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

SVaz

We’re currently living on a good £15k less than we will have at 67,  partly because I’ve slowed down with my business to basically work part time and partly because we’re shoving as much as possible into Sipps,  especially my Wife’s, 80% of the salary I pay her to maximise tax efficiency, given that she’ll have 5 years of full personal allowance to get it all out again tax free and into ISAs, she’s managing to get £5600 out currently.  

  I get my military pension soon and that’s going straight into my Sipp for a couple of years too. 

My lump sum is going into an ISA for a year to pay off the mortgage when the 1% fix ends.  

DRS1

poseidon1 said:

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.

You have a lot of income streams there.  And clearly a financial understanding of the benefits of borrowing.  When I had a mortgage it was a repayment one and I made every effort to pay chunks of it off early.  Once it had gone that was a weight off my mind.  I don't think I could comfortably maintain a mortgage into retirement even if I knew that the cost of it was outweighed by the return I was getting on the money I had invested.  The way you are doing it is probably keeping you alert which is no bad thing as my little grey cells seem to be going AWOL. 

jimjames

mmuibs said:

- one further option that I have contemplated is that I take a bigger total PCLS from my DB &/or DCs/SIPP and put that into the ISAs rather than lose the accumulated allowances - but that does as one poster commented definitely feel like the tax tail wagging the dog!

For that it sounds like the opposite to me and making best use of your tax free allowances that have been built up. If you have an opportunity to move tax free money from one wrapper to another with no downsides then I can't see any reason not to do so. As mentioned elsewhere inside the SIPP the growth is potentially taxable, inside the ISA it's not. Obviously if you have only £20k allowance available it's not so obvious but if it's £100k plus then it would be a shame to lose that as it will take 5+ years to rebuild and you'd have another £100k you could put into ISAs instead.

poseidon1

DRS1 said:

poseidon1 said:

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.

You have a lot of income streams there.  And clearly a financial understanding of the benefits of borrowing.  When I had a mortgage it was a repayment one and I made every effort to pay chunks of it off early.  Once it had gone that was a weight off my mind.  I don't think I could comfortably maintain a mortgage into retirement even if I knew that the cost of it was outweighed by the return I was getting on the money I had invested.  The way you are doing it is probably keeping you alert which is no bad thing as my little grey cells seem to be going AWOL. 

I agree, for the vast majority mortgages are seen as a significant burden to be eliminated ASAP. For me, using debt to acquire appreciating assets made sense especially where inflation erodes the value of the debt over time. However interest only mortgages with no plan to settle the debt are dangerous for most people. 

I had to smile at the sharpening the 'grey cells' comment. That has indeed been an useful side benefit of managing and finessing the diverse income streams and collating the same for self assessment purposes.

However, should I find in the years to come that  mistakes begin to be made , that will be the 'canary in the mine' warning that simplification and rationalisation of my affairs will become necessary. 

Albermarle

tetrarch said:

I slightly disagree.

I would always advocate for taking out the maximum TFLS from any SIPP as early as practicable.

Firstly because of regulatory uncertainty - you don't know how long any government of any hue being able to resist closure of the TFLS "loophole" where they get no revenue

Secondly, because investment growth within a SIPP becomes taxable whereas investment growth in an ISA is completely tax-free

Some of this will depend on your marital status and the treatment of Pensions/ISA's were you to pre-decease your other half

Dependent on your retirement budget, with your numbers you are not going to be able to avoid 40% tax somewhere along the line - which is, in the round, maybe a nice problem to have
Regards

Tet 

The second reason is valid, but the first one is not really.

The TFLS is not a loophole, it is an integral part of the pensions system.
For the majority of people in a private sector workplace DC pension ( many Millions) the TFLS is the only real tax advantage of saving into a pension. All recent Govts have wanted to encourage as many people as possible to save into a pension, especially the lower paid. So they will never remove it. In any case it would be wildly unpopular, also in the public sector DB schemes.
Of course there is speculation that the maximum cap on the TFLS maybe be reduced, and for those with big pensions that is an incentive to take it quicker maybe.