When to take final salary pension and other questions

gunnag

Hello, I will be 63 next January, and I'm considering taking my defined benefit pension on my birthday next year. The pension was earned with a large UK telecoms supplier, which I joined in 1991; in 2018, the scheme was closed and moved to a defined contribution scheme managed by Standard Life. I finally took redundancy last year but am still working and paying into an A J Bell SIPP.

I am now considering my retirement plans but feel that I have a few years more work left in me.

One of the reasons for taking my defined benefit pension two years early is that it won't grow much in the two years before I have to take it at 65. Another reason is that I have a BTL property where the fixed rate mortgage of 1.7% ends in March 2025, and I could take some of the £150k tax-free lump sum to repay the £180k interest-free mortgage.

Although taking the full tax-free lump sum reduces the yearly pension to around £24k, I feel that lowering the BTL mortgage will reduce my mortgage payments and I have to remortgage in March 2025. At the same time, the managing agent has been increasing the rent by £100 a year, so by 2025, the monthly rent should be £1450. The tenants are excellent and look after the property well, so I'm loathe to sell. However, taxation of landlords hasn't helped over the last few years but there doesnt seem to be much I can do about it.

I feel that if I can keep working, I will get my salary as well as my defined benefit pension and rental income. At the same time, I will be heavily contributing to my two defined contribution pensions.

By the time I'm 66, I can draw down my defined contribution pensions, which by then should be worth over £100k, and I can draw my state pension as well.

I would be interested in others' thoughts on whether this is a sensible plan or not.

The big issue is whether I should sell or keep my BTL property, if I sell, I'm burdened with a big CGT bill (the house is worth over £410k), if I keep it and use my pension tax-free lump sum to repay a approx 50% off the mortgage, could that money have been invested wisely elsewhere?

Thoughts and comments welcome.

player1_2

This sounds like a similar situation to me. I just received my DB pension from a large multinational and at age 63  am still working in another job. ( I also feel I have a few working years in me). 
I chose to take the TFLS and reduced monthly pension for two reasons. I wanted the funds to purchase a new property, and since I have no dependents my pension will die with me and I wanted to rescue some of the pension for family.
When I do retire I will have the DB pension that has just started paying out, a nice top up DB pension from my current job and a full SP,
I also have a significant DC pension and savings but I see the DC as rainy day money - I may never need it and at least I know my family will inherit it.

2nd_time_buyer

Without knowing how much you need. My gut feeling is that you have more than enough to retire now.

If you can retire in the way that you want without the BTL, why would you keep it? You are only one bad tenant or a major maintenance job away from a massive headache. 

I have a couple of BTLs and am hoping to be in a position to sell them before retirement.

Brie

wondering if you have a DB salary of £24k plus are working plus rental income if that pushes you into a higher tax bracket.  so maybe taking the DB is too much too soon??  No point in getting the pension reduced to take it early only to hand a hefty portion to the government.  

WYSPECIAL

You don’t want to sell the BTL now as you have excellent tenants. Do you intend to sell when they move on or do you intend to keep it for the long term?

Do you have any other savings or DC pension that you could access to reduce the buy to let mortgage? It appears you are accessing the DB pension to benefit from the lump sum but it will turn on an income stream that you neither need or want at the moment.

What will your income tax bill be like if you have pension income, BTL income and a salary?

gunnag

A couple of points I should have added:-

- my current salary is £65k, so I'm well into the higher rate tax bracket

- I have a 13 year old daughter and partner, so I need to support them

- If I take the DB pension, then the lump sum will pay off a large chunk of the mortgage which is coming up for renewal in March 25, the rate will probably be much higher than the 1.7% I'm currently paying

- I can increase my pension contributions to my AJ Bell SIPP to offset any extra tax.

I expect my tenants will be there for a good few years yet, when they leave I think I will sell up.

Simon11

Have you thought about retiring slightly earlier, then in the follow financial year sell the property to reduce CGT and in the following next year claim pension (or do part time work) to minimise CGT tax

How much would you save in this scenario?