Transferring pension to SIPP and rapid drawdown for tax purposes.

ossie48

My wife (retired and non earner - aged 58) has an old DC pension (Barclays afterwork) valued at £70k. They've just sent the options for her NRD aged 60. Annuity, transfer out or take the whole lot as cash.

We are living comfortably on my DB and DC pensions, we also have significant savings in S&S ISA's.

The idea is to transfer this pension into a SIPP (Vanguard) take the tax free amount in the process. I presume if she were to drawdown the rest before state pension age and keeping under her tax threshold as a non earner it would all be tax free? 

The surplus would be reinvested into her annual S&S ISA allowance.  Does this make sense or have I missed anything?  

Dazed_and_C0nfused

ossie48 said:

My wife (retired and non earner - aged 58) has an old DC pension (Barclays afterwork) valued at £70k. They've just sent the options for her NRD aged 60. Annuity, transfer out or take the whole lot as cash.

We are living comfortably on my DB and DC pensions, we also have significant savings in S&S ISA's.

The idea is to transfer this pension into a SIPP (Vanguard) take the tax free amount in the process. I presume if she were to drawdown the rest before state pension age and keeping under her tax threshold as a non earner it would all be tax free? 

The surplus would be reinvested into her annual S&S ISA allowance.  Does this make sense or have I missed anything?  

It wouldn't be "tax free" no, that would just be the 25% TFLS (assuming she hasn't hit the new LTA max).

It will be taxable pension income .  The tax due on which will depend on her total income (and types of income) for each tax year.  It could be £0 tax is due.  But it's still taxable income.

ossie48

Dazed_and_C0nfused said:

ossie48 said:

My wife (retired and non earner - aged 58) has an old DC pension (Barclays afterwork) valued at £70k. They've just sent the options for her NRD aged 60. Annuity, transfer out or take the whole lot as cash.

We are living comfortably on my DB and DC pensions, we also have significant savings in S&S ISA's.

The idea is to transfer this pension into a SIPP (Vanguard) take the tax free amount in the process. I presume if she were to drawdown the rest before state pension age and keeping under her tax threshold as a non earner it would all be tax free? 

The surplus would be reinvested into her annual S&S ISA allowance.  Does this make sense or have I missed anything?  

It wouldn't be "tax free" no, that would just be the 25% TFLS (assuming she hasn't hit the new LTA max).

It will be taxable pension income .  The tax due on which will depend on her total income (and types of income) for each tax year.  It could be £0 tax is due.  But it's still taxable income.

Gotcha. So technically as a non earner, income wise £0 tax should be due. However she will be getting a couple of grand interest on NS&I savings and will have a small DB pension aged 60 of about £300 a month. I guess its juggling the drawdown to keep under her allowance until state pension age.

I'm just wondering if this makes sense and lumping it into her S&S ISA is a sensible thing to do (notwithstanding the risk element). She's mainly invested in VLS60.

SVaz

She could draw nigh on £17k a year from a Sipp ( why Vanguard?)  and pay no tax.
Does she not transfer her marriage allowance to you?  

Is she going to put £3600 net into a Sipp to get £750 tax relief  

If she’s planning to get it all out,  she should be selling a few years’ income i to a short term money fund or similar to protect against crashes. 

My Wife’s a similar age and emptying her Sipp over the next 7 years into ISAs.  

Dazed_and_C0nfused

ossie48 said:

Dazed_and_C0nfused said:

ossie48 said:

My wife (retired and non earner - aged 58) has an old DC pension (Barclays afterwork) valued at £70k. They've just sent the options for her NRD aged 60. Annuity, transfer out or take the whole lot as cash.

We are living comfortably on my DB and DC pensions, we also have significant savings in S&S ISA's.

The idea is to transfer this pension into a SIPP (Vanguard) take the tax free amount in the process. I presume if she were to drawdown the rest before state pension age and keeping under her tax threshold as a non earner it would all be tax free? 

The surplus would be reinvested into her annual S&S ISA allowance.  Does this make sense or have I missed anything?  

It wouldn't be "tax free" no, that would just be the 25% TFLS (assuming she hasn't hit the new LTA max).

It will be taxable pension income .  The tax due on which will depend on her total income (and types of income) for each tax year.  It could be £0 tax is due.  But it's still taxable income.

Gotcha. So technically as a non earner, income wise £0 tax should be due. However she will be getting a couple of grand interest on NS&I savings and will have a small DB pension aged 60 of about £300 a month. I guess its juggling the drawdown to keep under her allowance until state pension age.

I'm just wondering if this makes sense and lumping it into her S&S ISA is a sensible thing to do (notwithstanding the risk element). She's mainly invested in VLS60.

Even if she has pension income of £12,570 (or £11,310 if she has applied for Marriage Allowance) she will have the savings starter rate band to use.  That's upto £5,000 interest taxed at 0%.

And once that has been used there is the savings nil rate band where upto £1,000 interest is also taxed at 0%.

Both those things can only be used once her Personal Allowance has been fully used.

SVaz

Don’t forget she’ll have the starter savings rate too 🙂

ossie48

SVaz said:

She could draw nigh on £17k a year from a Sipp ( why Vanguard?)  and pay no tax.
Does she not transfer her marriage allowance to you?  

Is she going to put £3600 net into a Sipp to get £750 tax relief  

If she’s planning to get it all out,  she should be selling a few years’ income i to a short term money fund or similar to protect against crashes. 

My Wife’s a similar age and emptying her Sipp over the next 7 years into ISAs.  

She has a Vanguard SIPP in place and been utilising the £3600 to get the tax relief for a few years but has left it all there. We thought she just could just add this pension to it. Likewise she's transferred her marriage allowance to me.

Your last sentence is basically what we're looking at, just wanted to know if it made sense. 

Albermarle

ossie48 said:

SVaz said:

She could draw nigh on £17k a year from a Sipp ( why Vanguard?)  and pay no tax.
Does she not transfer her marriage allowance to you?  

Is she going to put £3600 net into a Sipp to get £750 tax relief  

If she’s planning to get it all out,  she should be selling a few years’ income i to a short term money fund or similar to protect against crashes. 

My Wife’s a similar age and emptying her Sipp over the next 7 years into ISAs.  

She has a Vanguard SIPP in place and been utilising the £3600 to get the tax relief for a few years but has left it all there. We thought she just could just add this pension to it. Likewise she's transferred her marriage allowance to me.

Your last sentence is basically what we're looking at, just wanted to know if it made sense. 

Yes it makes sense to transfer out to a more flexible drawdown scheme.
Then it also makes sense for her to withdraw taxable income which uses up any spare personal allowance until she gets her state pension.

Vanguard have reasonable costs but they are often mentioned on this forum for poor/slow customer service.
If you are just adding money then not normally an issue. However if you are transferring to them, and then withdrawing, you may become aware of it.