Another DB & DC pension question

MetManMark

Following on from my last post…

I have ten years till I turn 60 and can access my Premium Civil Service pension and then need to wait until my state pension and Alpha pension to kick in (currently 67, I think). My working assumption is that I won't take the lump sum option (for my Civil Service pensions) given comments to my previous posting.

I also have a SIPP that stands at around £130k and I am paying in ~£20k a year and will do so until I retire. My question is around the Lump Sum Allowance which I understand currently stands at a max of £268,275.I think I understand how this works such that I am tempted to take out the 25% of my SIPP tax free to give to our children for house deposits etc. I will draw down the rest of my SIPP to bridge the gap between 60 and the time at which my state pension & alpha pensions kick in (making sure that I stay under the 40% tax bracket). Do my Civil Service pensions impact the calculation in any way? ie do I just need to consider 25% of my SIPP in isolation or is there some relationship that I need to bear in mind?

Thanks in advance

M

DRS1

When you take the lump sum from the SIPP you will probably be asked questions about what other lump sums you have taken and what percentage of the old lifetime allowance you have used up with earlier pensions (ie ones already in payment). If the SIPP is the first pension you have touched then those questions won't affect you. They are designed to see if you are bumping up against the Lump Sum Allowance. If you have not used any of the LSA then you will be able to take the full 25% TFLS out of the SIPP.

Whatever you take will restrict any later lump sum you may take from any other pension you have but obviously if you have decided not to take a lump sum from any other pension then you won't care.

hara____

As an aside: you don't have to wait until state pension age to take Alpha. Yes, the amount will be reduced if you take it sooner, say at 60. But for many people that is an option worth considering, especially if it works well from an income tax perspective.

MetManMark

Thanks. I don't envisage taking any other lump sums. Obviously the rules might change in the next ten years but if there are no additional restrictions applied from having DB schemes then I am tempted to keep plugging away at my SIPP. Currently my approach is to put anything salary over £50k into my SIPP but I am also tempted to max this out if I inherit any money etc. I'll get tax relief on the way in and get 25% back without paying tax on the way out . Feels like a no brainer to me…

M

MetManMark

https://forums.moneysavingexpert.com/discussion/comment/81875737#Comment_81875737

I am tempted to work till 61 in order to get my 35 years NI contributions 🤣

MTB1986

https://forums.moneysavingexpert.com/discussion/comment/81875753#Comment_81875753

Do you definitely need 35 years? It would be a coincidence if so, as everybody who started work prior to 2016 needs a varying amount of years. 33 for me! Might be worth you checking your state pension forecast if you haven’t already, to see how many more years you have to go until full entitlement is reached.

Vitor

If you’re 50 now, most of your Civil Service accrual will usually be in alpha (introduced in 2015), with any earlier service in Classic, Premium or Nuvos. That distinction matters. DB pensions don’t operate independently of the Lump Sum Allowance. Any tax-free lump sums you actually take from DB schemes will use part of the allowance, and DB scheme rules also limit how much tax-free cash you can take in the first place. It is therefore not “25% of the SIPP in isolation”. Also, assuming you should decline the CS lump sum is risky. CS commutation terms are often good value. This really needs a proper projection from an IFA.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/81875741#Comment_81875741

Of course they can always change the law in the next ten years. Back in 2014 I applied for protection from the lifetime allowance decreasing. If I had known that 10 years later they'd abolish it would I have done that? Maybe because it was still relevant to the lump sum but the consequence was I could not make any pension contributions for 10 years. That grates.

Nothing you can do but keep monitoring what the government is doing to pensions and hope they don't interfere too much with your planning..

MarlowMallard

https://forums.moneysavingexpert.com/discussion/comment/81875753#Comment_81875753

You were presumably contracted-out before 2016, in which case 35 years is probably not enough, most likely 38 or 39 needed. If you have at least 39 total years including at least 9 of those years post-2016, you should be sure to get the full new state pension.

DRS1

Of course you don't have to work to get years counting towards your state pension. You could do something which counts towards NIC credits (looking after grandchildren seems a favourite) or just pay some voluntary contributions.

PropertyGuru_Wannabe

https://forums.moneysavingexpert.com/discussion/comment/81875753#Comment_81875753

You need to bear in mind that if you contribute funds that give you only 20% tax relief, that you may have to pay higher income tax on the way out. For example if you don't take any lump sum in your DB pension and have £40k DB pension and you keep on putting £20k into your SIPP for the next 11 years. You can take out £10k from SIPP a year before anything above that will be taxed at the higher rate. When your State Pension comes in, then all SIPP income will be at the higher level. If you retire at 61, that means you only have 6 years to take out £10k in each year. You need to factor this in with your retirement plans and therefore SIPP is not always the no brainer you were referring to.