Which pension pot to drawdown first?

Happy_Minion

I turn 55 next year and work sucks so I am looking at my options. Assuming I have a plan for after full state pension kicks in at 67, already checked, I need to work out the best drawdown strategy for 55 to 60 then 60-67. I have a small DB pension which starts at 60 paying £4000 per year hence the 2 time periods.

My first DC pension is an old works pension which from 2013 I contributed £57k and investments returned £52k currently. Total £109k. This is an Aegon "Company" Group Personal Pension Plan.

My second DC pension is a SIPP to which I have contributed £84k, most in the last 2 years, and investments returned £21k currently. Total £105k. This is a Vanguard SIPP Target Retirement 2040 Fund.

My plan would be to drawdown up to my tax code plus 25% free per year to get as much out tax free before 67.

My question today is which pot is it better to use first? The works one with older investments or the SIPP with much newer investments.

daveyjp

Third option. Combine the two pots into one fund for drawdown and growth.

Moonwolf

https://forums.moneysavingexpert.com/discussion/comment/82041577#Comment_82041577

Basically this, what are the charges on the two pensions? Either combine to the cheapest if you can or find a new low cost provider and combine to that. If you like particularly the fund choices on one of the schemes you should be able to replicate it cheaper with the new provider.

And don’t forget to pay back in £2880 a year for the tax back.

ali_bear

Sorry to hear that work sucks but it seems you are drawing a decent pay packet given your recent pension contributions.

Have you tried doing some modelling? Have a look at this one Guiide the Happy Retirement Designer plug your numbers in and find out how much your retirement income will be.

DRS1

You should dig down on what your existing pensions can cope with - the pension provider may well say you can do X, Y or Z but when it comes to it the actual plan you are in may not support all of those and you would have to transfer to do which ever one you want to do. The Aegon plan especially may have been set up before X, Y or Z were even allowed by law so you may have to transfer out of that one.

Quite separately you should definitely follow up on @ali_bear's suggestion and do some modelling.

You have £214k in pensions and you are proposing to draw say £18k pa from them for at least 12 years. That equals £216k. Maybe you'll have something left when you are 67 but are you proposing to live on just your state pension from 67? Maybe you have other money?

A good starting point would be working out how much you spend each year and seeing if £18k covers that. It always strikes me that many people posting on here plan their income based on tax bands. I can understand that - people want to be tax efficient but those bands are frozen and sure as anything the cost of living isn't.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/82041859#Comment_82041859

The op has a DB pension, from 60, which is an extra £4k. Still not the likely to be the life of luxury though!

DRS1

Yes I had forgotten about the DB pension. And that may increase in line with inflation (perhaps). OP that is something worth checking as DB pensions come with different increases once in payment ranging from nothing through to full RPI increases.

And I suppose it does mean there will come a time when the OP may have to pay a bit of tax on the taxable pension drawn from the DC pensions. Depends what happens to the personal allowance.

Happy_Minion

https://forums.moneysavingexpert.com/discussion/comment/82041597#Comment_82041597

Thanks for your response. I am on £31k p.a. currently. The large contributions the past 2 years have been from inheritances from my wife and father to maximise pension tax boosts and get the money out of cash. I still have around £160k in cash and ISAs so the interest from that comes to around £5k p.a.

I will have a look at modelling to make sure I have enough to last me.

Happy_Minion

https://forums.moneysavingexpert.com/discussion/comment/82041889#Comment_82041889

On current spending £18k is plenty to live on with savings interest covering any extras I might need. Using my back of a fag packet initial plan, at 67 when state pension kicks in I would still have the DB pension and probably a bit of one of the DC pensions left as well as all the cash/ISA money (currently £160k) to supplement my income.

Some proper modelling is definitely required.

My original question still hasn't been answered. Do you take from long held assets which have risen substantially over the years or recently bought ones that are closer to the original purchase amount?

Kryten_the_Titan

You need to consider that from April 6th 2028 you need to be 57 years old to crystallise a DC pension. You would need to have crystallised enough of the SIPP pension to provide a drawdown pot of income to your 57th birthday. The % crystallised could be 2 years worth of drawdoiwn (to get you to 57 years of age), or the whole lot.

You have sizeable ISA savings which helps enormously with your plan and must be considered along side the pensions.

Your question, "Do you take from long held assets which have risen substantially over the years or recently bought ones that are closer to the original purchase amount?" is not the right question to ask. If equity class asset funds fall in a stock market correction or crash, it is likely that they will fall at the same time. You should consider whether to de-risk some of the volatile equities funds to short term money market funds (cash like) to provide the steady income for a period you need.

Everyone is different but myself I have 5 years worth of short term money market funds to fund the first 5 years of drawdown. Beyond that I have gilts and equities.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82042035#Comment_82042035

My original question still hasn't been answered. Do you take from long held assets which have risen substantially over the years or recently bought ones that are closer to the original purchase amount?

If the assets were outside a pension or an ISA then it might make a difference (because of CGT) but in a pension it doesn't.

People who know more about how to invest for drawdown may be able to comment better but you may be well to look at how the two pensions are invested. If you go into drawdown it is common to keep the first few years worth of draw in cash or near cash. Then the next few years in maybe index linked gilts and the longer term funds in equities. There is a feeling that disinvesting from equities to make your draw is a risky thing to do as it may coincide with a down period for equities. There are probably some helpful youtube videos on this subject and threads on here discussing it.

Your 2040 fund may be entirely in equities at the moment and may start to de-risk in 2030 by switching to bonds and some cash. It may aim to be all in bonds or cash by 2040 (I am not sure about that so you should check).

What is the Aegon plan invested in?

As an aside if you find that the Aegon plan does not support your desired method of drawdown then you would need to do a transfer. In some cases that can be an in specie transfer (where the investments get transferred across to the new pension) but it may well be a cash transfer (especially if you are in an insured product which is linked to Aegon). That would mean you would be out of the market for a bit (which worries some people) but it would also give you a reason for thinking about what your new investments should be in the new pension and how they could be geared to your drawdown plans.