Are we worrying unnecessarily?

TVAS

Wait for early retirement option if not included retire at 60. Usually take tax free cash which can be used to repay debt. However it depends on commutation factors the amount of pension given up to get cash. If it is over 20 it is good this means every £1 of pension given up gives you £20 tax free cash. This means take TFC. If it is under 20 it is very poor and it is better to take pension only. I say this because you will be getting 50k inheritance.  The Ipswich Building Society include pension income as guaranteed income. Not only is it guaranteed but it is backed by a large well known employer So approach them for a mortgage. You sound like you will have good income he has a guaranteed pension. I would also encourage him to take up Yoga for his body and meditation for his mind. If you can wangle working from home for at least a month. Spend a month in Spain during the winter this will transform him and relax you. Good luck.

jamesd

First, don't overpay on the mortgage, because it makes you worse off. Best time is after you're both dead,  next best when you're both getting all pensions.

Using income and savings to maximise pension contributions is important, try to do it.

For him, there are no restrictions on using pensin income to make pension contributions but they also don't increase the allowable amount, which has two constraints, both of which must be fulfilled:
1. Pay. Personal gross pension contributions can be no more than gross pay. AVCs count. Just a minor bit of form filling to get any excess refunded. Self-employed limits are different.
2. Annual allowance, normally 40k. The gross amount of personal and employer personal pensions are added to the increase in value of defined benefit pensions and a tax charge is payable if it exceeds the available annual allowance. Unused allowance from the last three tax years is available.

Because he's 55 or over he has immediate access to personal pension money but there are some aspects to be aware of:
A. he can take up to 25% of any portion of a pot and leave the 75% in a flexi-access drawdown account. If he takes any of the 75% his future defined contribution pension contributions are cut to the 4k a year money purchase annual allowance so that is best left until he stops working.
B. he could take a UFPLS payment that is 25% tax free and 75% taxable. This triggers the 4k MPAA restriction immediately.
C. up to three times in his lifetime he can take all of a personal pension worth up to 10k. Splitting and combining are allowed. If using uncrystallised money 25% is tax free and 75% taxable. This doesn't trigger the MPAA 4k restriction so it can be useful while still working.

It's worth paying lots of attention to the spousal benefits of his DB pensions because that provides useful guaranteed income and because you'll probably be getting it for longer than usual. This can allow you both to take DC money earlier or faster than usual.

For you, the current plan is to increase the minimum pension access age to ten years less than state pension age in 2028. Presumably April 6th. Since you're 47 now you might reach your 55th birthday and qualify forever for access before the change. If you  aren't 55 before 6 April 2028 you should plan on a three year delay. Once you qualify you have the same options as him.

Overall this makes maximising his pensions fist priority, using savings as required, because he already has access, then for you.

Downsizing or moving to a disability-compatible place is often best done early but if you plan to move significantly after stopping work a delay can be best.

Cottage_Economy

TVAS said:

Wait for early retirement option if not included retire at 60. Usually take tax free cash which can be used to repay debt. However it depends on commutation factors the amount of pension given up to get cash. If it is over 20 it is good this means every £1 of pension given up gives you £20 tax free cash. This means take TFC. If it is under 20 it is very poor and it is better to take pension only. I say this because you will be getting 50k inheritance.  The Ipswich Building Society include pension income as guaranteed income. Not only is it guaranteed but it is backed by a large well known employer So approach them for a mortgage. You sound like you will have good income he has a guaranteed pension. I would also encourage him to take up Yoga for his body and meditation for his mind. If you can wangle working from home for at least a month. Spend a month in Spain during the winter this will transform him and relax you. Good luck.

The commutation rate is over 20, I think it is closer to 25. It was a couple of years ago anyway. Royal Mail is generally encouraging about people taking their lump sums.
I work from home anyway and just need a laptop to do my job! Someone in our office moved from the UK to Italy a couple of years ago and works from there, just flying back in for client meetings. My firm is pretty good. 


jamesd - thank you so much for your detailed post. I'm going through it now and getting my head around it. I'll post again later.

Cottage_Economy

jamesd said:

First, don't overpay on the mortgage, because it makes you worse off. Best time is after you're both dead,  next best when you're both getting all pensions.

Roger that. You gave me advice on that  few years ago and I will not be touching it.

Using income and savings to maximise pension contributions is important, try to do it.

For him, there are no restrictions on using pension income to make pension contributions but they also don't increase the allowable amount, which has two constraints, both of which must be fulfilled:
1. Pay. Personal gross pension contributions can be no more than gross pay. AVCs count. Just a minor bit of form filling to get any excess refunded. Self-employed limits are different.
2. Annual allowance, normally 40k. The gross amount of personal and employer personal pensions are added to the increase in value of defined benefit pensions and a tax charge is payable if it exceeds the available annual allowance. Unused allowance from the last three tax years is available.

Because he's 55 or over he has immediate access to personal pension money but there are some aspects to be aware of:
A. he can take up to 25% of any portion of a pot and leave the 75% in a flexi-access drawdown account. If he takes any of the 75% his future defined contribution pension contributions are cut to the 4k a year money purchase annual allowance so that is best left until he stops working.
B. he could take a UFPLS payment that is 25% tax free and 75% taxable. This triggers the 4k MPAA restriction immediately.
C. up to three times in his lifetime he can take all of a personal pension worth up to 10k. Splitting and combining are allowed. If using uncrystallised money 25% is tax free and 75% taxable. This doesn't trigger the MPAA 4k restriction so it can be useful while still working.

Originally we were not going to take the lump sum from his SIPP - just drawdown what we would need each year to fund 'the gap' until he was 65 and his NRA65 benefits kick in, leaving the rest in place to continue to grow (or not) until the pot was exhausted. Then we decided to take the lump sum from it, leaving the rest in place and drawing down each year what we needed. Now I'm wondering whether it would be a better idea to leave that in place and keep adding to it (obviously only £2,800 a year after he retires), on the basis that we can access it if we need it but also that I can inherit it if something happens to DH. It could form part of my pension planning.

I've also been trying to decide whether to open up a SIPP for myself. At the moment I have a small defined benefit pension (only about £1700 a year income) and a Royal London DC Personal Pension that I pay 11% into and my employer 5% on a salary sacrifice basis. I have the money invested in a global multi-asset tracker fund and am charged 1% - that's the lowest fee- and I can access the pot at 55. There's no problem adding extra funds into that but I was wondering, given the fee, whether it would it be better for me to reduce my contributions in the RL pension to 5% and then stuff the other 6% plus any additional income into a low cost Vanguard fund on a cheap platform. Realistically, how much difference will that higher fee make over the next seven years, especially if we have a recession in the next few years as a result of the impact of COVID?

It's worth paying lots of attention to the spousal benefits of his DB pensions because that provides useful guaranteed income and because you'll probably be getting it for longer than usual. This can allow you both to take DC money earlier or faster than usual.

For you, the current plan is to increase the minimum pension access age to ten years less than state pension age in 2028. Presumably April 6th. Since you're 47 now you might reach your 55th birthday and qualify forever for access before the change. If you  aren't 55 before 6 April 2028 you should plan on a three year delay. Once you qualify you have the same options as him.
I will be 55 in January so it looks like I will be able to access my pots at 55
Overall this makes maximising his pensions fist priority, using savings as required, because he already has access, then for you.

Downsizing or moving to a disability-compatible place is often best done early but if you plan to move significantly after stopping work a delay can be best.

Hi Jamesd, I've had a chance to do some more thinking and have added my comments in bold above.

Cottage_Economy

Jamesd - am i right in thinking that I've read before that you are quite knowledgeable about VCTs? It rings a bell...
Not planning on doing anything in that respect but have come across them in my reading on tax reliefs and would like to get some knowledge and opinions on them.

A friend doing her tax qualifications lent me her study book on personal taxation and I've suddenly become fascinated by it all!!