My Retirement Options

CTFC

Hi Folks

I appreciate your thoughts on the following, as a bit of background I am 59 years and currently receiving a DB  pension of around £7k pa (calculated at 14.17% of LTA  at the time I started taking it)from a prior employer, I am not working at the moment but am not averse to doing some part time work as suits me.

My benefits from my main pension arrangements are flirting with exceeding the LTA so I am looking to put it into payment early (5 years early reduces the DB amount by 4% per year x 5 years and reduces the capital value accordingly bringing me back within the LTA), I have been offered the following options , none of which describe my ideal scenario.

Option 1

a pension of £19.8k pa (36.2% of LTA ) with an AVC fund of £515k used to buy an Annuity or transferred to another Pension arrangement

Option 2

A PCLS of £228K (This amount  includes the AVC fund and is taken from the AVC fund)

a pension of 19.8k pa

This represents 58.16% of LTA  and the remaining £288K of of the AVC fund must be used to purchase an annuity on the open market

Option 3

Pension of 19.8k pa , tax fee PCLS of £132k and an UFPLS of the remainder of the AVC fund of £383K

This represents 84.98% of LTA

I have no immediate need for the PCLS (mortgage free , kids through University etc) so would be planning to transfer to Stocks and Shares ISAs as annual allowances would let me.

I have no desire to purchase an annuity and prefer the idea of having a flexible drawdown arrangement  that I can use to top up annual income avoiding paying higher rate income tax i.e £50 k -19.8k -7K -any earnings drawing down the required amount to equal £50K

The DB scheme allows for 20 time the annual benefit to be used to calculate the capital value of the DB scheme for PCLS purposes with the PCLS ( Just under £100k) being taken from the AVC fund , I was hoping that I would be able to transfer the remaining £415K of the AVC fund to a SIPP and immediately .put that into drawdown taking a further £104K PCLS and dipping into flexi drawdown as required but this is not an option that has been offered.

The UFPLS option as i understand it would result in an enormous one time tax charge so is a non runner.

I have asked the pension administrators whether it is possible to transfer part of my AVC fund to a SIPP so that there is only enough left in the scheme AVC fund to fund the PCLS that the capital value of the  DB pension qualifies me for and I am waiting for an answer to this.

I would appreciate your thoughts as to whether I am missing any better strategy and also, do you think that  the administrators just need me to be more specific about a bespoke option  eg if option 2 only had a PCLS of the DB capital amount qualifying then the residual AVC fund would then be able to be transferred to an alternative pension arrangement like in option 1

Many thanks for hanging on on there with this long post

draiggoch

I would wait to see what their answer is to your question, as option 2 seems best. I would have thought if you can buy an annuity on the open market then you should be able to transfer the  crystallised remnants of your AVC  to another provider either to buy the annuity or for drawdown.

wjr4

I’d exclude option 3 if you have an inheritance tax issue as the money withdrawn will be in your estate, best to keep in a pension for inheritance tax purposes. 

zagfles

wjr4 said:

I’d exclude option 3 if you have an inheritance tax issue as the money withdrawn will be in your estate, best to keep in a pension for inheritance tax purposes. 

And far more significantly, and immediately, a massive income tax bill, £287k added to taxable earnings!! Maybe £120-130k income tax now!

Odd that the scheme allow a full AVC transfer to another arrangement but not a partial transfer, and insist on either an annuity or UFPLS.

CTFC

zagfles said:

wjr4 said:

I’d exclude option 3 if you have an inheritance tax issue as the money withdrawn will be in your estate, best to keep in a pension for inheritance tax purposes. 

And far more significantly, and immediately, a massive income tax bill, £287k added to taxable earnings!! Maybe £120-130k income tax now!

Odd that the scheme allow a full AVC transfer to another arrangement but not a partial transfer, and insist on either an annuity or UFPLS.

Agreed, it seems odd that the UFPLS option is even offered, I struggle to see a situation where that option could possibly be a good idea unless the UFPLS is a trivial amount , I am hoping that the options that they have provided are a subset of what may be possible, each question to the administrators takes 10 working days to turn around so I am still waiting for further clarification.

Thanks to all for your thoughts

zagfles

CTFC said:

zagfles said:

wjr4 said:

I’d exclude option 3 if you have an inheritance tax issue as the money withdrawn will be in your estate, best to keep in a pension for inheritance tax purposes. 

And far more significantly, and immediately, a massive income tax bill, £287k added to taxable earnings!! Maybe £120-130k income tax now!

Odd that the scheme allow a full AVC transfer to another arrangement but not a partial transfer, and insist on either an annuity or UFPLS.

Agreed, it seems odd that the UFPLS option is even offered, I struggle to see a situation where that option could possibly be a good idea unless the UFPLS is a trivial amount , I am hoping that the options that they have provided are a subset of what may be possible, each question to the administrators takes 10 working days to turn around so I am still waiting for further clarification.

Thanks to all for your thoughts

Even if the UFPLS was a trivial amount it might sometimes be a bad idea because it'll trigger the MPAA (ie reduce your annual allowance for DC to £4k).

wjr4

zagfles said:

wjr4 said:

I’d exclude option 3 if you have an inheritance tax issue as the money withdrawn will be in your estate, best to keep in a pension for inheritance tax purposes. 

And far more significantly, and immediately, a massive income tax bill, £287k added to taxable earnings!! Maybe £120-130k income tax now!

Odd that the scheme allow a full AVC transfer to another arrangement but not a partial transfer, and insist on either an annuity or UFPLS.

Was quickly replying yesterday and forgot to mention that part! 

CTFC

draiggoch said:

I would wait to see what their answer is to your question, as option 2 seems best. I would have thought if you can buy an annuity on the open market then you should be able to transfer the  crystallised remnants of your AVC  to another provider either to buy the annuity or for drawdown.

A quick update, having spoken to the pensions administrators they are able to as you described and transfer the crystalized  remnants to a HL drawdown product, its unclear why they didn't state this in the option description but it is exactly the scenario I wanted so a very worthwhile exercise asking the question.

Now I have the issue of trying to at least protect PCLS from inflation

Thanks again all for your input