Most efficient way of taking my DC/SIPP whilst already taking my DB (before the tax man gets it)!

itsmeagain

I retired at 55 (now nearly 60) and my DB is £33k PA (did not take any cash free).
I will get full state pension in 7.5 years (I've checked), unless things change!
I also have a work DC with £107k (untouched) & a SIPP with £53k (untouched).
I planned on leaving my DC & SIPP for the wife and kids (previously outside estate for IHT).
Estate worth £900k, including property & pensions (without further fiscal drag).
Without further index linking, my DB + State pension will be circa £45k, so with 7 years index linking & fiscal drag, I'll probably reach the £50k 40% tax threshold by the time i'm 67.

So, whilst I have £17k headroom before reaching the 40% tax threshold in 7 years, I'm thinking of getting my DC & SIPP out before I'm 67.

I have a few questions please?
Should I consolidate my Vanguard SIPP & Scottish Widows DC, and if so, how?
Should I take the 25% tax free upfront and then £17k PA or payg tax at circa £23.7k PA?
The money taken from these pensions will be transferred to shares ISA's (similar to my pension).
Anything else that I have missed please?

Thank you to anyone who selflessly spends their own time and effort replying.

kermchem

I am almost in the same position as you describe. I plan to get the money out of DC/SIPP now whilst it costs 20% tax. The 40% threshold is basically frozen almost until you (and I) collect state pension. Wage growth slowed to just 4.5% per year over September to November, so SP triple lock is not going to be just 2.5% for April 2027.

Does wife work? Does she have her own pension(s)? I assume that at least her pension is less than yours. Give her your extra income to contribute either up to all her salary if she is working, or up to £3600 gross if she is not. She doesn't have to just inherit your SIPP, you can effectively transfer money to her own.

With your extra income, gift it to kids either as regular gifts from income or as lump sums, using this year's and last year's £3K limits for you and wife to kids, or make bigger gifts and aim to live 7 years.

Assume that your estate, or wife's, will exceed the IHT threshold when time comes.Plan now.

Take the 25% tax free up front if you can put it into his and hers ISAs, £20K each now and after April 5th. If you take the tax free lump sum now then you can ignore all the press coverage every future autumn about how tax free cash is going to be cut (not).

When you take income from DC/SIPP take a small income in month 1 (under £1K), so that HMRC generate a tax code before you take more.

Given that you probably cannot avoid paying 40% income tax from age 67, the money is better in the same investments in an ISA than a SIPP.

I will be interested in the thoughts of others who reply.

Linton

itsmeagain said:

I retired at 55 (now nearly 60) and my DB is £33k PA (did not take any cash free).
I will get full state pension in 7.5 years (I've checked), unless things change!
I also have a work DC with £107k (untouched) & a SIPP with £53k (untouched).
I planned on leaving my DC & SIPP for the wife and kids (previously outside estate for IHT).
Estate worth £900k, including property & pensions (without further fiscal drag).
Without further index linking, my DB + State pension will be circa £45k, so with 7 years index linking & fiscal drag, I'll probably reach the £50k 40% tax threshold by the time i'm 67.

So, whilst I have £17k headroom before reaching the 40% tax threshold in 7 years, I'm thinking of getting my DC & SIPP out before I'm 67.

I have a few questions please?
Should I consolidate my Vanguard SIPP & Scottish Widows DC, and if so, how?
Should I take the 25% tax free upfront and then £17k PA or payg tax at circa £23.7k PA?
The money taken from these pensions will be transferred to shares ISA's (similar to my pension).
Anything else that I have missed please?

Thank you to anyone who selflessly spends their own time and effort replying.

Have you checked that the SW pension will allow you to draw down? Old pensions started many years ago may not provide the facility. If that is the case, your only option is to transfer elsewhere.

Otherwise it won’t make much difference whether you consolidate first or not.

Also, it won’t make much difference whether you take the 25% up front. Perhaps a bit less hassle if you do, but I don’t know the process for either SW or Vanguard.

Keep_pedalling

Without knowing your wife’s financial situation it is difficult to advise. Is she also retired? What income does she have now? 

Albermarle

Should I consolidate my Vanguard SIPP & Scottish Widows DC, and if so, how?
Should I take the 25% tax free upfront and then £17k PA or payg tax at circa £23.7k PA?

On the first point, the less sources of taxable income you have, the less issues with HMRC. So from that point of view it might be wise to consolidate just for ease of admin, and do it before making any withdrawals of any kind. 
Pension providers are always keen to encourage customers to transfer other pensions into them. If you look at Vanguards or SW website, I am sure you will find info about transfers. Whichever way you do it, you organise it through the receiving scheme. Normally there is no need to have contact with the ceding scheme, although they might contact you to ask you to sign something.
Not sure what you mean by the second question. You can not take taxable income without taking tax free cash, either before or at the same time. 

bucklb

Hi

I've also recently looked at whether to siphon my SIPP in to an ISA, given that the SIPP will soon fall within my estate, and doing so before hitting SP age (whereupon there'd be less headroom to do it).  I've largely decided to leave it as-is so the wife/kids get it as part of my inheritance.

I'm working on the basis that if I leave the SIPP be & die before 75 they get the lot, tax free (assuming I've not hit IHT territory). If I leave it be & die after 75 then whoever gets it might end up paying income tax on it**. If I siphon it in to an ISA then it will definitely have been taxed before anyone gets it.

As I see it there's nothing substantial to be gained by siphoning my SIPP in to an ISA.  There's a small chance that paying income tax on SIPP withdrawals before dying might mean the estate avoids IHT, but I don't think that would happen (and I've started gifting to mitigate that risk)

The ability to take a tax free lump sum is lost at 75, so to me it's a no brainer to take the TFC before 75

** there are scenarios where the inheritor could arrange their tax situation to minimise/avoid tax

If I've made any silly mistakes in my reasoning please do let me know

Cheers

  Bob

DRS1

bucklb said:

The ability to take a tax free lump sum is lost at 75, so to me it's a no brainer to take the TFC before 75

If I've made any silly mistakes in my reasoning please do let me know

Cheers

  Bob

That is something I have thought from time to time but I am not sure it is currently true.

By all means take the TFC because it will not survive your death.  And by all means see if you are going to survive 75 because of the different income tax treatment for the beneficiary where you die before or after 75.  If you die before 75 then losing the TFC matters less.

Albermarle

The ability to take a tax free lump sum is lost at 75, so to me it's a no brainer to take the TFC before 75

Not true. If you are still alive at 75, you can still take any tax free cash available.
The before/after 75 issue only applies when you have died and to the beneficiary pension, so could well still be a good idea to take it before 75.

itsmeagain

kermchem said:

I am almost in the same position as you describe. I plan to get the money out of DC/SIPP now whilst it costs 20% tax. The 40% threshold is basically frozen almost until you (and I) collect state pension. Wage growth slowed to just 4.5% per year over September to November, so SP triple lock is not going to be just 2.5% for April 2027.

Does wife work? Does she have her own pension(s)? I assume that at least her pension is less than yours. Give her your extra income to contribute either up to all her salary if she is working, or up to £3600 gross if she is not. She doesn't have to just inherit your SIPP, you can effectively transfer money to her own.

With your extra income, gift it to kids either as regular gifts from income or as lump sums, using this year's and last year's £3K limits for you and wife to kids, or make bigger gifts and aim to live 7 years.

Assume that your estate, or wife's, will exceed the IHT threshold when time comes.Plan now.

Take the 25% tax free up front if you can put it into his and hers ISAs, £20K each now and after April 5th. If you take the tax free lump sum now then you can ignore all the press coverage every future autumn about how tax free cash is going to be cut (not).

When you take income from DC/SIPP take a small income in month 1 (under £1K), so that HMRC generate a tax code before you take more.

Given that you probably cannot avoid paying 40% income tax from age 67, the money is better in the same investments in an ISA than a SIPP.

I will be interested in the thoughts of others who reply.

Thanks for your reply.

My 60 year old wife has just retired from a part time job. She has a teachers assistant DB pension of circa £3k pa, lump sum £6k. There would be an early reduction factor applied for if taken before 65. (Not yet taken).

Over the last 7 years, she's paid 80% of her income into a Vanguard SIPP. It looks like she'll be able to her £90k out tax free over the next 7 years. She also has an £25k ISA. Not used her allowance this year (so we have £40k allowance between us to feed my SIPP/DC into, then a new allowance each in April 26.

I've not got long left to take out £17k from my DC/SIPP before April this year, so I'll probably trigger emergency tax, until the following year when I could distribute £17k as monthly income for the following years.

Both mine & my wife's DC/SIPP would be switched to ISA's over the same 7 years, some will go to the kids. 
 

itsmeagain

Linton said:

itsmeagain said:

I retired at 55 (now nearly 60) and my DB is £33k PA (did not take any cash free).
I will get full state pension in 7.5 years (I've checked), unless things change!
I also have a work DC with £107k (untouched) & a SIPP with £53k (untouched).
I planned on leaving my DC & SIPP for the wife and kids (previously outside estate for IHT).
Estate worth £900k, including property & pensions (without further fiscal drag).
Without further index linking, my DB + State pension will be circa £45k, so with 7 years index linking & fiscal drag, I'll probably reach the £50k 40% tax threshold by the time i'm 67.

So, whilst I have £17k headroom before reaching the 40% tax threshold in 7 years, I'm thinking of getting my DC & SIPP out before I'm 67.

I have a few questions please?
Should I consolidate my Vanguard SIPP & Scottish Widows DC, and if so, how?
Should I take the 25% tax free upfront and then £17k PA or payg tax at circa £23.7k PA?
The money taken from these pensions will be transferred to shares ISA's (similar to my pension).
Anything else that I have missed please?

Thank you to anyone who selflessly spends their own time and effort replying.

Have you checked that the SW pension will allow you to draw down? Old pensions started many years ago may not provide the facility. If that is the case, your only option is to transfer elsewhere.

Otherwise it won’t make much difference whether you consolidate first or not.

Also, it won’t make much difference whether you take the 25% up front. Perhaps a bit less hassle if you do, but I don’t know the process for either SW or Vanguard.

Thanks for your reply.

I've checked that both allow drawdown. It's actually a relatively new DC pension. I had 39 years service of DB and later new employees could only join the DC (DB closed to new employees). I simply used the company DC scheme as an AVC vehicle for my last 5 years of employment, enabling me to sink anything that would have otherwise been taxed at 40% (via salary sacrifice).
As far as Scottish Widows are concerned, it's a DC workplace pension (albeit with no company contribution because I stayed in the DB scheme).

itsmeagain

Keep_pedalling said:

Without knowing your wife’s financial situation it is difficult to advise. Is she also retired? What income does she have now? 

Thanks for your reply.

I've since posted financial info for my wife (post #462)