Whether to retire this year

Acquinas

63 later this year, have 2 x DB pensions that I could take early with actuarial deduction, and about £100k in a SIPP. 

Unless I take by DB pensions soon, I will be caught by the 40% tax threshold (as it stands) once the state pension kicks in. I had been planning to take one of the DB schemes now and deter the other, and use the SIPP funds to bridge until 67. That would bring me in at around the £50 pa mark at 67. Or I could maybe reduce the DBs by skimming off a lump sum. The commutation rate is rubbish at x 12, but that would be mitigated to some extent by avoiding the 40% marginal rate.

Apologies if this comes across as a "too much money" whinge. But since I've been using the SIPP to offset my current tax bill, it seems inappropriate to be paying at that rate later if I can dodge it.

So do I defer and rely on the SIPP, or do I take the reduced DBs now?

ali_bear

Don't let a small amount of higher rate taxation dictate your choices. 

A commutation rate of 12 looks more like a rate of 20 when that pension income would have been taxed at 40% but you're quite likely to live longer than 20 years anyway. 

Marcon

Acquinas said:

63 later this year, have 2 x DB pensions that I could take early with actuarial deduction, and about £100k in a SIPP. 

Unless I take by DB pensions soon, I will be caught by the 40% tax threshold (as it stands) once the state pension kicks in. I had been planning to take one of the DB schemes now and deter the other, and use the SIPP funds to bridge until 67. That would bring me in at around the £50 pa mark at 67. Or I could maybe reduce the DBs by skimming off a lump sum. The commutation rate is rubbish at x 12, but that would be mitigated to some extent by avoiding the 40% marginal rate.

Apologies if this comes across as a "too much money" whinge. But since I've been using the SIPP to offset my current tax bill, it seems inappropriate to be paying at that rate later if I can dodge it.

So do I defer and rely on the SIPP, or do I take the reduced DBs now?

Have you actually done some detailed sums? If this is all about tax, there's no substitute for doing the arithmetic - using the relevant numbers, which aren't in your post, so nobody here can comment on those.

Albermarle

 That would bring me in at around the £50 pa mark at 67.

Looks like you will not be enjoying a very comfortable retirement   

Acquinas

@Marcon Thanks, yes I have a spreadsheet that I regularly update with the pension values and impact them for actuarial reduction, etc. Obviously I don't have a crystal ball so there are elements in the scenarios that are assumptions rather than knows e.g. rate of CPI/earnings growth for state pension, how long I will live and whether tax thresholds will rise again (and by how much) in 2 or 3 years. So I don't expect anyone to do the maths for me. But it's not as if there could be a perfect answer, is it? It's about the balance of risks in each scenario and I was interested in whether others in a similar position had been compelled to make that stick or twist call and whether they were confident that they would make the same call.

Overall though, if you added up all the unadjusted DB pension to state pension, I would be heading for around £58k a year in 4 years. So I could take, say, £8 x 12 = nearly £100k as tax free lump sums from the DBs and just undershoot the extant 40% threshold. The ONS calculator says I will live to 86. So, without taking inflation into account, that would mean giving up a taxable £8k pa for 24 years if I made the call now.

kempiejon

Acquinas said:Apologies if this comes across as a "too much money" whinge. But since I've been using the SIPP to offset my current tax bill, it seems inappropriate to be paying at that rate later if I can dodge it.

So do I defer and rely on the SIPP, or do I take the reduced DBs now?

Do you want to give up work. Have you a plan as to what you'll do with your time? Perhaps you've made a budget and know what you'll be spending your money on, I like a spreadsheet, I know my expenditure and have modelled my income. If I had a DB pension of £40k with acturial reduction a couple of years ago I'd have been living my best life ffor a few years and be looking for some new activities having got started on bluegrass banjo and completed couch to 5k. 
 
As another said don't let a tax bill dictate more important, perhaps at this stage the most important life decision to make. If you've really too much money perhaps you could do some good with it and of course if you’re a higher-rate taxpayer You can claim back the difference between the tax you’ve paid on the donation and what the charity got back when you fill in your Self Assessment tax return.

Acquinas

@kempiejon My wife and I are almost the same age and she retired early last year. She has been making the most of it and, while I don't hate my job, I can see that I probably should try to move onto the next phase in my life while my health is still good. I think maybe the thing holding me back is that we have 2 kids in their 20s making their way in the world in the early stages of professional careers that we are supporting to some extent. My ability to do that will be more constrained when I do give up work. But I do seem to be getting a degree of support for the notion of putting the tax impact to one side anyway. In terms of timing my spreadsheet tells me that there is a sweet spot just after my next birthday. And of course, if I don't move soon, I won't have enough time to drawdown the SIPP money at basic rate!

Acquinas

Albermarle said:

 That would bring me in at around the £50 pa mark at 67.

Looks like you will not be enjoying a very comfortable retirement   

I hope so. I don't like leaving things to chance.

Kernowshep

Acquinas said:

Albermarle said:

 That would bring me in at around the £50 pa mark at 67.

Looks like you will not be enjoying a very comfortable retirement   

I hope so. I don't like leaving things to chance.

Acquinas, I'm pretty sure Albermarle was referring to the fact you missed the k (or 3 zeros) 😉

Acquinas

Kernowshep said:

Acquinas said:

Albermarle said:

 That would bring me in at around the £50 pa mark at 67.

Looks like you will not be enjoying a very comfortable retirement   

I hope so. I don't like leaving things to chance.

Acquinas, I'm pretty sure Albermarle was referring to the fact you missed the k (or 3 zeros) 😉

Good spot. £50 a year would get me into quite a lot of trouble with my wife