Timing and order of DB access and DC withdrawal

Cobbler_tone

Triumph13 said:

"I think my biggest struggle is being a bit 'scared' of handing a DC pot and something I try to educate myself from the postings on here. I am certainly not stupid and always keen to learn. I have certain established that I am 'risk adverse'."

The most important thing for you to grasp is that a DC pension is just a wrapper.  For all intents and purposes, you can hold exactly the same assets inside one as you can outside.  The only extra thing you have to manage is staying within the 20% tax band on your withdrawals and that's very easy to calculate - just delete your other taxable income from the threshold amount and withdraw that much.  All very easy.

Is it the wrapper that's scaring you though or is it a) the idea of being invested in anything other than cash; and/or b) the idea of managing a lump sum over the rest of your life?

If it's a) then you can replicate that in the pension - though many would advise you not to keep it all in cash wherever it is due to the risk of it being eroded by inflation.  If it's b) then thaty problem doesn't go away wherever you hold it.

I guess you are alluding to something like this. The amber hitting a bit of 40% (not factored in as 40% in the tax due terms) but I guess we could see a loosening of the bands by then, or could take it across an extra year to stay below the band. This is on £135k pot. The DC product will be up for debate when it comes to drawing it down and this is a simple fixed annuity quote. I'm pretty confident I won't be buying another life time annuity with it.
The state pension is 2.5% increase year on year from today.
TBH I am not worried about holding cash. You just navigate cash ISA's (whatever that brings in the future) and the highest savers, paying some tax on the interest. Or save some in Premium bonds, or (God forbid!) spend some!! 
If I did the below my savings would mount up, which I guess is the point as backfilling giving up the lump sum for higher lifetime income.
I don't see my spending habits changing much in retirement. Certainly less on diesel and we don't scrimp on anything. Any of these figures are way over what I comfortably live on whilst working, namely due to hammering my pension. In fact, the first 6 years are significantly above my take home pay at any point in my career, despite the taxable income being way short of my salary. That shows you the impact of tax, NI, taxable benefits, share schemes etc. 
It's got me thinking, so thanks for the suggestion.

Triumph13

Can I suggest a little tweak to your spreadsheet?  You may find it helps if you separate out the process of getting money out of your DC pension  - which is purely tax driven - from your budgeted spending, which is your lifestyle choice.

The easiest way of doing that is probably to just track you cash balance.  So start with your opening cash balance from the DC lump sum, add in your net DB and DC income - taking long enough over the DC to stay comfortably below 40% tax, take away your budgeted ordinary spend and a further column for big one off items like your new car, and that gives you cash balance at the end of the year.  That lets you very clearly see if it gets tight at any time or if you can afford to take as long as you like to get the DC out.

Cobbler_tone

Triumph13 said:

Can I suggest a little tweak to your spreadsheet?  You may find it helps if you separate out the process of getting money out of your DC pension  - which is purely tax driven - from your budgeted spending, which is your lifestyle choice.

The easiest way of doing that is probably to just track you cash balance.  So start with your opening cash balance from the DC lump sum, add in your net DB and DC income - taking long enough over the DC to stay comfortably below 40% tax, take away your budgeted ordinary spend and a further column for big one off items like your new car, and that gives you cash balance at the end of the year.  That lets you very clearly see if it gets tight at any time or if you can afford to take as long as you like to get the DC out.

Isn't what the table showed in essence? Maximising accessing the DC in the most tax efficient way?

This is without the DC, which I need to drawdown to generate capital.

michaels

Seems to me your baseline need is covered whichever strategy you chose but you are exposed to inflation risk due to the rpi caps so I would investigate the cost of using max lump sum to convert rpi capped db into full inflation hedged annuity.

Cobbler_tone

michaels said:

Seems to me your baseline need is covered whichever strategy you chose but you are exposed to inflation risk due to the rpi caps so I would investigate the cost of using max lump sum to convert rpi capped db into full inflation hedged annuity.

I reckon we’ll be OK against inflation. Both have DB’s with blended 2.5%/5% RPI protection. Essential spend about 50% of pensions (inc Waitrose shopping), no mortgage etc. So high inflation is unlikely to do too much damage. I certainly wouldn’t give up tax free cash from a DB to buy extra pension, especially in exchange for increased DB pension. I’ve ran annuity numbers and you don’t get a lot for a fully indexed one, which TBH would be a bit OTT. Especially as high inflation means high interest rates and we’ll be savers.
It does demonstrate how we all approach things differently though.