Most tax efficient way to withdraw money from all pensions pots

MallyGirl

bilko89 said:

Hi everyone, had a good read through and I have a lot to learn it seems to make sure i get my pension right! I'm 35 at the moment but only just started to pay attention when it comes to retirement, in the hope I'll thank myself when I'm older.

Although I wish I'd done it sooner, I still have time on my side so want to ensure I'm saving correctly so that when it comes to withdrawing, I'm doing it in a tax efficient manner. The last thing I want to do is take advantage of tax relief paying in and paying it right back on the way out!

My current setup is standard workplace pension where I have £15K currently. I pay 5% (including tax relief) and my employer pays 3%. I've already asked and they won't up this no matter how much I increase to which is a shame. I was advised on these boards to look for another job but I really love it here and don't want to jeopardise my happiness by moving into a crappy one! No need to get into investment discussion for this thread but I've recently changed the Index Fund that was being invested in to another that should see me better in the long run. I will eventually increase my 5% as well to ensure I'm on target.

My plan is to start a S&S ISA in the next year or two and also pay into that. The limited material I've looked at says withdrawing from an ISA helps when used in conjunction with your standard pension to lower the amount I'm paying tax on.

I'm not banking on the state pension...so won't be including that in my workings, that will be a welcome bonus if it does survive the next few decades.

So, I guess my question is Workplace Pension + S&S ISA used in conjunction, can they save me on the tax when withdrawing in retirement? To withdraw what I currently take home per year I'll need a total of roughly £700K (using the 4% rule) which seems like a ridiculous figure but that will be my target.

Thanks

Do you have a LISA?

bilko89

HI @MallyGirl, I don't. I don't plan on buying a house but can i still use it? 

MallyGirl

bilko89 said:

HI @MallyGirl, I don't. I don't plan on buying a house but can i still use it? 

a LISA can be used for a first house or for retirement. It is worth investigating as you have to be under 40 when you open one. It comes with some good tax breaks. I was already too old when it was launched so I don't know a huge amount about them but did get my daughter to open one - she put in £4k and they added another £1k.

bilko89

MallyGirl said:

bilko89 said:

HI @MallyGirl, I don't. I don't plan on buying a house but can i still use it? 

a LISA can be used for a first house or for retirement. It is worth investigating as you have to be under 40 when you open one. It comes with some good tax breaks. I was already too old when it was launched so I don't know a huge amount about them but did get my daughter to open one - she put in £4k and they added another £1k.

Thanks for this, genuinely only linked it to buying a home so already reading Martin's article on it as we speak! Definitely looks like it's worth paying into with the bonus on top. Looks to be smart to fill this up (when I can) before moving onto a normal S&S ISA.

singhini

Update from me on my thread.

DB pension company wrote back to me today and the transfer value currently is £104k with £3,600 annual pension     (back in 2017 these figures were £108,000 with £4,500 annual pension).
Not sure why the annual pension is down by 20%   (i thought it could only go up due to being linked to inflation)?

I still think £3,600 annual pension is rubbish but i suppose i have no choice but to leave it (seems i will need financial advice which is not cheap and their most likely going to say its a bad idea and i will have to pay them for the advice).

My aim all along has been to use up all my assets and pension pots within my lifetime as i have no family or dependants (mum died aged 66, dad was 67 and sister was 45). 

£3,600 a year would mean living 29 years if i wanted to match the transfer value of £104k (i will be dead way before my 90's)

Or

Transfer the lot into a SIPP and take 25% = £26,000
Leave the remaining £78,000 and take £16,760 annually (thus emptying the pot in 4.5 years)
But reading through this thread and others its near on impossible to transfer a DB pension

I really don't understand the attraction of DB pensions when the length of service (in my case) is only 7 years and the final salary was circa only £40k (if it was paying say £12,000+ a year i would understand but its not).


I think i know why the transfer value is still relatively high at £104k (because over the years the pension company have been struggling with a shortfall (they send letters fairly frequently) and i suspect they want people to transfer out. its just a hunch).  

QrizB

singhini said:

DB pension company wrote back to me today and the transfer value currently is £104k with £3,600 annual pension

That seems odd.

If you were 55 today, based on these rates £104k would buy you an annuity linked to uncapped RPI worth £4060 a year.

What age would the £3600 be payable from?

singhini

@QrizB

Aged 65 (NRD) Normal Retirement Date


I will take this opportunity to add a bit more detail such as when i look at the 1st transfer value request i made back in 2017 it has information that is not mentioned on this current 2025 valuation (certainly the wording is not identical).

For example:
2017 states: a total pension of £4,503.48 per annum with attaching provisions for your dependants. The transfer value is £108,556.25 (the transfer value is made up of post April 1997 protected rights £98,569.84 and post April 1997 Non protected rights of £9,986.41)

2025 states: transfer value of £103,695.56 and the element of above transfer value relates to post April 1997 section 9(2B) rights of £103,695.56.
It then has another section where it states:
Post April 97 pension £3,216.89 
Post April 07 pension £383.14  
NB: I have added the £3,216.89 + £383.14 to get the annual figure of £3,600


There must be near 30 pages of information (first 10 pages relate to the transfer value with just one page with the actual information) the rest is all the what is this letter about.... Info about your pension..... What else you need to know......  When you have a right to transfer......... etc    The next 10 pages are the actual forms to physically make a transfer........ and the last 10 pages are more like leaflets on spotting pension scams.

DRS1

It must be worth asking the pension company why the pension figures have decreased over the last 8 years.  Could be a mistake in one or other statement.

singhini

@DRS1

Thanks, will do

Ive always struggled to understand these "final salary" pensions. 

i was under the impression my pension will be fixed i.e. 1/60th of my final salary multiplied by the number of years of service, which is then index linked (in my case that's: £38,410 / 60th x 6years 11months = £4,417 + index linked inflation since 2008 which is when i left the company.

Furthermore, I can't log in and view anything, i have to go to the administrators website and send an email asking for a transfer value to get any info (is it index linked? is it 60th or 80th or 85th? - don't know, have tried to ask but Aptia the administrator have not got back to me yet)

singhini

Just received another letter from the pension company  (i asked for a copy of the scheme policy as i couldn't understand the latest figures they had sent me).

In this letter they explain that CETV can be difficult to understand and that they are influenced by anumber of factors. They then go onto explain that at a time when interest rates are rising, less money is needed to finance the proposed pension and that across the board DB pensions have seen a substantial decrease in their CETV over the last couple of years.
Although transfer values have decreased the actual pension payable has increased as follows:
TV Quote 2008 = £3,600 per annum 
TV Quote 2015 = £4,300 per annum
TV Quote 2017 = £4,500 per annum 
TV Quote 2025 = £5,750 per annum

Nowhere in their first letter from 5 weeks ago does it show a figure of £5,750 (i can't even find two or three figures to add together to make something close to £5,750)
Neither did they actually send me a copy of the policy booklet

So, after 2 different communications to 2 different questions it looks like the CETV currently is £104,000 with an annual pension of £5,750

It doesn't help that the administrator of this pension has changed atleast three times (JLC, then Mercer, then Aptia and now someone else).
Also, having taken the time to go through all 4 previous quotes (2008/2015/2017/2025), each letter has slightly different wording and the layout is different which doesn't help.

I shall contact them in 5ish years time and go through this rigmarole again