Thoughts on how to utilise wife's pension in retirement

GazzaBloom

We plan to use my workplace pension to live on when we retire, it will cover all living expenses and some discretionary "pocket money" via monthly drawdown. I see drawdown replacing my monthly employment wages, with 25% taken tax free each month and 75% taxable.

My wife has already retired early and has a Vanguard SIPP which we add £2,880 to each year to get the 25% top up. At the point of my retirement she should have accumulated around £70K. She is invested in a low cost 100% stocks index fund and we may only spend the annual growth in good years, say 5% (£3,500) for example

Our thinking is to use her pension for further discretionary spending such as car upgrades/holidays. The timing and amounts we will spend will be flexible, and it is envisaged we could skip years in market downturns etc.

We are toying with the thought of crystallising it all retirement date and taking the 25% TFLS and then using her income tax allowance of £12,570 each year to draw it all out and put it into a stocks and shares ISA and keep it invested but draw out money as we want.

What are the pros/cons of moving it all over to an ISA (or ISAs) vs leaving it in the Vanguard SIPP? 

• SIPP - withdrawals are taxable after the £12,570 and TFLS, fees are low
• ISA - no tax implications on withdrawals but fees marginally higher (but not by much)

Anything else to consider?

p00hsticks

You refer to retirement but don't say how old you are - Where do your State Pensions figure in all this, and have you ensured that you will both be getting the maximum, which would take up most of your tax allowance. 

GazzaBloom

p00hsticks said:

You refer to retirement but don't say how old you are - Where do your State Pensions figure in all this, and have you ensured that you will both be getting the maximum, which would take up most of your tax allowance. 

Ah yes, sorry, currently looking at finishing work at end of 2025, I will be 58 and wife 55 at my retirement date. We have full state pensions due at age 67 each.

Audaxer

GazzaBloom said:

We are toying with the thought of crystallising it all retirement date and taking the 25% TFLS and then using her income tax allowance of £12,570 each year to draw it all out and put it into a stocks and shares ISA and keep it invested but draw out money as we want.

That is what I was going to suggest as me and my wife plan to do something similar. The only difference I was thinking is to take one UFPLS payment once a year for the £12,570 plus 25% tax free, i.e. approximately £16.5k each year, rather than all the tax free amount at once. I don't think it really matters either way, as long as you can get it all moved into an S&S ISA before her State Pension kicks in. No point in keeping it in the SIPP to pay tax on it later.

GazzaBloom

Audaxer said:

GazzaBloom said:

We are toying with the thought of crystallising it all retirement date and taking the 25% TFLS and then using her income tax allowance of £12,570 each year to draw it all out and put it into a stocks and shares ISA and keep it invested but draw out money as we want.

That is what I was going to suggest as me and my wife plan to do something similar. The only difference I was thinking is to take one UFPLS payment once a year for the £12,570 plus 25% tax free, i.e. approximately £16.5k each year, rather than all the tax free amount at once. I don't think it really matters either way, as long as you can get it all moved into an S&S ISA before her State Pension kicks in. No point in keeping it in the SIPP to pay tax on it later.

Sounds good to me

Sea_Shell

+1 for drawing it out tax-free and moving to equivalent ISA before SP becomes payable.

That's what i'll be doing.   I've got to wait another 3 years to get my mitts on it.

Sea_Shell

Remember though (if relevant) pension pots don't count for IHT, so that could be a factor.

Audaxer

Audaxer said:

GazzaBloom said:

We are toying with the thought of crystallising it all retirement date and taking the 25% TFLS and then using her income tax allowance of £12,570 each year to draw it all out and put it into a stocks and shares ISA and keep it invested but draw out money as we want.

That is what I was going to suggest as me and my wife plan to do something similar. The only difference I was thinking is to take one UFPLS payment once a year for the £12,570 plus 25% tax free, i.e. approximately £16.5k each year, rather than all the tax free amount at once. I don't think it really matters either way, as long as you can get it all moved into an S&S ISA before her State Pension kicks in. No point in keeping it in the SIPP to pay tax on it later.

Another point to bear in mind, is that if she is also intending to pay in £2,880 each year to get the tax relief, the net annual deduction from the SIPP will be less, so a bit longer to get it all out and into an S&S ISA. However I think it is still worth paying in the £2,880 each year for the additional £720 tax relief.

Doctor_Who

Ditto to above. I've just started to use UFPLS at 55 to take ~£16.5K per year from my SIPP, the taxable part will use up my personal allowance in each of the next 10 years. I have a good DB pension from 65 and will have a full SP from 67; combined these will push me close to the Scottish higher rate tax band of 42%. Hence, any SIPP withdrawals after age 67 will have the taxable amount taxed at 42% (current figures, who knows what will happen in 10-12 years!). It makes sense to use allowances over the next ~10 years to withdraw ~£125K of the taxable SIPP income tax-free.

GazzaBloom

Thanks for comments all, sounds like common thinking