Most efficient way to get £20k pa pension from following?

KeiserSoze

Hi!

I've previously toyed with getting an annuity but now my head is going the way of drawdown when I'm 55 (in the next couple of years). I can live comfortably on £20k pa (increasing by c3%), so would appreciate thoughts on the best way to approach it giving the following income streams (appreciate the most efficient and most tax efficient are not always the same);

DC pot £285k
S&S ISA £50k
DB pension due to pay £3500 pa at 55 index linked (no TF element)
Full SP due at 67 with no further contributions 
Single, no dependents 

Would it be best to simply drawdown £16500 pa (inc £4125 pa tax free) and the remaining £3500 pa from the ISA, thus paying no IT? (deferring the DB pension)

Or make up the shortfall with the DB pension and a bit of the ISA, paying around £700 pa in IT?

Is it a zero sum game all being equal, in that whether I defer the DB pension or not I'll be paying the same amount of IT if I life to an average age.

I'm not bothered about leaving an inheritance and some where down the line will be downsizing releasing hopefully between £100k-£200k in equity (depending on market conditions at the time).

Cheers! 

Marcon

KeiserSoze said:

Hi!

I've previously toyed with getting an annuity but now my head is going the way of drawdown when I'm 55 (in the next couple of years). I can live comfortably on £20k pa (increasing by c3%), so would appreciate thoughts on the best way to approach it giving the following income streams (appreciate the most efficient and most tax efficient are not always the same);

DC pot £285k
S&S ISA £50k
DB pension due to pay £3500 pa at 55 index linked (no TF element)
Full SP due at 67 with no further contributions 
Single, no dependents 

Would it be best to simply drawdown £16500 pa (inc £4125 pa tax free) and the remaining £3500 pa from the ISA, thus paying no IT? (deferring the DB pension)

Or make up the shortfall with the DB pension and a bit of the ISA, paying around £700 pa in IT?

Is it a zero sum game all being equal, in that whether I defer the DB pension or not I'll be paying the same amount of IT if I life to an average age.

I'm not bothered about leaving an inheritance and some where down the line will be downsizing releasing hopefully between £100k-£200k in equity (depending on market conditions at the time).

Cheers! 

What happens to your DB pension if you don't take it at 55? In other words, how does it increase if you delay taking it?

Edit - just looked at your post from April https://forums.moneysavingexpert.com/discussion/6599704/guaranteed-minimum-pension-gmp-and-cash-in-value#latest which said you won't be able to take this until age 58 because the GMP won't be covered. Are you certain that situation has changed?

KeiserSoze

The pension mentioned previously is worth less than £1k pa and I haven't included it in the above. Re the £3500 DB pension that I have mentioned, if I can take it from any year from 55 (with an actuarial reduction), so if I don't take it at the earliest opportunity, it'll be higher when I do take it 

QrizB

Let's start at the end and work backward.

KeiserSoze said:

DC pot £285k
S&S ISA £50k
DB pension due to pay £3500 pa at 55 index linked (no TF element)
Full SP due at 67 with no further contributions 

Once you get to 67, you'll have £12k SP plus 3.5k DB and will need another £4.5k to achieve £20k pa. We can cover that with an RPI-linked annuity.
Using HL's current best buys:

• At age 65, £4.5k pa will cost £84k
• At age 60, £4.5k pa will cost £97k
• At age 55, £4.5k pa will cost £106k

If you take the annuity at age 55, you'll need £12k pa for 12 years to substitute for SP until you get to 67. That's £144k.

So, at age 55:

• Claim DB pension
• Use £142k of DC pot to buy £4.5k pa annuity and get £36k TFLS
• Add £36k TFLS to ISA
• Draw down £12k a year from your DC pot for next 12 years.
• At 67, claim SP.

£142k for the annuity purchase and TFLS, plus £144k for 12 years of £12k pa, is £286k - a pretty good match to your current £285k DC pot. You'll also have £86k in your ISA in case you decide that £20k gross pa isn't enough, or you have unplanned-for expenses.

friolento

Keep an eye on state pension age legislation. Whilst you might be ok under currently existing legislation, the start of the increase from 67 to 68 may well be brought forward from 2044. 

singhini

Also think about inflation in your planning.
£20k today might be £24k in five years or £28k in ten years or £30k in fifteen years time if inflation runs at 3%ish year-on-year.

af1963

I'd actually start by looking at the tradeoffs in taking the DB at different ages.  If the DB has big reductions for taking it early, you may find you're best to leave it alone. If it has a better deal for early claims, you could start with the DB as the foundation.

Either way, the next tranche probably always comes from using up the full tax allowance by drawing from the SIPP. And after that you are choosing between drawing from the SIPP or the ISA.

Using the ISA and leaving more in the SIPP till later means that - at worst - you end up paying the same tax that you would have done by taking from the SIPP earlier. ( tax rate changes excepted ... !).  If there's money left in the SIPP when you die, there *may* be income tax payable on it - but not (currently) if you die before age 75, and not if you are leaving the money to charities.

On-the-coast

I like @QrizB’s plan
it’s risk adverse and leaves you with a good buffer in your isa (and chance of growth there).