2027 pension reforms - revising strategies for DC drawdown planning

artyboy

I'm going to follow this thread closely. Right now, my simplistic thinking is that Mrs Arty and I will both draw down enough from our DC pots to reach £100k of taxable income, take the 40% tax hit, use what we need/want, give some away. Live long enough for our estates to get below £2m, and in an ideal world, £1m

But that's a fairly raw reaction to where things currently are, and would be good to see how it develops.

Or there's always expatriation, if we can find a Portugal-like option. But that needs proper planning and advice...

ETA: and at the risk of sounding altruistic for a moment, we'd also want to spare our kids, as executors, the likely nightmare of administering a large estate with pension considerations. I wouldn't want to do it myself, so I'm not going to wish it on anybody else...

CookieMonster

gm0 said:

What are other strategies people now need to think about?

7) Retire early, spend it.

kempiejon

I like philanthropy and the Carnegie way for those who have sufficient and then some. It also avoids taxes which doesn't upset many.
https://www.carnegie.org/about/our-history/gospelofwealth/

gm0

We add philanthropy to our strategy list

Bostonerimus1 said:

"I'd emphasize gifting to heirs and charitable giving rather than spending. The old Methodist/Socialist in me still views money as a route to dangerous temptations so after I'm comfortable I'd rather give it away than spending it"

I agree with that. In my deferred gratification era. I confess I too am dangerous temptation curious. Book clubs. Art galleries. Canal trips. Nothing sordid. 

For those who chose to prioritise deferred gratification over in flight consumption during working age.  At retirement later is now.   

You should expect to enjoy the fruits of your prior labours and consumption forgone - for you and your family unit. This latter element is the difficult part where the politics get trickier which I will get to. 

The first part is simple.  The more profligate spender consumed their income at the time.  The saver has some of to spend or disperse now.  The income was set and taxed for both by the economic and employment conditions at the time.  Policies sustainable (or often unsustainable as they may have been to get to where we now are in the West generally and here in our troubled polity.  

Trying to empower individual choice and the bearing of consequence of choice (fairly) and ALSO tilt the table against generational wealth transmission. A vector which observably impedes social mobility of talent and application i..e the normal ups and downs you would expect generationally.  In something closer to a rough and ready meritocracy. Access to more elite jobs and their potential rewards.  Also a fairness objective.  Upper middle parents will help their sometimes idler, stupider scions to retiain priviledge and it is foolish to expect this behaviour to stop.  Spoiler - smashing kulaks back into serfdom doesn't achieve this.  Never did. Never will.  When it fails the usual argument is that we haven't done it hard enough.  Idiocracy.  Opportunity. I'm in.  Outcome - Nope.

As with much else - luck and timing are impossible to mask entirely. Yet the reduced social mobility issue needs addressing as a matter of social policy.  As a recent example - the civil service fast stream parental income/class based recruiting being both symbolic and a dog whistle.  And a good if limited idea.  But also a clear admission that the data shows that well intentioned prior actions proved to be window dressing in practice and failed to move the needle on who got in.  As often Yes Minister provides.  cf the episode about moving state functions and jobs "out of London" to cheaper areas of greater deprivation and then the conversation on who and what - clearly cannot be moved.

Back to main topic.  The psychology of consumption is subtle.  Philanthropic activity and donation is indeed part of it providing meaning and satisfaction and contribution again to individual taste. Well established habits of thrift /non-consumption can be hard to breakdown.

You also correctly point out that it's a REALLY NICE problem to have

It didn't happen by accident. Lucky accident of birth and parentage. And a lot of graft and compromise of family life to work and establishing security. Working wherever and whenever it was demanded at no notice sacrificing weekends to travel to it. And of course I know that the less fortunate of birth and opportunity - can find that they also graft and don't get the same results.  We both have a lottery ticket. Somebody wins.  Person A is born in UK. Person B is born in a war torn spot with limited employment opportunity and day to day daily subsistence is still the focus.  So basically like serf Britain pre-industrial revolution for many. 300 years ago here.  Plenty of places it's now.  Doesn't say fair on the tin.  Before someone pipes up - yes society chipped in via the the narrow but historically much better supported pathway to tertiary education for an elite (in the small group sense) few rather than the Blairite half. We can debate the merits of expanded higher education and its consequences for different demographics - another time and another place.

Socially responsible consumption ideas

What kind of additional consumption should we now do to blow the kids Jane Austin Expectations

What would be attractive and if "stuff" - relatively immune to further tax grapples
What would contribute to the UK economy (industrial policy)

It's clearly NOT 2nd holiday cottages by the sea. Bad for housing market. And subject to ongoing tax attack. Rent holiday places as needed. Get those extended family and friends along.  Nice.  

Some types of consumption are good for the UK economy - helping with employment and growth and VAT.  Is there anything still made here we could use

Drink more British Wine

With climate change local wine is improving but in general expensive vs international competition.  Could fit the bill.  Worth a look. Support the emergent British wine sector.  Grown here. Made here. Taxed here. Tick.

British made cars

Perhaps unchain the wallet and get a new(er) car.  Instead of making current old well built cars last even longer like a thrifty person. Yet a Nissan from the north east .... doesn't spark joy.  Ah I know - for a truly frivolous self-less politically correct (to industrial policy) inheritance tax reducing consumption idea.

A Morgan.  And Ariel Atom.  A Pembleton.  Which child personality suits each.

What was the old Toyota CEO quote.  There will be 3 car companies at the end.  And Morgan.  
British manufacturing - albeit with globalised parts 

All eccentric.  Impractical. Largely unsuitable to the modern world. Mad. Still relatively harmless used in small amounts. Spark a level of joy in use and to some observers. 

So it's something to ponder - at 40% - 60% off. Heirloom to pass on.  Kids can inherit the depreciating and depreciated in value asset.   

Got to treat them equally though. We may be getting somewhere.  A chunk to charity and one Morgan per child whether they want one or not.  Soon adds up.

Consider a Morgan or similar for your retirement garage for children to be baffled by upon inheritance

And to think *they* (some politicians and consumer finance journalists) were scared we would buy Lamborghinis drop into poverty and fallback on the state if we could do flexible access drawdown

Spoiler: I am not on the waiting list for a Morgan. Joke.

Mostly - But watch out Rachel.  Don't PUSH me too far.. It *could* happen.

More seriously - if the choice was continue to live happily yet still modestly and ease the tax and saving own pension and student loan pressure on the kids with stagnant wages. And not have the expensive extra holiday. That's one equation.  Consumption flat.  Leave it unspent to them - if world events (investment) and care costs don't jump on it.  But if Rachel wants half. And to tax it as income for them as well (income tax post 75) - perhaps with NI on it before long (to get from 40 to 50).  Then perhaps I'll have the money out of the pension pay the 40%. Have the extra holiday now after all - and she can do one about getting another go at it later.  Sorry kids.

DRS1 said:

@gm0 I know someone who speaks the way you write your posts.  I put it down to his having a brain that works faster than his mouth.  Some of us more pedestrian thinkers find it hard to follow.

Oh @DRS1.   To think I made an effort with that post - wrote it out in full then edited it back to bullets not explanations.  Oh Mr Darcy - I'd be hurt if it was a surprise or in any way news.  And yet - no.  People have been frustrated by my communication since childhood.  "A clever boy who does not suffer fools gladly and can be brusque at times"  7 years old. Nothing much changed.  My masking works a bit -at considerable effort for set pieces.  MSE doesn't qualify for that level of extra effort. I'm entertaining myself not you.  And thinking things through.  Entertainment for others would just be a bonus.

Triumph13 said:

"The reforms to bring DC pensions under the estate for IHT purposes seems entirely sensible to me. I believe they avoided IHT previously because pensions used to be all DB and there was simply no pot to tax on transfer after death."
More to the point, there was a 55% tax charge on unspent DC funds at death until 2015.

I too think the moves are correct and inevitable, although a bit of extra nil band for them would not have gone amiss.

I too agree it was inevitable and actually took a long time to show up.  Because the government needs money.  Lots of taxes change over time. So much fiddling. So little actual reform.  

I personally favour collective DC as the merged target for public sector DB and most individual DC. Somewhat along the NL model. Ending pensions apartheid.  No more raids on unprotected DC to pay for DB indexation out of taxation.  Simpler (than drawdown).  Convergent.  Long term plan.  But I know this is beyond the capability and focus of this government and the last. It requires cross party consensus on a long term reform target which as with social care - they are spectacularly inept at.   Because we reward the wrong behaviour. The old quote being we know what needs to be done. We don't know how to get re-elected having done it.

As to this current round of non-reform. I dislike the implementation details quite a lot on various grounds

Lay executors are passed more of the problem in a time box problem based on industry lobbying on liability flow.  
With schemes not exactly reknowned for their responsiveness. 

The rather offensive primary residence house allowance clawback piece. Just abolish it or don't. Not this selectively targeted nonsense. Which is just rude.  

 Considered IHT reform is needed. This wasn't it.  Yet it is what it is. 

Hence the need to think it through and do what suits best.  Another lunacy will be along shortly.  Won't get bored.

@JoeCrystal you can choose the numbers to match the desired point. Just your "low" data point and the original comment with a different set of assumptions chosen for a "high" data point in similar fashion. Proving little.  Salary over time, Savings rate. Returns. Inflation. The tax threshold.

There is lots of guidance and commentary that auto-enrollment basic legal minimum levels don't generate enough pension. Let alone a generous one alongside SP.  People should not expect it to.  It was not what it was for.  Realistic contribution levels were not set.  It's an encouragement, a start, it's not the "full" solution.  
Want more. Save more.   There is a huge issue with ability to save more - student loans, property costs etc.  Massive pressure on that cohort - smaller than their elders.  So past time to get to the elephants in the room on the table for cuts.  Prioritise and sort by economic impact on employment and consumption.  But politics is generally headed in the opposite direction.  Ignore reality. Make popular sounding unimplementable promises. Generate better poll numbers.  Profoundly depressing if you pay attention to it. So I mostly don't pay attention day to day - any more.  Better uses of remaining time than listening to charlatans spout drivel they don't believe in pursuit of cheap vote intentions.  Ah democracy. It's the worst - apart from all the other ideas that have yet been tried.

kempiejon said:

I like philanthropy and the Carnegie way for those who have sufficient and then some. It also avoids taxes which doesn't upset many.
https://www.carnegie.org/about/our-history/gospelofwealth/

Agree. Collectively late boomer, early gen-x have a decent amount (collectively) and should be allowed to choose where to spend it - Libraries, Cancer. Local city charitable (people of place).  A donkey sanctuary charity, refugee relief - what *they* want from their interests and life experiences.  Authoritarian government can do one gathering it up re-prioritising (badly) and spending it (badly) instead.  Call that communitarian blue labour or patrician high tory talking about "small platoons" (both being close to political extinction but hey it is what is - few ideas are new).  Tax code incentives should not inhibit the desired behaviour - or even give it a small positive nudge - a la GiftAid.  

JoeCrystal

gm0 said:

@JoeCrystal you can choose the numbers to match the desired point. Just your "low" data point and the original comment with a different set of assumptions chosen for a "high" data point in similar fashion. Proving little.  Salary over time, Savings rate. Returns. Inflation. The tax threshold.

There is lots of guidance and commentary that auto-enrollment basic legal minimum levels don't generate enough pension. Let alone a generous one alongside SP.  People should not expect it to.  It was not what it was for.  Realistic contribution levels were not set.  It's an encouragement, a start, it's not the "full" solution.  
Want more. Save more.   There is a huge issue with ability to save more - student loans, property costs etc.  Massive pressure on that cohort - smaller than their elders.  So past time to get to the elephants in the room on the table for cuts.  Prioritise and sort by economic impact on employment and consumption.  But politics is generally headed in the opposite direction.  Ignore reality. Make popular sounding unimplementable promises. Generate better poll numbers.  Profoundly depressing if you pay attention to it. So I mostly don't pay attention day to day - any more.  Better uses of remaining time than listening to charlatans spout drivel they don't believe in pursuit of cheap vote intentions.  Ah democracy. It's the worst - apart from all the other ideas that have yet been tried.

Pretty much. I am still miffed that there are no plans to change auto-enrollment rates this parliament, especially I am of firm belief that it should be set at a more realistic percentage, but the truth is the AE percentage is the standard that the majority of businesses are now undertaking with additional misfortunate that a large percetnage of the auto-enrolled seem to believe that it is sufficent to give them a comfortable retirement which is kinda depressing to read. We have come a long way from the days when the vast majority of SMEs did not contribute to pension schemes, so it is much better. However, I quite agree that we could do with an improvement.

Ah, yes... politics are such that no one wants to make hard decisions or kick the can down the road so they don't have to deal with it. However, I would not be surprised if changes are afoot regarding the pension in the next budget in late October or November, with Torsten Bell being given a key role in it. But I guess we are veering into politics at the moment (although I am going to enjoy watching the posts about all the inevitable rumours coming up!). 

gm0

We need to walk a line on policy and subjective political support or opposition to "kites" that are being flown or media getting clickbait.

Forums can react to further principal property reforms as finally announced. A joy to look forward to.

The general point to topic is that the situation will likely change again several more times.  

Keep plan updated

Bostonerimus1

I can get behind the idea of drinking more English wine (my tea total Methodist grandmother is rolling in her grave) as there are some excellent English sparkling wines, but the Morgan is not for me. Too quirky and conspicuous. I'll stick with a Toyota or a Honda as I find Japanese products to be well designed and engineered and also good value for money, although Hondas are bizarrely expensive in the UK.

Ciprico

Love GM0's rant...

Reminiscent of Trainspotting's "Choose Life" monologue but for Boomers.....

(Meant in a nice way)

Keep em coming....

Albermarle

A number of comments refer to bringing pension pots into the estate.
AIUI, unused pension pots will not be legally in the estate, just that the value will be included in IHT calculations.
So pension pots should still be omitted from any wills, and the trustees of the pension will still have the discretion to distribute it to beneficiaries ( guided by the names on the Expression of wish forms) .
If the estate + unused pension pot is liable for some IHT, I think that the Executor will have some discretion whether to pay it from the estate, or ask the pension provider to pay it ( or a mixture of both).
If the beneficiaries of the will and the pension are the same, their could be some advantage in paying from one or the other. If they are different it could get complicated, especially as it sounds like the new  process could be pretty complicated anyway, for lay executors at least .

squirrelpie

I've been reading this thread, but I think most of the discussion is pointless until we know what the rules actually become with regards to pensions. One thing I am now assuming is that our present lay executors will require some professional help, and there's some onus on us now to establish provisional relationships with that help. That's not straightforward as I expect most people we talk to now will be retired by the time of our second death, so it might be difficult to recommend somebody or even some firm to our executors.