Utilising PA for spouse with small pot? Good or bad?!

handful

Just to give some context, my circumstances are as follows-

My SIPP with value of £460k - age 63 with full SP entitlement in 2027

MY OH with a SIPP of £110k - age 60 with full SP entitlement in 2030

I retired last year and my goals in very simple terms were as follows:-

Withdraw £16760 UFPLS from my SIPP to use PA

withdraw £16760 UFPLS from OH's SIPP to use PA

Any further spending requirement to come from ISA or other cash/savings

I have a small DB pension available to take at 65 or before if needed. I think of this as a bit of a contingency buffer - £18k TFC + around £3k pa. We haven't taken any TFC from either SIPP. My plan is to take all the TFC from my SIPP when I reach SPA so I will only effectively pay tax on the DB pension that I will be receiving by then and then use the TFC to top up spending requirements and therefore kick tax further down the road. (We will keep ISA allowances for both of us for 2 years to put £80k away and the rest in maybe Premium bonds/ GIA depending on the tax situation at the time.)

Our thinking has always been to kick tax down the road, particularly during the SORR period but to continue to do this will clearly deplete the OH's SIPP considerably. We discussed this at the time we retired and agreed that as long as her SIPP lasts us to SPA for her we are ok with it but recently I've been wondering if we may have missed something in our decision. We have been fortunate that we've seen good growth and both of our SIPPs are worth more than they were when we retired despite having drawn down £33k+ from both but know that this is highly unlikely to continue. I would appreciate any comments that point to flaws in our thinking? Thanks

Dazed_and_C0nfused

handful said:

Just to give some context, my circumstances are as follows-

My SIPP with value of £460k - age 63 with full SP entitlement in 2027

MY OH with a SIPP of £110k - age 60 with full SP entitlement in 2030

I retired last year and my goals in very simple terms were as follows:-

Withdraw £16760 UFPLS from my SIPP to use PA

withdraw £16760 UFPLS from OH's SIPP to use PA

Any further spending requirement to come from ISA or other cash/savings

I have a small DB pension available to take at 65 or before if needed. I think of this as a bit of a contingency buffer - £18k TFC + around £3k pa. We haven't taken any TFC from either SIPP. My plan is to take all the TFC from my SIPP when I reach SPA so I will only effectively pay tax on the DB pension that I will be receiving by then and then use the TFC to top up spending requirements and therefore kick tax further down the road. (We will keep ISA allowances for both of us for 2 years to put £80k away and the rest in maybe Premium bonds/ GIA depending on the tax situation at the time.)

Our thinking has always been to kick tax down the road, particularly during the SORR period but to continue to do this will clearly deplete the OH's SIPP considerably. We discussed this at the time we retired and agreed that as long as her SIPP lasts us to SPA for her we are ok with it but recently I've been wondering if we may have missed something in our decision. We have been fortunate that we've seen good growth and both of our SIPPs are worth more than they were when we retired despite having drawn down £33k+ from both but know that this is highly unlikely to continue. I would appreciate any comments that point to flaws in our thinking? Thanks

How can you have taken £33k taxable income without taking some tax free cash either before or at the same time??

handful

Dazed_and_C0nfused said:

handful said:

Just to give some context, my circumstances are as follows-

My SIPP with value of £460k - age 63 with full SP entitlement in 2027

MY OH with a SIPP of £110k - age 60 with full SP entitlement in 2030

I retired last year and my goals in very simple terms were as follows:-

Withdraw £16760 UFPLS from my SIPP to use PA

withdraw £16760 UFPLS from OH's SIPP to use PA

Any further spending requirement to come from ISA or other cash/savings

I have a small DB pension available to take at 65 or before if needed. I think of this as a bit of a contingency buffer - £18k TFC + around £3k pa. We haven't taken any TFC from either SIPP. My plan is to take all the TFC from my SIPP when I reach SPA so I will only effectively pay tax on the DB pension that I will be receiving by then and then use the TFC to top up spending requirements and therefore kick tax further down the road. (We will keep ISA allowances for both of us for 2 years to put £80k away and the rest in maybe Premium bonds/ GIA depending on the tax situation at the time.)

Our thinking has always been to kick tax down the road, particularly during the SORR period but to continue to do this will clearly deplete the OH's SIPP considerably. We discussed this at the time we retired and agreed that as long as her SIPP lasts us to SPA for her we are ok with it but recently I've been wondering if we may have missed something in our decision. We have been fortunate that we've seen good growth and both of our SIPPs are worth more than they were when we retired despite having drawn down £33k+ from both but know that this is highly unlikely to continue. I would appreciate any comments that point to flaws in our thinking? Thanks

How can you have taken £33k taxable income without taking some tax free cash either before or at the same time??

Just the UFPLS on the withdrawals we've made! Everything in the SIPPS currently is uncrystallised. Sorry if that wasn't clear.

DRS1

You mention not having taken any TFC from either SIPP but you have done so by taking UFPLS.  It probably does not matter as you are not likely to hit the LSA and you still have 25% of your SIPP available for TFC.  But if your investments hit the jackpot and you suddenly have a SIPP worth more than £1.1 million you're going to need to have kept a record of the TFC you have taken as part of the UFPLS.

If you have started a strategy of using UFPLS why do you suddenly want to draw all the remaining TFC at SPA?  What then happens to the taxable withdrawals from the SIPP?

One small point confuses me - you say your OH will have a full state pension in 2030 but if my maths is right she will only be 65 then - she won't be able to receive a state pension until she is 67.  I am not sure if your sums were based on getting her to 2030 or a later date.

Plenty of people draw just enough that they pay no tax.  Others draw just enough that they pay only basic rate tax.  Some people draw enough to pay basic rate tax now in order to get money out of their SIPP into an ISA. It is all "tax planning" and I think it is fine as long as you have also done the how much do I need and where is it going to come from calculation 

Oh and kicking tax down the road is great until someone comes along and increases the tax rates.

handful

DRS1 said:

You mention not having taken any TFC from either SIPP but you have done so by taking UFPLS.  It probably does not matter as you are not likely to hit the LSA and you still have 25% of your SIPP available for TFC.  But if your investments hit the jackpot and you suddenly have a SIPP worth more than £1.1 million you're going to need to have kept a record of the TFC you have taken as part of the UFPLS.

Yes, thanks I am aware of that and keep records of that however unlikely it seems at the moment!

If you have started a strategy of using UFPLS why do you suddenly want to draw all the remaining TFC at SPA?  What then happens to the taxable withdrawals from the SIPP?

Because taking TFC on all will allow me to use that cash to avoid paying tax by using it to top up SP/DB payments withdrawal. I guess I can continue taking UFPLS every year on a smaller amount and pay tax on all but the TFC element of it?

One small point confuses me - you say your OH will have a full state pension in 2030 but if my maths is right she will only be 65 then - she won't be able to receive a state pension until she is 67.  I am not sure if your sums were based on getting her to 2030 or a later date.

Apologies, an error on my part, it is 2032.

Plenty of people draw just enough that they pay no tax.  Others draw just enough that they pay only basic rate tax.  Some people draw enough to pay basic rate tax now in order to get money out of their SIPP into an ISA. It is all "tax planning" and I think it is fine as long as you have also done the how much do I need and where is it going to come from calculation  

I think once I get to SPA I will be more relaxed about paying at least lower rate tax to avoid higher rate later but am nervous about a crash before getting there!

Oh and kicking tax down the road is great until someone comes along and increases the tax rates.

Yes, I know that but as above, the risk of my plan failing is much lower when both of us are receiving SP!!

Thanks for the comments, responses above against each one.

DRS1

"Because taking TFC on all will allow me to use that cash to avoid paying tax by using it to top up SP/DB payments withdrawal. I guess I can continue taking UFPLS every year on a smaller amount and pay tax on all but the TFC element of it?"

I guess one thing about UFPLS is that it stretches out the TFC and allows you to possibly take more of it overall assuming your pension continues to grow. If you take all the TFC out at once (eg at SPA) then any further investment growth in the pension will be taxable income when it comes out.  Of course that assumption about future growth may not come true and you may hit the high point of your pension pot at SPA in which case your plan is perfect.

handful

DRS1 said:

"Because taking TFC on all will allow me to use that cash to avoid paying tax by using it to top up SP/DB payments withdrawal. I guess I can continue taking UFPLS every year on a smaller amount and pay tax on all but the TFC element of it?"

I guess one thing about UFPLS is that it stretches out the TFC and allows you to possibly take more of it overall assuming your pension continues to grow. If you take all the TFC out at once (eg at SPA) then any further investment growth in the pension will be taxable income when it comes out.  Of course that assumption about future growth may not come true and you may hit the high point of your pension pot at SPA in which case your plan is perfect.

Thank you DRS1, very helpful. I guess another option is to crystallise enough to get enough TFC to fill 2 years of ISA allowances for me and OH (£80k) but straight back into the same investments they were in within the SIPP so that future growth is tax free as well. I can then still do further UFLPS withdrawals with the remaining uncrystallised funds?

Albermarle

You mention you are worried about a crash before reaching SPA.
With hopefully 30 years ahead of you , you will probably see quite a few crashes.
If you are invested correctly for the long term, then you should not be over concerned about crashes, as they are an inevitable part of investing.

LHW99

Have you calculated what is available to you / her after first death?

NSP is no longer inheritable (only a portion of any protected payment) and DB pensions reduce to a fraction (50%?) for the surviving partner.

handful

Albermarle said:

You mention you are worried about a crash before reaching SPA.
With hopefully 30 years ahead of you , you will probably see quite a few crashes.
If you are invested correctly for the long term, then you should not be over concerned about crashes, as they are an inevitable part of investing.

I guess I've only been concerned about a huge crash in the first couple of years but probably have sufficient contingency in place unless it was an unprecedented one that took 10 years to correct! I've seen enough growth in the first 2 years to cover most eventualities and be no worse off with contingency still in place (STMM in SIPP + some cash and premium bonds) I suppose worrying is a natural part of moving from accumulation to decumulation!

handful

LHW99 said:

Have you calculated what is available to you / her after first death?

NSP is no longer inheritable (only a portion of any protected payment) and DB pensions reduce to a fraction (50%?) for the surviving partner.

Yes, effectively whatever we have left in the surviving SIPP. Either of us would lose one SP overall but we do have scope to increase funds with a downsize and sale of motorhome. My DB would pay out 50% to the OH but it's not a huge amount anyway.