Tax efficient retirement with DB pension

PJM_62

Any suggestions/ advice for tax efficiency in retirement, with this scenario ? ..

Aged 60. 20k per year DB pension
100k in a SIPP.
30k per year income needed.
Maxed out Cash ISA. Maxed out premium bonds.

To be clear. Very happy to pay tax. Just want to minimise it/ be efficient.

NedS

As your DB income already fully utilises your tax free personal allowance, and you require a further a further £10k of income each year to reach your £30k requirement you could draw down on your SIPP as required each year staying within the 20% tax band.

Other than not withdrawing the whole SIPP in one go and paying 40% tax, there is little you can do to minimise the tax you pay. After the 25% tax free cash, anything you withdraw from the SIPP will incur tax at your marginal rate.

Do you have sufficient in your ISA/Premium bonds to provide the additional £10k/year income without ever having to draw upon your SIPP. If so, you could leave it untouched and pay no additional tax, and pass it on to your beneficiary for them to pay the tax when they withdraw it.

Nevergonnaretire

Assuming you have to take it from your SIPP, could you take the additional £10k as an UFPLS payment once a year? Then you'd only pay tax on the £7500 (£1500ish?). I may be oversimplifying that!

xylophone

Have you obtained a state pension forecast for planning purposes?

https://www.gov.uk/check-state-pension

You could book a Pensionwise interview for guidance on accessing SIPP.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

Marcon

PJM_62 said:

Any suggestions/ advice for tax efficiency in retirement, with this scenario ? ..

Aged 60. 20k per year DB pension
100k in a SIPP.
30k per year income needed.
Maxed out Cash ISA. Maxed out premium bonds.

To be clear. Very happy to pay tax. Just want to minimise it/ be efficient.

If you've got the maximum of £50K in premium bonds, then given the poor odds of winning, perhaps consider cashing in £10K of those each tax year to boost your income without paying any tax? Depending on your IHT planning, it would mean your SIPP remains untouched and outside your estate when you die.

If IHT isn't any sort of consideration, perhaps cash in a smaller number of premium bonds and take some tax free cash from your SIPP for the next 5 or so years?

Either of the above would get you to within a few months of state pension age, at which point (assuming you don't defer/get the full state pension) your state pension would kick in and that would cover your income requirement, albeit with some unavoidable tax.

ColdIron

You don't have many other tax efficient options but if you have other cash you can use (you do need some ready cash available) you might be better off with a Stocks & Shares ISA than a cash one which will be eroded by inflation. You get another (tiny) £500 dividend allowance and tax at 8.75% rather than 20%

PJM_62

Thanks for advice so far.   Yes, full SP in 7 years or so. 
Avoiding using the SIPP , and just leaving it to my 2 kids, is an interesting approach.
How does that work for them in practice , if shared equally between them?
I assume its just treated as income for them to draw on as they wish/need.
Can they take half each and transfer into their own SIPPs?

megacatt

What does maxed out cash ISA mean?
Depending upon value of house and other assets IHT may be a red herring.  Most estates don't pay it.

NedS

PJM_62 said:

Thanks for advice so far.   Yes, full SP in 7 years or so. 
Avoiding using the SIPP , and just leaving it to my 2 kids, is an interesting approach.
How does that work for them in practice , if shared equally between them?
I assume its just treated as income for them to draw on as they wish/need.
Can they take half each and transfer into their own SIPPs?

It depends when you die. From a quick google search:

https://www.hl.co.uk/help/sipp,-drawdown-and-annuity/sipp/retiring/what-happens-to-my-SIPP-when-i-die

What happens to my SIPP when I die?

Any money left in your SIPP when you die can normally be passed to your heirs free of inheritance tax. Any withdrawals they then make will usually be tax free if you died before you were 75. If you die when 75 or older, any withdrawals will be taxed as their income.

HL SIPP clients, including those in drawdown, can nominate or change their beneficiaries by simply logging in to their account and choosing ‘Account Settings’. Your nomination will then be applied instantly.

Alternatively, if you would prefer, you can download and complete an 'Expression of Wish form'.

Please remember tax rules may change in the future.

Marcon

PJM_62 said:

Thanks for advice so far.   Yes, full SP in 7 years or so. 
Avoiding using the SIPP , and just leaving it to my 2 kids, is an interesting approach.
How does that work for them in practice , if shared equally between them?
I assume its just treated as income for them to draw on as they wish/need.
Can they take half each and transfer into their own SIPPs?

Make sure you've got an up to date Expression of Wish form (and keep it updated) with your SIPP provider, confirming what your preference(s) would be when you die.

Pat38493

If you have a smooth 30K requirement each year all the above are good comments.  Just watch out if you expect to have any large outlays in some future year - if so, you should plan those a few years in advance so you can avoid paying 40% tax on any part of a large withdrawal when you actually need the money.