How to draw the most tax efficient income in retirement

Peterrr

A really good analysis of the future of the state pension on the Damien Talks Money YouTube channel just a few days ago and I think he nails it: https://www.youtube.com/watch?v=NLGIBvwp_ho

Source information from the Institute of Fiscal Studies: https://ifs.org.uk/publications/future-state-pensi...

In short, they don't think the state pension should changed dramatically other than the removal of the triple lock (which I very much agree with). I also understand that after the fiasco of pushing back the female state pension age, any government wishing to make significant changes to the state pension are now required to signal it something like a decade in advance. I don't think removing the triple lock would count as "significant" though.

Early_Retire_Free

Interesting and posting to follow.

Our position is slightly different as we lived overseas for many years and were therefore unable to benefit from UK tax shielding.  Our portfolio costs of c. £700k in SIPP, c. £1 million in unshielded investments and c. £800k in cash (of which c. 120k in ISA) and a further c. £300k sitting in a dormant company I used for my consulting (and now being gradually drawn down as dividends).  We have some other bits and pieces but those are the main pillars of our portfolio (excluding our house).

Like you, I have a DB pension which supports our day-to-day needs.

From a tax perspective we have organised ourselves such that all of the income generating assets are in my wife’s name so that we use her basic rate band in full.  We have been able to do that quite well so far by adjusting dividends from our own company although given cash interest rates running close to 5%, it will be difficult this year.

In addition, I have some small investments in VCT’s for which there is both a tax credit on entering the investment and on the dividends arising.  The dividends can then be reinvested earning further tax savings.  They are high risk and performance has not been stellar but I would think with the size of your portfolio, worth considering.

Like you I suspect we will not touch the SIPP, given its beneficial tax status.

We have already given the children substantial sums of money and will continue to do so – some of that is quasi loans such that they think it’s a loan but it could easily be considered a gift for IHT purposes but could also be 'called in' if we were ever to become jittery.

Spending everything will be our biggest challenge (and I suspect, yours).  Our regular day to day living expenses are around £30-35k and so far in retirement we have spent around the same amount again on vacations plus a further £15-20k on ‘others’ e.g. home improvements, cars and so on (average per year) i.e. all in c. £75-90k per annum.  I've calculated that from age 67 our indexed linked pensions (including SP) will meet that need.

Audaxer

JoeCrystal said:

Albermarle said:

I think there is a strong possibility that state pensions for us might be means tested by the time I am 67 and might not be available for me..

This is one of the less likely changes for the future and even if it was ever means tested it would not be down to zero.
In an in indirect way the SP is already means tested, as poorer pensioners get other benefits and rich pensioners pay 40% tax on it.

I worked out that for someone on a full new rate state pension (£11,500 per year), one will very roughly pay enough income taxes to pay back the entire state pension at £60,200. So, if you have a private pension income of £48,700 on top of £11,500 state pension, you will be paying enough taxes to pay back the state pension effectively.

That's one way to look at it, but still much better to have the extra £11,500 of gross income in that example than not have it.