Paying into pension after early retirement

ossie48

Dazed_and_C0nfused said:

ossie48 said:

Dazed_and_C0nfused said:

ossie48 said:

One more question If I could.

I cashed in a DB pension two years back, funds now with Royal London 5.  We're now drawing it down (hence facilitating my wifes early retirement). Having taken a 20% tax free lump sum in 2020 I'll be approaching the point where my monthly draw down will be taxed. Could I do likewise regarding a SIPP that may help mitigate the tax loss although appreciate not fully (or are there any better suggestions).  

Perhaps you could clarify this.

Do you mean you took the CETV from a DB scheme and moved it to a DC pot?

Why 20% TFLS, did you only crystallise part of the pot?

What is changing now that means you will start paying tax?

More often than not SIPP's don't save people any income tax.  They just benefit from the pension tax relief.  Were you expecting to pension tax relief and an income tax saving?

I think I'm confusing myself. Yes I cashed in a small DB pension (approx £110k ). My IFA put it into Royal London 5. I initially took £20k (not 20%) as a lump sum out of RL 5 and have started drawing down the rest. I understand I'll pay tax on 75% of this pot once I've taken out the first 25%. 

I'm in receipt of another DB pension (£38k a year but only £24k is taxable ) and I don't work. However reading the posts above it appears I'm asking the impossible. Thanks anyway, I'll certainly explore this for my wife.

Do you mean you have only taken tax free lump sums from the Royal London 5 pension?

Taking multiple TFLS payments like that seems an unusual strategy (to me at least!).

Each time you take a TFLS you crystallise part of your pension so the initial £20k TFLS meant you crystallised £80k. 

You took £20k tax free but the if the taxable £60k grows to say £75k then the whole £75k is taxable income when taken out of the pension.

My IFA asked me on transfer if I wanted to take an initial tax free lump sum, so we took £20k. I then started drawing it down and was told they'd contact me when I reach the point of paying tax. It did indeed go up in value then dropped after the recent unrest but not much .Should my IFA at the time have advised me differently ? I'm drawing £800 a month. 

Dazed_and_C0nfused

Do you know what you are drawing down?

Is it all TFLS or are you taking some taxable income?

If you are taking TFLS no problem (tax wise) but you don't seem sure what's actually happening so it's entirely possible you could be building up a big tax bill.  For example if you are taking taxable income from Royal London 5 but they are using the emergency tax code (1257L) you might owe 20% tax on all of the taxable income taken.

Your IFA should be providing a strategy that meets your objectives, whatever they are.

Personally I probably wouldn't have taken the risk of giving up a DB pension but having the guaranteed £24k probably made that a viable option.

Albermarle

ossie48 said:

Dazed_and_C0nfused said:

ossie48 said:

Dazed_and_C0nfused said:

ossie48 said:

One more question If I could.

I cashed in a DB pension two years back, funds now with Royal London 5.  We're now drawing it down (hence facilitating my wifes early retirement). Having taken a 20% tax free lump sum in 2020 I'll be approaching the point where my monthly draw down will be taxed. Could I do likewise regarding a SIPP that may help mitigate the tax loss although appreciate not fully (or are there any better suggestions).  

Perhaps you could clarify this.

Do you mean you took the CETV from a DB scheme and moved it to a DC pot?

Why 20% TFLS, did you only crystallise part of the pot?

What is changing now that means you will start paying tax?

More often than not SIPP's don't save people any income tax.  They just benefit from the pension tax relief.  Were you expecting to pension tax relief and an income tax saving?

I think I'm confusing myself. Yes I cashed in a small DB pension (approx £110k ). My IFA put it into Royal London 5. I initially took £20k (not 20%) as a lump sum out of RL 5 and have started drawing down the rest. I understand I'll pay tax on 75% of this pot once I've taken out the first 25%. 

I'm in receipt of another DB pension (£38k a year but only £24k is taxable ) and I don't work. However reading the posts above it appears I'm asking the impossible. Thanks anyway, I'll certainly explore this for my wife.

Do you mean you have only taken tax free lump sums from the Royal London 5 pension?

Taking multiple TFLS payments like that seems an unusual strategy (to me at least!).

Each time you take a TFLS you crystallise part of your pension so the initial £20k TFLS meant you crystallised £80k. 

You took £20k tax free but the if the taxable £60k grows to say £75k then the whole £75k is taxable income when taken out of the pension.

My IFA asked me on transfer if I wanted to take an initial tax free lump sum, so we took £20k. I then started drawing it down and was told they'd contact me when I reach the point of paying tax. It did indeed go up in value then dropped after the recent unrest but not much .Should my IFA at the time have advised me differently ? I'm drawing £800 a month. 

Sometimes it is better to take payments that are a mixture of tax free and taxable, rather than use up the tax free first.
It depends on your situation how best to play it.

Audaxer

ossie48 said:

Dazed_and_C0nfused said:

ossie48 said:

One more question If I could.

I cashed in a DB pension two years back, funds now with Royal London 5.  We're now drawing it down (hence facilitating my wifes early retirement). Having taken a 20% tax free lump sum in 2020 I'll be approaching the point where my monthly draw down will be taxed. Could I do likewise regarding a SIPP that may help mitigate the tax loss although appreciate not fully (or are there any better suggestions).  

Perhaps you could clarify this.

Do you mean you took the CETV from a DB scheme and moved it to a DC pot?

Why 20% TFLS, did you only crystallise part of the pot?

What is changing now that means you will start paying tax?

More often than not SIPP's don't save people any income tax.  They just benefit from the pension tax relief.  Were you expecting to pension tax relief and an income tax saving?

I'm in receipt of another DB pension (£38k a year but only £24k is taxable ) and I don't work. 

That is a very nice DB pension to have. If my calculations are correct, that will be giving you an income of just over £33k after tax. That alone is a good retirement income for most couples, with you and your wife's other pots providing additional spend when you need it. With that and State Pensions to come I would think you are in line for a very comfortable retirement, no matter what you do. 

ossie48

Dazed_and_C0nfused said:

Do you know what you are drawing down?

Is it all TFLS or are you taking some taxable income?

If you are taking TFLS no problem (tax wise) but you don't seem sure what's actually happening so it's entirely possible you could be building up a big tax bill.  For example if you are taking taxable income from Royal London 5 but they are using the emergency tax code (1257L) you might owe 20% tax on all of the taxable income taken.

Your IFA should be providing a strategy that meets your objectives, whatever they are.

Personally I probably wouldn't have taken the risk of giving up a DB pension but having the guaranteed £24k probably made that a viable option.

I'm drawing £800 a month and I'm told its tax free up until October (approximately) when I'd be notified I'd start paying tax on the payments. I presumed that would be my 25% used up. I can log in an see everything.

You worried me when you said 'taking multiple TFLS was an unusual strategy' but are now saying its no problem ?

The objective was to take £20k and draw the rest down so my wife could retire 5 years early (which she's done) until she gets her DB pension at 60.   

ossie48

Audaxer said:

ossie48 said:

Dazed_and_C0nfused said:

ossie48 said:

One more question If I could.

I cashed in a DB pension two years back, funds now with Royal London 5.  We're now drawing it down (hence facilitating my wifes early retirement). Having taken a 20% tax free lump sum in 2020 I'll be approaching the point where my monthly draw down will be taxed. Could I do likewise regarding a SIPP that may help mitigate the tax loss although appreciate not fully (or are there any better suggestions).  

Perhaps you could clarify this.

Do you mean you took the CETV from a DB scheme and moved it to a DC pot?

Why 20% TFLS, did you only crystallise part of the pot?

What is changing now that means you will start paying tax?

More often than not SIPP's don't save people any income tax.  They just benefit from the pension tax relief.  Were you expecting to pension tax relief and an income tax saving?

I'm in receipt of another DB pension (£38k a year but only £24k is taxable ) and I don't work. 

That is a very nice DB pension to have. If my calculations are correct, that will be giving you an income of just over £33k after tax. That alone is a good retirement income for most couples, with you and your wife's other pots providing additional spend when you need it. With that and State Pensions to come I would think you are in line for a very comfortable retirement, no matter what you do. 

Thanks. I appreciate we're fortunate in that regard. I only really mentioned my DB pension amount as folk start to question why I cashed one in. Regarding state pension, I haven't fully contributed so that's for another thread at another time.

I really do appreciate the responses on here, its invaluable as always.

xylophone

When she turns 55, she could use up to her personal tax allowance to draw out of the Barclays pension tax free, 

See  Scheme Guide (linked in my later post).

The Barclays Afterwork scheme itself does not offer drawdown.

Transfer to another scheme would be required to access this option.

As you approach the date at which you decide to take your retirement savings, you will need to decide how you want to use your Afterwork Total Account.

If you are a UK-based employee, when you access your retirement savings you can choose to:

• Buy a lifetime annuity on the open market from a provider of your choice.

• Transfer your Total Account to another scheme to access other options such as income drawdown (drawing your retirement savings as a number of taxed cash payments over time) or as a short-term annuity.

  You can transfer the value of your Credit Account and the value of your Investment Account separately.

• Take up to 25% of your Total Account as a tax- free cash sum (subject to any additional limits imposed by HMRC from time to time) and use the remaining amount to buy a lifetime annuity.

• Take up to 25%of your Total Account as a tax- free cash sum (subject to any additional limits imposed by HMRC from time to time) and take the remaining amount as taxed cash.

The OP's wife has the option of leaving her pension within the scheme and making a decision as to how to access it at a later date.

If you decide to leave Barclays or opt out of Afterwork, you have a number of options:

Leaving your retirement savings in Afterwork

You can leave your retirement savings in Afterwork. If you do this, your Credit Account will continue to receive any inflationary and discretionary investment-related increases applicable and your Investment Account will move in line with the investment performance of the funds in which it is invested. You will continue to be able to choose funds from those made available. You cannot make any further contributions into Afterwork and you will
not build up any future credits in your Credit Account. You will not be able to request a refund of your contributions, but you can transfer your retirement savings to another registered pension scheme. You can transfer the value of your Credit Account and the value of your Investment Account separately.

Transferring your retirement savings to another registered pension scheme
You can transfer your retirement savings to another registered pension scheme. If you wish to transfer the value of your Investment Account

and/or Credit Account in Afterwork, you should log on to ePA or contact the Barclays Team at Willis Towers Watson for a statement of your transfer value. Your Credit Account will be reduced by an amount agreed by the Trustee and Barclays to take account of the early payment. Charges or market value reductions may be applied to your Investment Account, depending on the funds it

is invested in.

The part of the transfer value relating to your Credit Account as confirmed in your transfer value statement will not change if you transfer your benefits within the period referred to on the statement. The part of your transfer value that relates to your Investment Account will not be guaranteed and will depend on the value of your chosen funds at the time they are sold.

You may transfer your retirement savings to one or more different pension providers. Different pension providers offer different options in relation to what you can do with your retirement savings, including the option to select an annuity. You should be aware that different options have different features, different rates of payment, different charges and different tax implications.