DB Pension & Rules around funding Current Employment DC Pension

LavenderBees

Hi All

Hoping you can help me with my retirement planning strategy - I have an old DB pension that I could take in a couple of years time - lump sum and then monthly amount. If I am not retiring at that point, could I pay the equivalent of the monthly amount from my salary into my current DC work pension, so I retain the same take home pay overall, but pay less tax as I have salary sacrifice?

I am 20% tax payer earning below average salary so if this would allow me the double whammy of paying less tax and building up my current workplace pension, that would be fantastic.

Any thoughts/advice, gratefully received. 

p00hsticks

Would it take you below minimum wage ?
I don't believe you (or rather your employer) are allowed to salary sacrifice below that level ....

LavenderBees

p00hsticks said:

Would it take you below minimum wage ?
I don't believe you (or rather your employer) are allowed to salary sacrifice below that level ....

OOoh, I don't believe so but I guess I could invest whatever extra would take me to that point?

crv1963

You could pay the equivalent of your DB pension income into a pension and retain the current level of income. You are simply living of the pension and saving the earnings (or part of). Your employer could let you use salary sacrifice for all or part of this as long as they are not paying you below the minimum wage as has been said. So you could use part employer pension scheme and part SIPP or other personal pension if what you want to save takes your wage below the minimum wage.

I suggest ask your employer how much they will let you sacrifice and take it from there with your planning.

Cobbler_tone

A consideration is whether the DB is reduced if taking it early. I’m in the same boat but there no point taking the DB until retirement, as although I could technically pay more into my DC I’d prefer the increased DB at a later date. As it is I pay 37% total contributions into my DC and maintain a good standard of living whilst the DB grows due to not taking it earlier.  e.g. the TFLS increases £600 each month I leave it, along with increased pension. Additional DC contributions would have to grow some to match the benefits of leaving it.

LavenderBees

Cobbler_tone said:

A consideration is whether the DB is reduced if taking it early. I’m in the same boat but there no point taking the DB until retirement, as although I could technically pay more into my DC I’d prefer the increased DB at a later date. As it is I pay 37% total contributions into my DC and maintain a good standard of living whilst the DB grows due to not taking it earlier.  e.g. the TFLS increases £600 each month I leave it, along with increased pension. Additional DC contributions would have to grow some to match the benefits of leaving it.

Yes, thank you for this. 

I have a pension adviser who has worked out that my optimum time to take this DB pension, given my plans to retire asap or certainly within next 3 years, is 61. I think that if I was willing to work til 67, then leaving it to be the maximum is the best but I really don't want to unless I absolutely have to

Reason for my question (and no doubt many more to follow...sorry!) is that I pay for pensions advice but that doesn't seem to include these nitty gritty things that might maximise the pennies a bit more which I'm just learning about now. I also ideally want to be in charge of my own retirement fund and not pay out to the pensions advisor ongoing as that is depleting my available money, though has been useful to get started knowing what I have and what is potentially possible. The actual making it happen seems to be down to me understanding this level of detail, alongside investment choices for money after house sale etc, so why pay is my thought. But I am far from an expert so will ask some naive questions along the way, I'm sure!   

LavenderBees

crv1963 said:

You could pay the equivalent of your DB pension income into a pension and retain the current level of income. You are simply living of the pension and saving the earnings (or part of). Your employer could let you use salary sacrifice for all or part of this as long as they are not paying you below the minimum wage as has been said. So you could use part employer pension scheme and part SIPP or other personal pension if what you want to save takes your wage below the minimum wage.

I suggest ask your employer how much they will let you sacrifice and take it from there with your planning.

Ah, that's great, thank you! I hadn't thought about a SIPP as potentially helping in this. I have a note to get info from my employer and will work out from there what will need to go where. 

Do you know if here is any advantage to me using a SIPP over say a S&S ISA for any excess that can't go into employed pension fund? I guess I can decide at the time but I'm (maybe simplistically) thinking the ISA will not then be classed as income so maybe more tax efficient?

Hah! The more I am reading up, the more I am editing this - I see I will get 20% added on a SIPP investment. I assume I could then get 25% tax free withdrawal. 

So much to learn

Aretnap

LavenderBees said:

crv1963 said:

You could pay the equivalent of your DB pension income into a pension and retain the current level of income. You are simply living of the pension and saving the earnings (or part of). Your employer could let you use salary sacrifice for all or part of this as long as they are not paying you below the minimum wage as has been said. So you could use part employer pension scheme and part SIPP or other personal pension if what you want to save takes your wage below the minimum wage.

I suggest ask your employer how much they will let you sacrifice and take it from there with your planning.

Ah, that's great, thank you! I hadn't thought about a SIPP as potentially helping in this. I have a note to get info from my employer and will work out from there what will need to go where. 

Do you know if here is any advantage to me using a SIPP over say a S&S ISA for any excess that can't go into employed pension fund? I guess I can decide at the time but I'm (maybe simplistically) thinking the ISA will not then be classed as income so maybe more tax efficient?

A SIPP is generally more tax-effucient because you get tax relief when you pay in, and you can take 25% of the member tax fee on the way it. If your a basic rate taxpayer both now and when you withdraw the money this equates to a 6.25% advantage over an ISA, all else being equal. If you have some personal allowance left over when you take money out, the advantage can be greater.

The only reason an ISA would be better would be if you needed to take a lot of money out at once, sufficient to push you into higher rate tax for that year.

crv1963

LavenderBees said:

crv1963 said:

You could pay the equivalent of your DB pension income into a pension and retain the current level of income. You are simply living of the pension and saving the earnings (or part of). Your employer could let you use salary sacrifice for all or part of this as long as they are not paying you below the minimum wage as has been said. So you could use part employer pension scheme and part SIPP or other personal pension if what you want to save takes your wage below the minimum wage.

I suggest ask your employer how much they will let you sacrifice and take it from there with your planning.

Ah, that's great, thank you! I hadn't thought about a SIPP as potentially helping in this. I have a note to get info from my employer and will work out from there what will need to go where. 

Do you know if here is any advantage to me using a SIPP over say a S&S ISA for any excess that can't go into employed pension fund? I guess I can decide at the time but I'm (maybe simplistically) thinking the ISA will not then be classed as income so maybe more tax efficient?

Hah! The more I am reading up, the more I am editing this - I see I will get 20% added on a SIPP investment. I assume I could then get 25% tax free withdrawal. 

So much to learn

The advantage of Pension over ISA is the additional money it gets via tax relief. The advantage of SIPP is this relief can be taken as a Tax Free Lump Sum 25% of total pot, within the limits (268K TFLS max). The advantage of the ISA over the pension is that it can be accessed earlier than a pension which currently is 55 years- but I see you're 57/58? So for my thoughts the pension trumps the ISA at this age. Simply because there will be more going into it. It also depends on your future plans and income needs, do you know how much you have saved and where? What yield or income will it give, does it rise with inflation? Get your number how much income and your when - 61 years and then act accordingly.

We're doing something similar for my wife- she has her workplace pension (NEST) but we save the rest of her salary into a SIPP, we will eventually bring her different pots into one combined pot mainly for ease of management if I kick the bucket first (as is likely given my health history and that I am a few years older than her).

I just read your edit- you see the SIPP advantage.

LavenderBees

Aretnap said:

LavenderBees said:

crv1963 said:

You could pay the equivalent of your DB pension income into a pension and retain the current level of income. You are simply living of the pension and saving the earnings (or part of). Your employer could let you use salary sacrifice for all or part of this as long as they are not paying you below the minimum wage as has been said. So you could use part employer pension scheme and part SIPP or other personal pension if what you want to save takes your wage below the minimum wage.

I suggest ask your employer how much they will let you sacrifice and take it from there with your planning.

Ah, that's great, thank you! I hadn't thought about a SIPP as potentially helping in this. I have a note to get info from my employer and will work out from there what will need to go where. 

Do you know if here is any advantage to me using a SIPP over say a S&S ISA for any excess that can't go into employed pension fund? I guess I can decide at the time but I'm (maybe simplistically) thinking the ISA will not then be classed as income so maybe more tax efficient?

A SIPP is generally more tax-effucient because you get tax relief when you pay in, and you can take 25% of the member tax fee on the way it. If your a basic rate taxpayer both now and when you withdraw the money this equates to a 6.25% advantage over an ISA, all else being equal. If you have some personal allowance left over when you take money out, the advantage can be greater.

The only reason an ISA would be better would be if you needed to take a lot of money out at once, sufficient to push you into higher rate tax for that year.

Fab thank you!

LavenderBees

crv1963 said:

LavenderBees said:

crv1963 said:

You could pay the equivalent of your DB pension income into a pension and retain the current level of income. You are simply living of the pension and saving the earnings (or part of). Your employer could let you use salary sacrifice for all or part of this as long as they are not paying you below the minimum wage as has been said. So you could use part employer pension scheme and part SIPP or other personal pension if what you want to save takes your wage below the minimum wage.

I suggest ask your employer how much they will let you sacrifice and take it from there with your planning.

Ah, that's great, thank you! I hadn't thought about a SIPP as potentially helping in this. I have a note to get info from my employer and will work out from there what will need to go where. 

Do you know if here is any advantage to me using a SIPP over say a S&S ISA for any excess that can't go into employed pension fund? I guess I can decide at the time but I'm (maybe simplistically) thinking the ISA will not then be classed as income so maybe more tax efficient?

Hah! The more I am reading up, the more I am editing this - I see I will get 20% added on a SIPP investment. I assume I could then get 25% tax free withdrawal. 

So much to learn

The advantage of Pension over ISA is the additional money it gets via tax relief. The advantage of SIPP is this relief can be taken as a Tax Free Lump Sum 25% of total pot, within the limits (268K TFLS max). The advantage of the ISA over the pension is that it can be accessed earlier than a pension which currently is 55 years- but I see you're 57/58? So for my thoughts the pension trumps the ISA at this age. Simply because there will be more going into it. It also depends on your future plans and income needs, do you know how much you have saved and where? What yield or income will it give, does it rise with inflation? Get your number how much income and your when - 61 years and then act accordingly.

We're doing something similar for my wife- she has her workplace pension (NEST) but we save the rest of her salary into a SIPP, we will eventually bring her different pots into one combined pot mainly for ease of management if I kick the bucket first (as is likely given my health history and that I am a few years older than her).

I just read your edit- you see the SIPP advantage.

Yes, that's great, thanks for your help. I had never come across a SIPP until just now, as have always been lucky to have workplace pensions and never had the money to pay in more than I was allowed to.

I am also just starting to pull together a spreadsheet now. It will be full of assumptions until I can get answers to the questions like inflation but every question gets me closer to understanding what I can and can't do in retirement.

Hope we're all around a good long time to enjoy the fruits of our endeavours!  Much appreciate your help on this one