What to do with early deferred DB payments when still working full-time?

MrWalt

Still a few years off but haven’t really payed enough attention to pensions until recently.

At 60 I will be entitled to a defined DB pension of £6k or £4.2k + £28.5k TFLS. A bridging pension option is also available til my state pension at 67.

My current job has a CAB scheme where I get full payment at 65.

I also have an additional DC scheme where I pay in most of my non-pensionable pay above the higher rate tax threshold.

I imagine retiring at 65 earliest.

My question is around the DB payments and what best to do with them? Currently I get higher rate tax relief as my additional DC scheme is funded by salary sacrifice. When the DB pension kicks in I was thinking of reinvesting it into that scheme. I have seen there are rules around Pension Recycling so I can’t use lump sum cash.

What then is the most tax-efficient way to invest that £6k for 5-7 years?

xylophone

At 60 I will be entitled to a defined DB pension of £6k or £4.2k + £28.5k TFLS.

The commutation rate isn't great.

Does the scheme offer "late retirement increases"?

Otherwise you might regard the monthly pension as income replacement, enabling you to  pay more of your salary into your pension.

MrWalt

xylophone said:

Otherwise you might regard the monthly pension as income replacement, enabling you to  pay more of your salary into your pension.

Yes that was my plan - what’s the most tax efficient way to do that?

Marcon

MrWalt said:

xylophone said:

Otherwise you might regard the monthly pension as income replacement, enabling you to  pay more of your salary into your pension.

Yes that was my plan - what’s the most tax efficient way to do that?

In tax terms it makes no odds, but if you use salary sacrifice you'll get an NI saving as well. You can't salary sacrifice below minimum wages levels.

BikingBud

If you get a good employer contribution and Sal Sac then get the max employer match to maximise your DC accrual and stay below higher rate threshold.

Use your DB to offset Sal Sac and bolster funds to cover living expenses

MrWalt

So if I salsac 100% of my non-pensionable pay into DC that brings me to about £48k

Then £4k of DB payment would taxed at 20% and the rest at 40%

If I then reinvest the ‘rest’ into the DC as cash payments can I still claim higher rate tax relief on that?

Dazed_and_C0nfused

MrWalt said:

So if I salsac 100% of my non-pensionable pay into DC that brings me to about £48k

Then £4k of DB payment would taxed at 20% and the rest at 40%

If I then reinvest the ‘rest’ into the DC as cash payments can I still claim higher rate tax relief on that?

If you have taxable earnings of £48k then why would the first £4k of the pension be taxed at 20%?

There could be a reason but nothing you have posted so far points to you having an increased basic rate threshold.

MrWalt

Dazed_and_C0nfused said:

MrWalt said:

So if I salsac 100% of my non-pensionable pay into DC that brings me to about £48k

Then £4k of DB payment would taxed at 20% and the rest at 40%

If I then reinvest the ‘rest’ into the DC as cash payments can I still claim higher rate tax relief on that?

If you have taxable earnings of £48k then why would the first £4k of the pension be taxed at 20%?

There could be a reason but nothing you have posted so far points to you having an increased basic rate threshold.

Must remember to where my glasses! I was reading BR as £52k rather than £50.2k - d’oh!

So it would be £2k at 20% - could I then get 40% tax relief on the rest when contributing to DC?