Plan A, Plan B or is there a better Plan C?

jamesd

Your income tax personal allowance is a use it or lose it one so you should normally plan to use it. Say you have 100k to start and take 10k tax free lump sum, the other 30k being placed into flexi-access drawdown and 60k still untouched. You can then take 12.57k from the drawdown account to use the allowance.

ukdw

Plan C could be leave now, rather than in 18 months, as your £100k ISAs and wife's DC should be able to sustain you until you can access your DC/DB pensions.

Being already retired and therefore having a stronger justification for needing to access the value built up in your DB pension at 55 may possibly be a small positive factor in your IFA's transfer decision.

£20k (2%) initial charge on £1m and £20k (>2.5%) on £750k  ongoing charges sound pretty high for your friend - I would personally be targeting 1% or less for the initial transfer cost and <0.5% ongoing charges+advisor fees.  May even be worth your friend engaging a different advisor too to see if they can improve on the ongoing charges.

Another variation would be to go for plan A - but start the DB 2-3 years earlier rather than 5.  Also in terms of PCLS I would aim to limit it to the size of your AVC pot if possible unless the commutation factor is greater than 20.

In terms of ongoing management by the same advisor who does the transfer - whilst it is to some extent a conflict of interest, the advisor having confidence that the transferred funds would at least for a few years be properly managed (in their opinion) could well end up being a positive factor towards the recommendation too.  

squarebeard

ukdw said:

Plan C could be leave now, rather than in 18 months, as your £100k ISAs and wife's DC should be able to sustain you until you can access your DC/DB pensions.

Another variation would be to go for plan A - but start the DB 2-3 years earlier rather than 5.  Also in terms of PCLS I would aim to limit it to the size of your AVC pot if possible unless the commutation factor is greater than 20.

I had planned the 18 months as I still have a few things to do to the house and help my son financially through his last year of uni so my current job can facilitate that - while I don't overly enjoy my job, I can stick with it for what is in essence not a great length of time, in fact it's made it more liberating that I know I can eventually do it

Regarding your point on starting the DB a couple of years early, would it be the case that I would then be starting to pay tax earlier and get hit with the reduction penalties? Reading some of the other posts on the board, many suggest leaving the DB for as long as possible? (unless transferring out). 

So I could (as tacpot suggests) consider the CETV now (especially as it seems to have hit a bit of a ceiling) as I would not even need to access it possibly for 5 years. This is where I start overthinking things.......................

Albermarle

I should perhaps qualify that the pension is annually re-evaluated against inflation every year so if to assume say a modest 1.5% RPI pa then in 6 years time when I reach 60, this pension would be nearer 30k and of course more should inflation tick higher. What the CETV would be at that time is anybody's guess.

The large majority of DB pensions increase with inflation , so probably all the replies assumed that anyway . Although nominally it will increase , in its true value it will stay as 26K ( in buying power ) .

The CETVs are as much a product of the current market situation, as they are of your age etc or when you ask for them .

Regarding your point on starting the DB a couple of years early, would it be the case that I would then be starting to pay tax earlier and get hit with the reduction penalties? Reading some of the other posts on the board, many suggest leaving the DB for as long as possible? (unless transferring out). 

It depends on personal circumstances . Although you get hit with reduction penalties, you get the pension for longer so normally it is a bit 50:50 depending on the size of the penalty. If you are likely to hit the LTA limit then it can be a good idea to take a DB pension early.

£20k (2%) initial charge on £1m and £20k (>2.5%) on £750k  ongoing charges sound pretty high for your friend - I would personally be targeting 1% or less for the initial transfer cost and <0.5% ongoing charges+advisor fees.  May even be worth your friend engaging a different advisor too to see if they can improve on the ongoing charges.

I would agree with this . Many DIY investors are paying maybe 0.25% all in , although most will pay a bit more .

Even an IFA + platform costs + fund costs , should not be more than 1.5% and maybe nearer 1% for a big pot.

ukdw

squarebeard said:

Regarding your point on starting the DB a couple of years early, would it be the case that I would then be starting to pay tax earlier and get hit with the reduction penalties? Reading some of the other posts on the board, many suggest leaving the DB for as long as possible? (unless transferring out). 

So I could (as tacpot suggests) consider the CETV now (especially as it seems to have hit a bit of a ceiling) as I would not even need to access it possibly for 5 years. This is where I start overthinking things.......................

Re taking the DB a little early - What I was thinking is that if for example you will have about £45k (£26k+ 2 x £9.5k) gross  once you both reach state pension age, then you could probably fund that £45k a year from age 55 out of your existing DCs, but this might need you to start the DB a couple of years early in order to leave enough DC left to fund the £19k PA between age 60 and 67 - taking a small reduction in the DB and yes paying tax as necessary on the DCs and DB.   

Also if you do take the CETV then that removes all linkage to age 60 - so you could wait 5 years, or take it earlier as required.