Sense Check Please!

Stringybob3

Me and the missus are retiring in two years time aged 57. She will have an index linked DB pension paying £20k gross. I hope to have my DC pension up to approx. £300k and we will have "cash" (ISA etc.) savings of approx £150k. We also have a rental house in my name and a house in her name (its actually 2 houses each which we share with a friend, so for the purposes of this I count it as one property each). Our "Number" is £43,000 so my 10yr plan to take us to SP is as follows (round figures)

OH Pension £20,000
Tax on OH pension £-1,500
OH rental income (after expenses etc.) £5,500
Tax on OH rental income -£1,100
My rental income £6,300

My thoughts are to take £8300 UFPLS from my DC pension, of which £6,225 is taxable income and would therefore when added to the rental income, keep me below the tax threshold.
The balance of approx £5,500 we would then take from savings to get us to £43,000.

Once we get at or nearer to SP age we will start selling the properties.

Any thoughts or comments would be most gratefully received! 

tacpot12

I think you have a good plan. You might consider taking more out of our DC Pension (up to the tax threadshold) and reinvest any money you don't need into an ISA.

You might want to consider whether flexi-drawdown would be better than UFPLS. The rules are quite complicated so it might take a bit of research to understand which is better for you given that you expect to have an influx of capital when you sell the properties. (BTW I chose to use UFPLS when I started drawing down on my DC Pension 5 years ago and also have a rental property, but I'm not sure that this was the best decision).

Linton

Overall, seems fine to me but some not fully considered thoughts come to mind...

1) You would seem to have a far more wealth than you need to meet your £40K income retirement especially when SP becomes payable. What is it for?  Is there any rearranging you can do now-ish to minimise future tax?  Gifts to children?

2) £300K in cash seems rather cautious.  Could you do better with S&S ISAs? Could you usefully try to maximise your ISA contributions?  Who knows for how long the rather generous £20K allowance will be available.

3) When you sell your rentals you will be left with an embarrasingly large amount of unsheltered cash.

Bostonerimus1

Not a bad plan. It's nice to have regular income sources like DB pension and rent (as long as the tenants are good). So my question is how is your ISA and DC pension invested? With a good level of income from other sources you could take higher levels of risk than many retirees.

Stringybob3

Thanks for the replies. Taking your points @Linton  
1) I suppose I may be being cautious (big step into the unknown and all that) so it is something I will look at.
2) We will actually have around £100k in savings, and when OH takes her DB pension she will get a £50k tax free lump sum to take it to £150k (not £300k). I was a bit mis-leading by calling it "cash" in my original post as we have good chunk in S&S ISA's - I just meant that it was not in a pension wrapper.
3) You are right, once we sell the houses, that will be something we will need to consider.

My DC pension is currently with Peoples Pension i.e. my workplace pension and is invested in the "Global Investments (up to 85% shares) Fund", which I plan to leave for the time being. Once I come to the time that I will need to start to accessing the pension, I will look to see what the best platform is to suit my needs.

Stringybob3

tacpot12 said:

I think you have a good plan. You might consider taking more out of our DC Pension (up to the tax threadshold) and reinvest any money you don't need into an ISA.

You might want to consider whether flexi-drawdown would be better than UFPLS. The rules are quite complicated so it might take a bit of research to understand which is better for you given that you expect to have an influx of capital when you sell the properties. (BTW I chose to use UFPLS when I started drawing down on my DC Pension 5 years ago and also have a rental property, but I'm not sure that this was the best decision).

I was not 100% convinced that UFPLS is the right option or whether a combination of UFPLS and Flex-Drawdown (is this even possible?) would be best. I have a couple of years to do some research (no doubt come on here and ask some dumb questions!) to finalise the plan!

DT2001

It seems a good plan as it meets your objective of £43k income.

Why are you aiming to sell the BTLs around SPA?
How much capital will they produce and how will you invest that?
Without knowing the answers to the above I would investigate the CGT position. If you sell your 2 properties in separate tax years can you utilise the CGT allowance (assuming it doesn’t disappear) and your personal allowance (but not drawing from your DC pension) in each year? It may save tax and ‘keep’ more funds outside of IHT.
In addition I would investigate if you OH could then transfer their 50% share to you and again sell over 2 tax years. As we don’t know the values I am unsure of any SDLT or CGT implications. 

Maybe worth seeking tax advice depending upon you and your friends aims for these investments.

Stringybob3

The property part of our plan is the most 'fluid' to be honest! One column of my spreadsheet has us selling them all on the day we retire and the other extreme has us selling them all on the day we reach SP. The reality will obviously be somewhere in between and we will stagger the sales to fall in separate tax years. Ideally if / when our tenants look to move on over the coming years we will put the properties up for sale rather than re-let. To be honest we have never felt particulars comfortable being landlords (even the term 'landlord' sounds awful to me!), so will be happier once they have gone. 
The value of each property is going to be around £150k each, so we will look at our current situation as and when the time comes and, as you say it is likely we will seek further advice.

Stringybob3

Re-visiting my old post as I am looking for a bit of a steer on a drawdown strategy from you helpful people! Rough figures are as follows:

• Retire end of this year aged 57
• SIPP value approx £400k
• Rental income approx £6.5k per year

My plan is to take advantage of the tax free sum and my personal allowance over subsequent 10 year up to state pension age 67 as follows:.

• 25% tax free = £100k therefore 10 years x £10k per year
• Remainder of personal allowance after house income = £6k per year
• Total withdrawal from SIPP = £160k over 10 years

I would therefore like to keep the £160k in a relatively safe investment (eg STMM), whilst the remaining £240k can be more adventurously invested as I am not planning on touching that for 10-15 years. I am looking at the best way of doing this. Is it possible to "take" the 25% tax free chunk, but leave it in the pension. I would therefore have 3 pots: £100k tax free in STMM. £60 Crystallised in STMM. £240k Crystallised in Equities.

Does this make sense?

Thanks.

Secret2ndAccount

Your options are to take the tax free part earlier, or at the same time as the matching taxable part, not to take it later.

If you have ISA allowance unused, take out enough TFLS each year to put 20k (40k if two of you) into a S&S ISA. Then, all future growth of that money is tax free. You can use cash ISA's or S&S ISA's to manage your risk according to your wishes in the same way you would have inside the pension.

Plan B if you don't need the money, just leave it in the pension: take 8k: 2k tax free, and 6k taxable. If the money left in the pension grows, then so does the tax free available.

Stringybob3

Thanks for the response. I am looking to take out the £16k per year as income. So I guess I will need to crystallise £40k per year to get the £10k PCLS and then take the £6k from the crystallised pot. The reminder of crystallised funds will then remain invested in equities. I will just need to keep balancing the uncrystallised pot to suit my risk appetite?