Turning £1m pension into cash

Bolt1234

Thank you all for your kind words.  I am mid 60’s but in very good health.  Parents both lived to 90 plus.  I work from home in a stress free job that I can give  up if required.  Husband can still travel and we go away on holiday all the time. Lots of very glamorous places!  It’s a standing joke in my family.  I already have POA for him.

The double IHT I am very well aware of!  Would plan to give very large house deposits to grown up children (one will be buying for the first time next year) but leave myself comfortably off.  If I ever needed to go into care I would sell the house which should cover me until I pass too.  

I have my own private pension at £26k plus the state pension due next year should I not work at all  We are spending lots at present on holidays in particular but that will calm down and might not be possible in the future so are making the most of everything.  

I keep meaning to do a POA for myself with husband and grown up children being able to act for me and have an objective to do in the next few months.  I know how they work as had them for my late parents.   Very useful they were too.Financial advisor says it’s very wise to do POA’s for both of us too.

Bolt1234

Yes, the large gifts will come from me.

Pat38493

A few comments

- When you say the pension is written in trust and will pass to you, I assume this just means the same as any other defined contribution pension as they are generally all in trust?  Nomination forms already covered.

- If your husband is less than 75 years old and expects not to live past 75, you can inherit his entire pension tax free - based on everything you’ve said so far and setting aside the psychology of wanting to pay his own way, this is quite probably the best way to proceed.   Also - even if only withdrawing £50K per year, it often doesn’t make financial sense to pull money out of a tax wrapper unless you can get it back into another tax wrapper (ISA) or spend it.

- It may be that if your husband can, at some point, demonstrate that he has only a very short time to live, it can be withdrawn tax free immediately.  However I’m aware that with some illnesses, doctors are not going to be that specific to call it “terminal”.

The question of whether the pension should be moved to cash inside the pension wrapper is really a separate matter and it really comes down to how fast both of you, as a couple, or you later on your own, plans to spend the money.

For example, whilst the money is in the pension and you only want draw it out at £50K per year so it will take 20 years to draw it all out.  I doubt that any financial adviser is going to want you to put money into cash if it’s not going to be spent for 10+ years.  The value of money in cash tends to go down in real terms over the long term due to inflation (although we have recently seen a period of savings interest rates higher than inflation this is not the usual situation).

Also - although none of us know what will happen with markets in the next weeks and months,  the majority of the biggest market daily gains in the past, happened within a few weeks of a big fall.

This is a tricky topic but maybe some reframing can help - maybe you see it as you “lending” your husband the money to do all the things you want to do in the next few years in expectation of the future pension inheritance - financial adviser’s will usually encourage couples to think of their financial plan jointly rather than separately, often for tax management reasons.

Counter argument - if you have more money than you will ever use and you are very risk averse, and cannot stand to see falling markets, this could be an argument for being in cash, but this is not your stated situation.

Edit - a middle ground might be to take only £12570 per year out of the pension (assuming he is not yet state pension age) and no tax would be payable

SVaz

Spouses / civil partners will always inherit pensions IHT and income tax free, even after 2027,  as far as I’m aware.  

Notepad_Phil

SVaz said:

Spouses / civil partners will always inherit pensions IHT and income tax free, even after 2027,  as far as I’m aware.  

My understanding is that it will only be income tax free if the pension holder was under 75 when they died.

Aretnap

SVaz said:

Spouses / civil partners will always inherit pensions IHT and income tax free, even after 2027,  as far as I’m aware.  

Income tax is payable on withdrawals if the deceased died after the age of 75. This applies whether the beneficiary is a spouse or not. 

Currently withdrawals are income tax free if the death occurs before 75, again whether the beneficiary is a spouse. Whether this will continue to be the case after 2027 is not known with certainty. 

The details of how IHT will apply to pensions have not yet been announced, but it would indeed be a huge surprise if the IHT aspect didn't include an exemption for spouses.