Do I rob Pension Peter to pay Pension Paul?

Sallyforth

Long story short I am 61 and took "early retirement" 4 years ago following an inheritance.  My SP doesn't kick in for another 5.5 years and it is fully contributed so no issues there.

We paid our mortgage off just before my unexpected inheritance using some existing capital and drawdown on my work pension which in hindsight was probably foolish but gave us peace of mind at the time.  It is done so no point crying over spilt milk.

So, no mortgage, no kids and my OH has his SP plus a small monthly annuity of c. £60 on top.  Our capital is c. £400K in cash savings - some fixed at reasonable rates now. We are getting by and now savings interest rates are in our favour managing not to eat into capital which is good news.

Without overthinking I wonder whether I should be doing some more with my two Standard Life pensions worth a combined c. $50K to make them more tax efficient before I draw upon my SP.  I have transferred some of my inheritance to my husband to make sure we don't pay tax but that was before I realised I could effectively earn £18k before tax.

One pension is currently worth c. £13k and it is work one I can't contribute to.  The other is personal so as a non tax payer I can pay in £2880 a year and receive a tax benefit of £720.  As I have drawn down already I know I am limited with options but very ignorant.

So my query is would it make sense to draw down on the lower work pension up to my SP age and put that into my personal pension to mitigate tax once my SP kicks in?  I know I can defer my SP to 70 which could make sense too but getting a bit confused.  I do have the capital to pay into the personal pension and have done so for the past four years since I stopped working to gain the tax benefit.

Any comments would be greatly appreciated and happy to provide further detail if it helps.

SF

Linton

Rather than your small pension pots I would be more concerned about your £400K in cash.  If you are using the interest from it for living expenses it will be streadily losing value to inflation.

Have you worked out how much income you will need from now to SP age, and from then on (all inflation linked) into potentially extreme old age to enable you to continue to enjoy the standard of living you would want? Only then will you know how whether the £400K will last out and, if not, how else you can use that large lump sum.

In my view 2 pensions worth a total of £50K really are a small matter in comparison.  I assume from what you say that your tax alllowance is largely used by the interest on the £400k.  If there is some spare you could drawdown the pensions over time just to remove them as a distraction.

  

Albermarle

I can only agree with the above. The thing that stood out from your post is that you are holding £400K in cash.
If you had say £2 million in investments, then it could be a good balancing strategy to hold so much cash, but it should not be your main financial asset.

Our capital is c. £400K in cash savings - some fixed at reasonable rates now. We are getting by and now savings interest rates are in our favour managing not to eat into capital which is good news.

I am afraid this statement is not correct. At the moment you may be earning say 4% interest. Inflation is around 11%, so the spending power of your cash is eroding by 7%. So in terms of what you can buy that £400K will become £372K in just one year.
Of course todays inflation is expected to die down, but historically on average cash savings rates undershoot inflation, whilst investments grow more than inflation ( not in 2022 and many other years, but over the long term)

I think you need a wider review of your finances going forward.

Marcon

Sallyforth said:

Long story short I am 61 and took "early retirement" 4 years ago following an inheritance.  My SP doesn't kick in for another 5.5 years and it is fully contributed so no issues there.

We paid our mortgage off just before my unexpected inheritance using some existing capital and drawdown on my work pension which in hindsight was probably foolish but gave us peace of mind at the time.  It is done so no point crying over spilt milk.

So, no mortgage, no kids and my OH has his SP plus a small monthly annuity of c. £60 on top.  Our capital is c. £400K in cash savings - some fixed at reasonable rates now. We are getting by and now savings interest rates are in our favour managing not to eat into capital which is good news.

Without overthinking I wonder whether I should be doing some more with my two Standard Life pensions worth a combined c. $50K to make them more tax efficient before I draw upon my SP.  I have transferred some of my inheritance to my husband to make sure we don't pay tax but that was before I realised I could effectively earn £18k before tax.

One pension is currently worth c. £13k and it is work one I can't contribute to.  The other is personal so as a non tax payer I can pay in £2880 a year and receive a tax benefit of £720.  As I have drawn down already I know I am limited with options but very ignorant.

So my query is would it make sense to draw down on the lower work pension up to my SP age and put that into my personal pension to mitigate tax once my SP kicks in?  I know I can defer my SP to 70 which could make sense too but getting a bit confused.  I do have the capital to pay into the personal pension and have done so for the past four years since I stopped working to gain the tax benefit.

Any comments would be greatly appreciated and happy to provide further detail if it helps.

SF

If you have £400K in cash, spending some of it on getting some proper financial advice, based on a full fact find covering all aspects of your situation, attitude to risk etc would seem a very good use of your money. A few paragraphs on a public forum might throw up some interesting responses/pointers, but they will be hopelessly under-informed because there is next to no information on which to base them.

xylophone

OP, if you wish to take financial advice, you could try 

https://adviserbook.co.uk/

ticking "confirmed independent" and such other specialisms required when the menu comes up.