commutation.
is there any way you can access savings or a low cost loan to pay off the debt rather than access pension money. Could you look at taking a loan against a mortgage if you still have one, as interest rates are quite low?
regarding recycling, then yes I believe you will be restricted to £4000 per year but I’m Not  100% sure about this, another poster may clarify.

A Mesher Order is a Court Order that governs how the family home will be dealt with after divorce. 

L9XSS said:

regarding recycling, then yes I believe you will be restricted to £4000 per year but I’m Not  100% sure about this, another poster may clarify.

You are only restricted to £4K Money Purchase Annual Allowance per year contributions to a defined contribution scheme (no restriction on contributions to a DB scheme) if you 'flexibly access' your DC benefits i.e. you take any cash out over and above the 25% tax free lump sum. If you take DC benefits as tax free cash + annuity, the MPAA isn't triggered. Cashing in a 'small pot' (i.e. a pension with a capital value of no more than £10,000) doesn't trigger the MPAA either.

So taking the DB scheme wouldn't restrict what I could pay into a DC scheme going forwards?

No it wouldn't.

hemeloid

What you leave to dependents can influence decisions taken in this situation. To take the extreme example, if you spend the DC first, that would leave only potential dependents allowances from pensions when you die. If you take the DB first, then the value of the DC at time of death, as well as any dependents allowances would pass to dependents. 

There are obviously more important things to prioritise before this, like ensuring your pension income is providing a comfortable retirement, and I appreciate in the OPs current position this may not be a strong consideration, but it will be for others.