Got a DB and DC pension scheme, I don't want to commute any DB for tax-free cash, Can I?

RogerPensionGuy

michaels said:

RogerPensionGuy said:

Quote from a recent previous post here below.

Envious much as I have a commutation rate of just 12x on the DB and only 700k in the DC pot

Yes, think I've fallen very lucky fingers crossed, I was so close to activating my DB pot to mitigate that silly football LTA, but just half off.

Now the LTA is essentially history. 

X rate from 22.5 to 25.

With the personal tax bands Currently frozen till April 2028 and I really don't think they can move the date forward as the huge extra tax take is in the plan and they better leaving it there, planning on these tax bands stuck till April2028, chopping TFLS out of the DC pot is looking a very sensible way forward. 

RogerPensionGuy

Just an update on this thread and my initial posting and possible view.

From the video below, it appears picking out TFLS across different pension pots in the most flexible way won't be possible from April 2024.

Also no mention of expecting Labour to retrospectively to negatively reduce the LTA, so hopefully if they re-invent the LTA, they will do as previously and allow various sensible protections, time will tell.
.
https://www.youtube.com/watch?v=yiJGV9cvCeU&t=219s

Notepad_Phil

RogerPensionGuy said:

...
From the video below, it appears picking out TFLS across different pension pots in the most flexible way won't be possible from April 2024.
...

If they had allowed it then theoretically someone could take a DB pension income of £25k early at 55 with no lump sum, then continue to work for say 10 years and provided their earned income was at least £25k they could open up a new SIPP and put the DB income of £25k away every year. Assuming even a modicum of performance then probably well before the 10 years was up they would be able to take the full pot of £250k out tax-free. I think allowing this theoretical person to take the 25% of whatever the pot actually grows to is as much as anyone could realistically expect.

RogerPensionGuy

Just an update.

After much pondering, I am activating my DB pension just after 6th April 2024 and taking the max TFLS as the rate was X 25 and on balance it feels correct to me.

I am intending to just let my DC pot cook and only draw out if I need any more cash flows.

My next 1st world problem is where to put 190K TFLS cash I will get in April, ISAs are fully paid up ongoing and with my DB 27K-ish income plus cash savings getting 5% interest I will be in to paying 40% tax and my tail wagging dog thinking is getting the better of me.

I was casually previously thinking a GIA was simple with that old 12K PA allowance, however it goes to 3K PA next month and yes I will do the GIA route, but selling and buying 3K shares every year just seams such a hassle and time wasting, I would like a set and forget system..

 I will ask a possible silly question, I know how to buy annuities and how the income is taxed, I am just wondering if I can buy sum-think like an annuity with liquid cash I have and can I only be taxed on the interest if you see what I mean, example, I give an annuity company 120K and ask for 120 monthly payments/10 years, then they pay me 1.4K PM for the 10 years, is it anyhow possible than only £400 PM would be subject to tax?

I think what I am asking above is not possible, but maybe there is something or product that can produce what I am after. Any views or pointers are most welcome. 

I think there are NS&I accounts that let you lock money away and it will pay taxable interest per month, but then at the end of the term, will have to deal with a big chunk of cash again and I just want a set and forget system.

FIREDreamer

RogerPensionGuy said:

Just an update.

After much pondering, I am activating my DB pension just after 6th April 2024 and taking the max TFLS as the rate was X 25 and on balance it feels correct to me.

I am intending to just let my DC pot cook and only draw out if I need any more cash flows.

My next 1st world problem is where to put 190K TFLS cash I will get in April, ISAs are fully paid up ongoing and with my DB 27K-ish income plus cash savings getting 5% interest I will be in to paying 40% tax and my tail wagging dog thinking is getting the better of me.

I was casually previously thinking a GIA was simple with that old 12K PA allowance, however it goes to 3K PA next month and yes I will do the GIA route, but selling and buying 3K shares every year just seams such a hassle and time wasting, I would like a set and forget system..

 I will ask a possible silly question, I know how to buy annuities and how the income is taxed, I am just wondering if I can buy sum-think like an annuity with liquid cash I have and can I only be taxed on the interest if you see what I mean, example, I give an annuity company 120K and ask for 120 monthly payments/10 years, then they pay me 1.4K PM for the 10 years, is it anyhow possible than only £400 PM would be subject to tax?

I think what I am asking above is not possible, but maybe there is something or product that can produce what I am after. Any views or pointers are most welcome. 

I think there are NS&I accounts that let you lock money away and it will pay taxable interest per month, but then at the end of the term, will have to deal with a big chunk of cash again and I just want a set and forget system.

There are purchased life annuities you can buy with non pension cash. The return of capital proportion (roughly = purchase money / remaining life expectancy) is tax free, just the interest payable (the rest) is taxable. Bit of a niche product these days, I don’t know who might sell them now.

shortseller09

RogerPensionGuy said:

 I will ask a possible silly question, I know how to buy annuities and how the income is taxed, I am just wondering if I can buy sum-think like an annuity with liquid cash I have 

Just in case you don't realise, it is 'something'...

leosayer

I'm having trouble getting my head around the concept of commuting part of your DB pension for tax free cash and then using that cash to buy an annuity.

Malthusian

leosayer said:

I'm having trouble getting my head around the concept of commuting part of your DB pension for tax free cash and then using that cash to buy an annuity.

Tax free cash is, er, tax free, whereas if you convert it into DB pension it is taxable. And the "income" from a purchase life annuity is partially tax-free as it is deemed to be your own money coming back to you. So an uncommuted DB pension is wholly taxable, whereas a purchase life annuity bought with tax free cash is partially tax free (within the lifetime limits).

Just for that reason, it is not as crazy an idea as it might sound. Particularly for someone who is a higher rate taxpayer in retirement. 

It might well still be unattractive because a) the terms for commuting tax free cash (the amount of income you have to give up for every £1 of lump sum) vary from scheme to scheme, and b) purchase life annuities have lower rates than pension annuities, due to being a niche product with limited competition and a self-selecting mortality pool.

RogerPensionGuy

Tks for all the postings.

Pensions have been a moving feast for me, the LTA removal was massive for me, I am trying to juggle as I walk the walk, I am trying to find sweet spots, but its like musical chairs and I am trying trying to keep open various options.

Due to my personal position I felt and still feel taking max DB TFLS at X 25 rate is the best option.

My DC allows enough cash flows to plonk me again in the 40% Income Tax, so trying to pick my best pathway through all these 40% nets if possible and if/when I am paying 40% I will try to achieve max value in growth inside pension or ISA products.  

RogerPensionGuy

FIREDreamer said:

RogerPensionGuy said:

Just an update.

After much pondering, I am activating my DB pension just after 6th April 2024 and taking the max TFLS as the rate was X 25 and on balance it feels correct to me.

I am intending to just let my DC pot cook and only draw out if I need any more cash flows.

My next 1st world problem is where to put 190K TFLS cash I will get in April, ISAs are fully paid up ongoing and with my DB 27K-ish income plus cash savings getting 5% interest I will be in to paying 40% tax and my tail wagging dog thinking is getting the better of me.

I was casually previously thinking a GIA was simple with that old 12K PA allowance, however it goes to 3K PA next month and yes I will do the GIA route, but selling and buying 3K shares every year just seams such a hassle and time wasting, I would like a set and forget system..

 I will ask a possible silly question, I know how to buy annuities and how the income is taxed, I am just wondering if I can buy sum-think like an annuity with liquid cash I have and can I only be taxed on the interest if you see what I mean, example, I give an annuity company 120K and ask for 120 monthly payments/10 years, then they pay me 1.4K PM for the 10 years, is it anyhow possible than only £400 PM would be subject to tax?

I think what I am asking above is not possible, but maybe there is something or product that can produce what I am after. Any views or pointers are most welcome. 

I think there are NS&I accounts that let you lock money away and it will pay taxable interest per month, but then at the end of the term, will have to deal with a big chunk of cash again and I just want a set and forget system.

There are purchased life annuities you can buy with non pension cash. The return of capital proportion (roughly = purchase money / remaining life expectancy) is tax free, just the interest payable (the rest) is taxable. Bit of a niche product these days, I don’t know who might sell them now.

https://www.drewberryinsurance.co.uk/pensions-advice/faqs/what-is-a-purchased-life-annuity