How to Balance Extra income and lifestyle tax efficiently!

blindman

Me       66        Retired                        Income from 2 pensions (Military and State
                        Two works pensions deferred for now
                        1. DB and AVC's       One option £8K pension and £25K UFPLS-others options give lower pension and higher lump sum
                        2 DC               £3K pot
 Wife    64        Retired                        No Income
                        Two pensions pending.
                        At 65
                        1. DB and AVC's       One option £8K pension and £25K UFPLS -others options give lower pension and higher lump sum
                        At 66
                        2 State pension    £9K income
 
Savings                        £100K
 Monthly outgoings £1K                      Monthly income £1800 from 2 pensions now.
No mortgage
Car is 4 years old
2 x Children 40's with house\mortgage and 3 kids
 Aim
1. Spend £10-15K per annum on holidays, minimum 10 years.
2. Maximum income per person for lowest tax.
3. Support offspring in later years.
 
My thinking:-
As savings rate is so dire I intend to use that to fund our lifestyle for the next 5-10 years. Have an easy access account and maybe 1 year\2 year fixed savings for this cash fund.
 
My wife to take her state pension next year-as it is not worth deferring this.
 
So my conundrum is the issue of what to do with the 2 ex works pensions and when to take them in order to keep the tax burden to a minimum and not to be awash with cash that does not earn any interest.
 
Thoughts
My wife is not now and will not be a tax payer (even after receiving the state pension).
 
Not sure if we could pay additional contributions into the AVC portion of the Ex employers scheme (or even my 2nd DC pension) that would efficiently boost the pensions when we eventually took them?
 
I'm booking an IFA through Unbiased.com in the next week or so.
 Cheers

Marcon

blindman said:

My wife is not now and will not be a tax payer (even after receiving the state pension).
 
Not sure if we could pay additional contributions into the AVC portion of the Ex employers scheme (or even my 2nd DC pension) that would efficiently boost the pensions when we eventually took them?
 

Picking off easy thoughts:

Make sure that any potentially taxable income from savings and investments is, wherever possible, attributed to her - at least up to the point where she starts to pay tax.

You can't contribute to the AVC section of a former employer's scheme; you need to be an active (contributing) member to do so.

Hopefully others will be along soon with more holistic comments!

blindman

Savings are all in her name 

Albermarle

Although retired you can still add £2880 a year ( topped up with £720 tax relief ) into a pension . You could do it with your small existing DC pension and she could open up a new pension ( very simple nowadays ).

Dazed_and_C0nfused

The regular suggestion of her paying £2,880 into a SIPP or personal pension seems suitable here.

This will be topped up to £3,600 with the basic rate tax relief and she can make a minimum 6.25% return even if the taxable element all attracts 20% tax in due course.

This is a bit confusing/contradictory

My wife is not now and will not be a tax payer (even after receiving the state pension).

Wife 64 Retired No Income
Two pensions pending.
At 65
1. DB and AVC's One option £8K pension and £25K UFPLS -others options give lower pension and higher lump sum
At 66
2. State pension £9K income
 

How is she going to avoid paying tax on the £17k pension income?

And have you actually checked her State Pension forecast, reading past the headline figure of £175.20, to see what she has actually accrued so far?  Normally shown to 5 April 2020 at the moment.

Finally when you refer to UFPLS do you really mean tax free lump sum?

blindman

Dazed_and_C0nfused said:

The regular suggestion of her paying £2,880 into a SIPP or personal pension seems suitable here.

This will be topped up to £3,600 with the basic rate tax relief and she can make a minimum 6.25% return even if the taxable element all attracts 20% tax in due course.

This is a bit confusing/contradictory

My wife is not now and will not be a tax payer (even after receiving the state pension).

Wife 64 Retired No Income
Two pensions pending.
At 65
1. DB and AVC's One option £8K pension and £25K UFPLS -others options give lower pension and higher lump sum
At 66
2. State pension £9K income
 

How is she going to avoid paying tax on the £17k pension income?

And have you actually checked her State Pension forecast, reading past the headline figure of £175.20, to see what she has actually accrued so far?  Normally shown to 5 April 2020 at the moment.

Finally when you refer to UFPLS do you really mean tax free lump sum?

The plan is for her to take the State pension and defer both mine and her DB and AVC one until we possibly run out of the £100k savings-maybe in 10 years.
So until that point she will be not paying tax

Yes I have checked her state pension forecast.

I do mean the UFPLS-The Tax free lumps sum with that option is £55K
Thanks

blindman

Albermarle said:

Although retired you can still add £2880 a year ( topped up with £720 tax relief ) into a pension . You could do it with your small existing DC pension and she could open up a new pension ( very simple nowadays ).

With my wife in mind then, as she has not been working for 5 years can she backdate this £2880 for the last 3 years?
So in effect she could open a SIPP with 3 x £2880 and then £2880 annualy after that.

Croeso69

blindman said:

Albermarle said:

Although retired you can still add £2880 a year ( topped up with £720 tax relief ) into a pension . You could do it with your small existing DC pension and she could open up a new pension ( very simple nowadays ).

With my wife in mind then, as she has not been working for 5 years can she backdate this £2880 for the last 3 years?
So in effect she could open a SIPP with 3 x £2880 and then £2880 annualy after that.

No, that is not allowed. Only one £2,880 per year per person.

Linton

Do you get extra income if you defer your DB pension?  I believe some schemes dont do this.  It may be more worthwhile defering your SP instead which gives you an extra 5.8% per year.

Dazed_and_C0nfused

More confused than before I think 

If she defers her DB pension past the NPA for that scheme what happens to the pension payments not made by the scheme?  Are they simply lost as would be the case with some schemes or will she actually get them backdated?

UFPLS is associated with DC pensions and means 25% of each payment is tax free and 75% taxable.  How does it work with a DB pension, particularly if the TFLS is actually taken upfront 

blindman

Linton said:

Do you get extra income if you defer your DB pension?  I believe some schemes dont do this.  

Yes we do.
I looked into deferring State pension when I was due to take mine and the consensus is now it's not worth it.