Indecisive and overly cautious?

pterri

So, I’m 56 (and a half!) I was planning to go to 57 for no particular reason other than 56 seems mad, I may jump earlier. My numbers are as below…

£92k ISA

£127k SIPP

£40k DB at 60 (RPI linked, 5% max)

£140k AVC (linked to DB so potentially take that all as a PCLS depending on how much tax free I take from the SIPP, I’ll be bumping up against the £268k max. The alternative is to move all or some into the SIPP)

Full SP at 67

No dependants or spouse so not having to think about IHT, my house is worth £800k (which is insane, it’s an ordinary vic terrace in a an ordinary part of London). Mortgage free, may downsize or look at equity release but that’s not in my immediate plan

I intend to use the SIPP/ISA to bridge from now to 60 then commence the DB. 

I’ll pop £20k of the AVC straight into the ISA and the rest in a GIA and feed that in over a few years. I could put some into the SIPP, £2880 I think?, each year. I do not have to think about that for a few years.

Difficult to predict my ‘number’ for such a big change in lifestyle but £24k will be plenty to do most of what I’d like to do. I could go leaner or higher if required. I want to be careful until the DB kicks in, after that it’s all golden. From then all the other money is in the various pots to be used as I need it, I’m fairly disciplined so will not be buying a Ferrari and expensive teeth!

So, I intend to take the max from the SIPP while staying within my allowance and the rest from the ISA. Given that I may well be a higher rate payer at 67, it may be worth taking more and putting any surplus into the ISA? At some point I’ll be paying a higher rate on my SIPP withdrawal so perhaps use my 20% years now to move it? Thoughts?

(I’ve typed this early after a restive night of retirement dreams so forgive any dodgy English)

Dazed_and_C0nfused

£127k SIPP

£40k DB at 60 (RPI linked, 5% max)

£140k AVC (linked to DB so potentially take that all as a PCLS depending on how much tax free I take from the SIPP, I’ll be bumping up against the £268k max. The alternative is to move all or some into the SIPP)

The maths don't add up there. £140k + £31,750 is a long way short of the LTA cap.  Is there an automatic PCLS with your DB pension you haven't mentioned?

NoMore

Have you looked at the commutation for taking the DB pension early, seems strange to me to live on such a low amount before 60 and then a large jump due to the DB. Taking the DB early would allow you to have a larger income earlier and consistently

And as Dazed says the 268k is on Tax free cash not the total size. 

pterri

Dazed_and_C0nfused said:

£127k SIPP

£40k DB at 60 (RPI linked, 5% max)

£140k AVC (linked to DB so potentially take that all as a PCLS depending on how much tax free I take from the SIPP, I’ll be bumping up against the £268k max. The alternative is to move all or some into the SIPP)

The maths don't add up there. £140k + £31,750 is a long way short of the LTA cap.  Is there an automatic PCLS with your DB pension you haven't mentioned?

Ah! Of course, 25% of the SIPP is 31750. So plenty of headroom. Thanks

pterri

NoMore said:

Have you looked at the commutation for taking the DB pension early, seems strange to me to live on such a low amount before 60 and then a large jump due to the DB. Taking the DB early would allow you to have a larger income earlier and consistently

And as Dazed says the 268k is on Tax free cash not the total size. 

I’ll dig out the numbers, I can turn on the DB once I’ve jumped ship but yes I’ve given that some thought. And yep, I’d missed that thing on the LTA, good news

Dazed_and_C0nfused

pterri said:

NoMore said:

Have you looked at the commutation for taking the DB pension early, seems strange to me to live on such a low amount before 60 and then a large jump due to the DB. Taking the DB early would allow you to have a larger income earlier and consistently

And as Dazed says the 268k is on Tax free cash not the total size. 

I’ll dig out the numbers, I can turn on the DB once I’ve jumped ship but yes I’ve given that some thought. 

Remember in the majority of cases there is no "penalty" for taking a DB pension early.

It will have an actuarial deduction, maybe ~12% for taking it at 57 instead of 60, but that is factoring in that you want it to be paid for longer.

pterri

Dazed_and_C0nfused said:

pterri said:

NoMore said:

Have you looked at the commutation for taking the DB pension early, seems strange to me to live on such a low amount before 60 and then a large jump due to the DB. Taking the DB early would allow you to have a larger income earlier and consistently

And as Dazed says the 268k is on Tax free cash not the total size. 

I’ll dig out the numbers, I can turn on the DB once I’ve jumped ship but yes I’ve given that some thought. 

Remember in the majority of cases there is no "penalty" for taking a DB pension early.

It will have an actuarial deduction, maybe ~12% for taking it at 57 instead of 60, but that is factoring in that you want it to be paid for longer.

Yep, I’m not sure what my base spend will realistically be when I retire, also there is a non zero chance that I’ll do something else, although nothing ‘professional’ I’m done with that.

the pension blurb has this… I’ve got a full list of reductions for each year somewhere. 

58	8%
55	18%
50	33%

cloud_dog

@pterri given your numbers it looks eminently doable.

In essence your basic requirement is for £24k pa, but with some flexibility, and lets say this needs to cover 4 years (cover any delays with the DB commencing); so a minimum of £96k.

You will have £220k in accessible money (rounded from £127k + £92k).

You could take £16760 from the SIPP using UFPLS, paying no tax.  And top this up with c. £8k pa from the ISA.

This would use up c. £32k from the ISA before DB commences (leaving easy accessible contingency in the ISA of c. £60k, should you need it), and using c. £67k from the SIPP.

If you wanted to start your retirement on a larger income, I would be tempted to take more from the SIPP in the early years, given the likely DB income level.

There are many ways to skin this cat.

pterri

cloud_dog said:

@pterri given your numbers it looks eminently doable.

In essence your basic requirement is for £24k pa, but with some flexibility, and lets say this needs to cover 4 years (cover any delays with the DB commencing); so a minimum of £96k.

You will have £220k in accessible money (rounded from £127k + £92k).

You could take £16760 from the SIPP using UFPLS, paying no tax.  And top this up with c. £8k pa from the ISA.

This would use up c. £32k from the ISA before DB commences (leaving easy accessible contingency in the ISA of c. £60k, should you need it), and using c. £67k from the SIPP.

If you wanted to start your retirement on a larger income, I would be tempted to take more from the SIPP in the early years, given the likely DB income level.

There are many ways to skin this cat.

I’ve skinned many a cat pondering this. I may got for April 5th so I’ve got a clear tax year. 

Dazed_and_C0nfused

pterri said:

Dazed_and_C0nfused said:

pterri said:

NoMore said:

Have you looked at the commutation for taking the DB pension early, seems strange to me to live on such a low amount before 60 and then a large jump due to the DB. Taking the DB early would allow you to have a larger income earlier and consistently

And as Dazed says the 268k is on Tax free cash not the total size. 

I’ll dig out the numbers, I can turn on the DB once I’ve jumped ship but yes I’ve given that some thought. 

Remember in the majority of cases there is no "penalty" for taking a DB pension early.

It will have an actuarial deduction, maybe ~12% for taking it at 57 instead of 60, but that is factoring in that you want it to be paid for longer.

Yep, I’m not sure what my base spend will realistically be when I retire, also there is a non zero chance that I’ll do something else, although nothing ‘professional’ I’m done with that.

the pension blurb has this… I’ve got a full list of reductions for each year somewhere. 

58	8%
55	18%
50	33%

That looks typical, it tends to be 4-4.5% for a year or two and then gradually the average per year drops slightly so ~12% at age 57 won't be far wrong.

Phossy

I'd note that you will be a higher rate tax payer at SPA if you take your full DB at 60; taking it earlier and/ or taking a lump sum will give you headroom on withdrawals from the SIPP.