Fiscal drag and withdrawal strategies

WillC999

Hi all,

Interested in the discussion on another thread here re. fiscal drag (freezing tax bands) and how best to get money out in retirement. My current thinking is start DB at 56 (about 12k, covers essentials, a sort of annuity feel…) and top up with SIPP (front loaded) until SP starts at 68. Aim is to empty SIPP (spend, to ISA) under the 50k band.

A second option is to put off the DB until 65 (about 18k) and use just the SIPP to bridge to SP at 68.

I prefer the first option, for the annuity feel of the DB and seeing SIPP as a 'fun fund'. I dislike the second option as although the amount of eventual fixed income is higher (about 30k), it comes later.

I'm trying to work out if either is better, in terms of risk, financials, or avoiding hitting the 50k threshold (which as someone pointed out is effectively decreasing each year with fiscal drag).

Anyone got any words of wisdom to impart?

Cheers

Cobbler_tone

Slightly similar position. I will have a DB and DC. I'll trigger the DB bridging pension at 58 of around £30k PA, dropping to £18k at 67, with a small lump sum. I will have around £180k to drain from my DC, which will be for any big purchases, gifting etc. I fully intend to do this without breaching 40% so will take a few years. The alternative was to take a big lump sum from my DB and access the DC quicker but securing a good base via the DB is the most obvious choice. I could of course leave the DB for a few years and drain the DC but that doesn't work for my plans and the reductions are not punitive.

WillC999

https://forums.moneysavingexpert.com/discussion/comment/82006905#Comment_82006905

Yes, that's exactly the choice, and I think the same way you do. The DB should get me used to a baseline existence, and there's also the appeal of using the DB earlier, and feeling like you are getting the most out of it for longer. Obviously one might die at any point, but I think the break-even for my DB is about 25 years (at lower value vs 15 years or so at starting it at 65). It's all a gamble!

NormalNorman

Fiscal drag has been on my mind a lot lately as winding forward to 2029, when I plan to retire, it will be even worse, especially as I live in Scotland with HRT from £43663! Not to mention the silly BRT bands of 19/20/21%.

Come 60 two DB schemes will use up more than the personal allowance even with taking the tax free lump sum from one of them as the commutation rate is in the low 20s. Plus, I plan on keeping my PT role [till 67] as I enjoy it, keeps me busy and generates it's own DB pension.

So that's say a base of ~£20k pa. Then at 67 another two DB schemes plus SP so that's another say ~£20k pa.

So I really need to drain as much as I can from the SIPP between 60 to 67 or I'm stuffed with HRT. I'm already living frugally to avoid HRT esp with funding child through uni so I don't want to skimp in retirement. Savings rate is 50%+ of net salary. So yeah skintness self inflicted.

Think it's best to take the DC 25% lump sum and continue to build ISAs [S&S + Cash] which is difficult as I have to prioritise pension to keep in BRT.

I have thought about delaying the SP to drain more from the SIPP at BRT or fate might just boot me out my main job now in which case I'll make a start on the SIPP now keeping the SP as planned. I'm sure the PT job would give me more hours plus a bit of redundancy and job seekers to bridge two odd years.

Wife has DB/DC mix too but a bit lower so no HRT to worry about.

We are also likely to downsize freeing up say £100,000+ as this place will be way to big for us and not where we want our final house to be.

So I suppose we are aiming for about £4.5k net pm between us with savings for big extras and gifting to daughter?

Not had a mortgage for yonks so not using some of the valuable BRT band for repayments. Also managed to claim some allowances to get my personal allowance up to ~£13k instead of £12570. Every little helps.

This is obviously brief but have it all mapped out on graphs of what starts when etc. Also trying to cut down on the number of times I look at the ii app!

PS My figures are in todays prices.

Shadyocuk

Another thing to consider when deciding on when to trigger taking a DB , is what is the future inflation uplift and is it capped ??

My figures are much smaller than most on this board ( so higher rate tax does not concern me) but the fact that whilst in differement my 2 small DB's rise with uncapped RPI , but once in payment they both rise by RPI capped at 5% means I am likely to try an live off just my SIPP's for a few years to reduce the risk of high inflation eating into the DB's at the very start.

HedgehogRulez

you are allowed to pay HRT btw. It’s not a sin

fizio

https://forums.moneysavingexpert.com/discussion/comment/82007707#Comment_82007707

True but it’s just annoying to do. I am a few k below th threshold with just DB and a couple of other bits so my DC is just sitting there as I am currently refusing to pay HRT as I will likely spend on fun stuff which i am already done some of. Not fussed about IHT so a bi stuck - especially as I have been able to fill ISA with existing income/savings. Probably 1 year soon I may just take out extra 50k and pay HRT tax and buy a new car or something.. Obviously it will be worse in a few years when state pension comes along - nice problems to have i know but the tax system is so dumb that i have quit all sorts of self employed work cause HRT means i would rather not bother - which is of zero help to the economy..

mrklaw

been playing with this too. Had roughly settled on taking at retirement at 58 as it reduces the draw on the SIPP, provides a basic income floor, and should be a sequence risk mitigation. If you leave the DB to 65 then your SIPP is entirely exposed right at the start when SORR is the most..risky.

I’ve tweaked it very slightly for my specific situation since then. If I take it at 60 (and if I understood the complex scheme calculations correctly), then the slightly increased DB means that at 67 with two state pensions, thats all our needs covered and the DC turns into fun mode. That part is attractive to me. So I’ll put aside some cash for the top up of those first two years outside of equities to not increase SORR on that little part

cfw1994

https://forums.moneysavingexpert.com/discussion/comment/82007707#Comment_82007707

Very true.

A wise friend once told me “well, the more tax you pay, the more you have earned 💪”.

WillC999

https://forums.moneysavingexpert.com/discussion/comment/82008154#Comment_82008154

I like your SORR thinking. I think I’d considered this but perhaps not clearly enough. Early DB, less reliance on SIPP, can weather market crisis better etc. Thanks.

Don’t leave your fun too late though, the knees might not last!

NormalNorman

https://forums.moneysavingexpert.com/discussion/comment/82007866#Comment_82007866

One of my best mates faced a similar issue. Without going into to much detail he decided to quit working as once in receipt of pension incomes he no longer saw working as worthwhile due to the sheer amount of tax he was paying. Not just IT but being a beneficiary of a very good inheritance, tax on savings became a big issue as unable to loose the money into tax wrappers. He was very good at his job and his former employer still wants him back. Like you say a loss to the economy.