Tax efficiency with a combination of DB & DC pensions and a SIPP

poseidon1

DRS1 said:

poseidon1 said:

Marcon said:

Sounds a bit as if the tax tail is wagging the dog...

As usual.

Always astounds me this obsession with sticking within the 20% band in retirement come hell or high water. A peculiar but pervasive mindset in my opinion.

But it is the holy grail of retirement planning - contribute while you pay 40% tax (for the 40% tax relief) and receive your pension while paying 20% tax.

Not my holy grail. 

Mine was to be a high earner whilst working, and achieve even higher income in retirement.

 Took 10 years, but with the state pension, now at the point of  matching pre retirement income and that has been without accessing SIPP, so eventual SIPP drawdown will be icing on the cake.

GunJack

DRS1 said:

poseidon1 said:

Marcon said:

Sounds a bit as if the tax tail is wagging the dog...

As usual.

Always astounds me this obsession with sticking within the 20% band in retirement come hell or high water. A peculiar but pervasive mindset in my opinion.

But it is the holy grail of retirement planning - contribute while you pay 40% tax (for the 40% tax relief) and receive your pension while paying 20% tax.

Still think this is rubbish....if someone said here's a _1k pay rise, but it's taxed at 40pct so you get £600 in hand, would you turn it down??? Don't think many would.....

Cobbler_tone

Once you hit 40% you either pay some 40% tax or never get a net pay rise. I’ve done both. Maximised my net pay and now maximise my pension contributions.

GunJack

Cobbler_tone said:

Once you hit 40% you either pay some 40% tax or never get a net pay rise. I’ve done both. Maximised my net pay and now maximise my pension contributions.

And while in work that can be relatively easy to do, how many people could afford to do no net pay rises in retirement?

Cobbler_tone

GunJack said:

Cobbler_tone said:

Once you hit 40% you either pay some 40% tax or never get a net pay rise. I’ve done both. Maximised my net pay and now maximise my pension contributions.

And while in work that can be relatively easy to do, how many people could afford to do no net pay rises in retirement?

Not quite sure of the point, other than you need to pay 40% tax if you want a pay rise at work or in retirement, if you are fortunate enough to retire in that ballpark. Maybe that was your point, or that it is 'unfair' that those retirees can't continue to avoid 40% tax in certain circumstances. I don't think that will attract much sympathy, after all they took the WFA away too.
Or maybe dip into the £200k of ISAs, cash in some Premium bonds or flog some of the gold sovereign's from under the bed. Or pay some higher rate tax god forbid.
I'd say it is generally harder to go through your working life without getting a net pay rise. I've never had an issue with the 40% band, apart from when they based child benefit on a single income as opposed to household. I thought that was a tad unfair. I have enjoyed seeing my tax bill drop for £17k one year down to £4k this year. They can get a bit more when I take it out.

PattiTelongo

I’ve never had an issue with 40% tax band either but I have a big issue with frozen thresholds. Earning 50k is the new 30k where as it used to be seen as a good wage it now feels pretty average and that’s thanks to various crap chancellors and the cost of living. 

GunJack

I think my point was that if you want to maintain or increase your standard of living you'll end up paying 40pct tax, which to me is not a problem but to a lot of people who frequent this forum is such a big deal, like cutting your nose off to spite your face and I really don't get why they think like that..

Cobbler_tone

PattiTelongo said:

I’ve never had an issue with 40% tax band either but I have a big issue with frozen thresholds. Earning 50k is the new 30k where as it used to be seen as a good wage it now feels pretty average and that’s thanks to various crap chancellors and the cost of living. 

If they couple that with reducing the relief going into a pension it could be a proper money spinner. 

DRS1

poseidon1 said:

DRS1 said:

poseidon1 said:

Marcon said:

Sounds a bit as if the tax tail is wagging the dog...

As usual.

Always astounds me this obsession with sticking within the 20% band in retirement come hell or high water. A peculiar but pervasive mindset in my opinion.

But it is the holy grail of retirement planning - contribute while you pay 40% tax (for the 40% tax relief) and receive your pension while paying 20% tax.

Not my holy grail. 

Mine was to be a high earner whilst working, and achieve even higher income in retirement.

 Took 10 years, but with the state pension, now at the point of  matching pre retirement income and that has been without accessing SIPP, so eventual SIPP drawdown will be icing on the cake.

Interesting.  I am fond of an income myself but there is no way my income in "retirement" is getting near the income I had when I was working.

I suppose I am also still rooted in the old tax regime where the most you could get out of your (tax approved) pension was 2/3rds of your final remuneration.  So getting 100% of it seems ambitious.

poseidon1

DRS1 said:

poseidon1 said:

DRS1 said:

poseidon1 said:

Marcon said:

Sounds a bit as if the tax tail is wagging the dog...

As usual.

Always astounds me this obsession with sticking within the 20% band in retirement come hell or high water. A peculiar but pervasive mindset in my opinion.

But it is the holy grail of retirement planning - contribute while you pay 40% tax (for the 40% tax relief) and receive your pension while paying 20% tax.

Not my holy grail. 

Mine was to be a high earner whilst working, and achieve even higher income in retirement.

 Took 10 years, but with the state pension, now at the point of  matching pre retirement income and that has been without accessing SIPP, so eventual SIPP drawdown will be icing on the cake.

Interesting.  I am fond of an income myself but there is no way my income in "retirement" is getting near the income I had when I was working.

I suppose I am also still rooted in the old tax regime where the most you could get out of your (tax approved) pension was 2/3rds of your final remuneration.  So getting 100% of it seems ambitious.

Trying to exceed your pre retirement earned income after retiring would be challenging if solely reliant on pensions.

 For me it was all about building capital for investment in  alternative income streams whilst working, and growing that capital  ( and income derived therefrom) when retired.  As an example, retaining an interest only mortgage for as long as possible, helped free up funds to invest in GIA, ISAs, 2nd property as well as SIPPs. To this day I still have a mortgage which I intend to increase by equity release, to free up further investable funds. So rather than work for a living, I having been 'working' the asset base.


The process is an ongoing one , but it took me a long time to reach a six figure income whilst working, I could see no reason not to set an objective to try and  get back to parity and beyond in retirement.