Thoughts Appreciated

Albermarle

I need to think through the company pension thing. If I'm paying 40% tax in both retirement and employment then I don't quite see how I'm losing out by stopping my pension payments now.

I don't think you mentioned in your OP that you will be a 40% taxpayer in retirement. It is rather unusual/ a lot rarer than paying 40% tax in employment, and it does for sure swing the equation against more pension contributions in general, with an LTA charge in prospect.

As Pat38493 has detailed, it is not totally cut and dried, but it does have a significant effect.

I don't have any personal recommendations for pension specialist IFAs and am not sure how to find one.  Unbiased isn't attractive and a Google search doesn't feel a great way to find a technical specialist for some one-off advice.  

As far as I understand, all IFA's should be 'pension specialists' as pensions are a major part of their daily work, probably the biggest part. Also the amounts you are talking about would be in the usual range that a typical IFA would handle.

Of course the interaction of all the different potential scenarios in your case, would indicate you would need an experienced IFA with a good reputation, as opposed to some stripped down lower cost service done over zoom.

NoMore

Yes I also missed the 40% tax payer in retirement, that does make it much closer for opting out of pension.

However, with your other savings/investments and your wife's tax allowances, is there not some way to achieve your 60k a year income without incurring HRT, or at least minimising it.

Pat38493

megacatt said:

Thanks Pat and Money Saving Gerbil.  

It's getting a bit theoretical but if we're considering the growth on continuing contributions then we should also consider growth on the non-crystallized DC pot.  This potentially (hopefully!) increases the liability if the LTA remains frozen, making more of a case for freezing through crystallization now and allowing the residual pot to grow having locked-in the LTA %.

Pat38493 said:

In reality, OP has an opportunity to stay within 20% tax rates (or even better) for some years prior to when his state pension kicks in given the level of ISA savings already in place.  If you have a few years of 20% tax in retirement it becomes much more clear that continuing to put money into the pension is better.

Also - OP should confirm that  his £40K DB pension is indeed fully deferred and only subject to statutory revaluations, and has no dependency on his current salary or benefits (to make sure there is no possible additional LTA liability possible there).

Additionally is £40K DB pension at NRA really the real terms figure today?  I ask because when I asked my DB pension for an estimate of my real terms pension at NRA, what they sent me wasn't in real terms - they had actually added 2.5% compounded inflation forecast to NRA on top.  

Good point re. sources of income for some years to reduce marginal tax rate.

The DB is fully deferred and only subject to statutory revaluations.  It is in today's money and will have potentially 8 more revaluations.

The point about taking the LTA charge as a commuted lump sum from the DB pension is not one I'd considered.  I guess I'd assumed that it would be taken as an additional tax charge from income paid from the DB (I can see that this doesn't work now that I think about it).  Or a lump sum tax bill that I'd pay from wherever I chose.  I will investigate options.

I don't have any personal recommendations for pension specialist IFAs and am not sure how to find one.  Unbiased isn't attractive and a Google search doesn't feel a great way to find a technical specialist for some one-off advice.  

As an aside just typing this stuff (and using words like crystallization) is very useful so thank you.  

Well actually a lot of the plan you outlined in your original OP seems reasonable to me.  It's just point 1 about stopping employer contributions I would question - looking at your figures, it looks to me like you can probably continue to contribute, and manage your tax affairs so that you only pay 20% income tax up to SP age for at least some of the years.  If you can do that and withdraw quite a bit of your DC pots at 20% income tax, it becomes almost impossible to be worse off than if you stop the employer pension contributions.  To me this feels like a better strategy than trying to avoid LTA by cancelling employer contributions - try to pull out as much as you can from DC before you become a 40% tax payer and re-invest it in the same or similar funds in the most tax efficient way possible outside the pension.

Regarding your DB pension, if you take your DB pension at NRA based on it being worth 40K now, there's a chance that just your DB pension alone will use your entire LTA if inflation remains high.  That's maybe an argument for one of the points in your original mail about taking the DB pension earlier.  I think that taking an LTA charge directly on your DB pension is a pain in the rear end - you have the option to pay the tax charge yourself if you have the money available, or you can ask them to commute the pension instead, but the latter probably means you have to do some more maths to figure things out.

Either way, if you crystallize £340K at 55 in order to get your tax free cash you will use 31% of your LTA at that time.  

If you then put your DB pension into payment with 2.5% inflation till NRA, that will use a further 90% so you are already 20% above.  It's in this scenario that I would give some consideration to taking the DB early as you propose in your first post.  The other advantage of this is that you keep more of your other assets invested for longer so if you are lucky enough to get a good sequence of returns you will most certainly end up better off in the long run.

That's a pretty generous DB pension to have already accrued by your age by the way - you have done well

Your other option is to gamble that the LTA will go up at some point - this is far from certain but there are some pushes for this now because it's starting to be seen as an perverse incentive to retire early.  In this case you would just carry on paying in and fingers crossed - you will be ok either way from your assets anyway.

The other question is legacy - if you want to pass on a portion of your wealth, leaving it in pension wrappers can be helpful even with LTA considerations - again might need some detailed advice.

Regarding finding a financial adviser, I think there are others on here who could comment better on that.  I have only ever spoke to one financial adviser and that was through a personal recommendation from a colleague - when I am getting ready to retire I will probably pay him for some one off advice, if only just to validate my plan.

Marcon

megacatt said:

Good point re. wills. We have them but not explicitly covering guardianship. It's obvious in the family what would happen but best to be clear. Not a misery thing at all, this whole forum is about planning for death (sort of!).

Could I flag that if your wills don't specifically provide guardianship details, it won't be your family who take the decisions about your child's future, however crystal clear it may be to the family what the obvious course of action is. It'll be a court decision, probably with involvement from local social services - easily avoidable by ensuring your wills cover the matter. 

MoneySavingGerbil

Pat38493 said:

I think that taking an LTA charge directly on your DB pension is a pain in the rear end - you have the option to pay the tax charge yourself if you have the money available, or you can ask them to commute the pension instead, but the latter probably means you have to do some more maths to figure things out.

@Pat38493 have you ever seen this done in practice and is it wide spread amongst DB schemes i.e. ability to pay the charge yourself? Every DB scheme I've seen the details for online just says that they'll recover the LTA charge by permanently reducing your pension. If it is is an option, then it's one I think my wife would want to take.

Pat38493

MoneySavingGerbil said:

Pat38493 said:

I think that taking an LTA charge directly on your DB pension is a pain in the rear end - you have the option to pay the tax charge yourself if you have the money available, or you can ask them to commute the pension instead, but the latter probably means you have to do some more maths to figure things out.

@Pat38493 have you ever seen this done in practice and is it wide spread amongst DB schemes i.e. ability to pay the charge yourself? Every DB scheme I've seen the details for online just says that they'll recover the LTA charge by permanently reducing your pension. If it is is an option, then it's one I think my wife would want to take.

OK so maybe I'm wrong with DB schemes - I think with DC you have the option to directly pay the tax so I assumed you could also do that with DB but perhaps I am wrong.  I am not by any means an expert in this area - most of my knowledge comes from reading items like postings on this forum.

Albermarle

 most of my knowledge comes from reading items like postings on this forum.

Same for most of us I think, apart from a better informed few .