Order in which to take pension assets

Adpro2

Brie said:

Just wondering if you have the DB amounts correct.  Is 58 the normal retirement age?  Is £25k & £4k pa the amount you get at 58 or NRA?  If your NRA is 60 for instance there will be a discounted amount for taking it 2 years early.  Likely you already know all this and I'm just stating the obvious.

Beyond that I'd say take the DBs and leave the other stuff til the stock market is in a better place.  (that's what I've done.)

The DB amounts include the early retirement discount. NRA would be 67 with £40k & 5k.

Adpro2

Pipthecat said:

All that I have read suggests using the least tax efficient assets first 

Dividend and Personal Savings Allowances are just £1000 each this year (booo!).  Assuming you hold 50k of PBonds then you still have over £280k of unwrapped investments bringing in dividend and interest income.  As mentioned above would be good to max out your ISA allowance and top up your SIPP to the allowed maximum.

Sorry to hear you had a bad IFA experience.  I would take the transferring of the pensions off the table and maybe look for a good financial planner to help you map out a tax efficient retirement plan.

Reduced savings & dividend allowances have made a difference. Agree I think I need a road map on tax efficiency until I can wrap as much as possible. 

dunstonh

Adpro2 said:

dunstonh said:

Reluctant to use an IFA after previous bad experiences of them.

All 15,000 of them?

All that I have read suggests using the least tax efficient assets first but Im not clear on why this is 

All tax wrappers can invest in the same investments.   The only difference is taxation and process.   So, it makes sense that you do it in an order of tax efficiency.

When it comes to selling investments it makes sense to sell your unwrapped shares first, before your SIPP, or ISA. 

I disagree.  With personal allowance available, it makes sense to use the pension for that chunk. (noting that there is no mention of when the DB pensions will start).

It looks like this scenario will be multi-wrapper draws rather than one at a time, along with bed & pension and bed & ISA  (and utilising spouse, if one)

Take your point on my bad luck with IFA's to date. Planned to put surplus saving into ISAs as tax year allow. Would an IFA be able to model a multi-wrapper scenario?

Yes.  It is things like that where an IFA can add value.   Remember IFA, not FA (over half of people seeing an FA think they are seeing an IFA)

xylophone

If looking for an IFA you might try

https://adviserbook.co.uk/

Tick "confirmed independent" and specialisms required when the menu comes up.

RogerPensionGuy

Adpro2 said:

Reluctant to use an IFA after previous bad experiences of them.

Plan to retire in 6 months time at 58, basis tax rate payer. All that I have read suggests using the least tax efficient assets first but Im not clear on why this is or whether it suits my circumstances. I would have thought leaving the investments that have the most growth potential should be used last. Any insight would be good.

My position is as follows:

DB Pension 25k pa. (Increases 1,700 pa each year I defer it. Transfer value 450k)

DB Pension 4k pa. (capped final salary. Transfer value 110k)

Shares 150k (4% div approx.)

SIPPs 95k

ISAs 100k

Savings/Premium bonds etc 181k

Looks like nice numbers on your books.

You have lots of choices.

The one I would ensure you fully understand is that DB @ 25K @ 58 and ramps up 1.7K PA. 

My guess is the ramping up is a % every year due delaying activation and any inflation plonked ok, the % ramping up for deferring will probably just become a bigger % every year or every month. 

This big DB may have great benefits attached to it, these need full thinking about. 

25K and 1.7K is looking like a 6.8% increase PA, guessing this 6.8% figure will slide up to 7 and 8% in not many years and allowing a good DB scheme to put on weight in these next few years will make decisions later in life nice and easy.

Adpro2

Ok advice boils down to this.

1. Live on cash, interest & dividends to delay taking DB pension for 4/5 yrs.

2. Maximise future annual ISA/SIPP allowances.

3. Take DB lump sum in 4/5 yrs to replenish savings to comfortable level. Remaining pension will only just be above income tax threshold.

4. Dip into SIPP if required but leave to grow for inheritance.

5. See where we are at state pension age.

Any glaring pitfalls to this approach?

Bimbly

Adpro2 said:

Any glaring pitfalls to this approach?

Take out pension income up to personal tax allowance every year.

Qyburn

Adpro2 said:

2. Maximise future annual ISA/SIPP allowances.

This will be the last tax year in which you can make any significant SIPP contribution, so worth maximising it to get more money inside its protection.

4. Dip into SIPP if required but leave to grow for inheritance.

Towards the end of next tax year, review whether you have any personal allowance not used by savings interest.  If so, take lump sum from SIPP to use it up. Same for future tax years until you start drawing DB or SP.

I'm assuming you're currently earning so personal allowance for 2023/24 will already be used.

 

hara____

Is the DB lump-sum commutation rate a consideration for step 3?

May also be worth thinking about direct holdings of low coupon gilts if your ISA allowance quickly feels limiting. Tax efficient and could work for your 4/5 year timeframe.

sevenhills

Adpro2 said:

Plan to retire in 6 months time at 58, basis tax rate payer.

Can you pay into your pension or SIPP, so that you don't pay any income tax in your last year?