Please critique my pension thoughts

Chilleddays

Hi all. I am currently working part time and planning on retiring in about 6 months time when I will be 63. I have a DB pension (was final salary, now CARE) with current accrued pension of approx £43,000 payable p.a. at age 67, reduced to around £36,000 if I was to take it now. I also have AVC in same scheme of some £130,000 which I understand I can take tax free if I take it when I start drawing the DB pension.

I also have a historic COMP scheme which accrued from a short period when I contracted out of SERPs many years ago. This is now worth around £50,000.

I will also be due a full state pension. Partner is already retired with his own pension.

I am thinking of taking 25% from the COMP scheme when I retire and using it to fund a trip to Australia, and draw down the rest monthly over the next 12 to 18 months until it runs out and then start taking the DB pension. I am intending to give a substantial part of the cash free amount to my adult children. I also have some savings in ISAs.

Does this seem a reasonable plan? Is there anything I should be considering? Figures quoted are based on Dec 25 statements and forecasts, I have recently requested updated amounts.

Thanks in advance for any advice.

DRS1

The plan sounds reasonable. Presumably your spending is covered by the DB pension? Or do you plan on getting through £50k a year?

One random thought you mention a "partner". Does that mean you are not married or civil partners? If so maybe check what each of your pensions say will happen when you die (morbid I know). Should you (have you) nominated someone for death benefits. Is there a survivors pension payable to a nominated partner or does it only go to a spouse/civil partner.

Marcon

Is there a survivors pension payable to a nominated partner or does it only go to a spouse/civil partner.

…and crucially, does that person need to have been married/civil partnered to you while you are still an active member of your DB scheme?

I also have AVC in same scheme of some £130,000 which I understand I can take tax free if I take it when I start drawing the DB pension.

Another point to check - there will be a limit on how much of your AVC you can take tax free. In practice it often is 'all' tax free, but only if the AVC doesn't exceed 25% of the capital value of your overall DB benefits from the scheme (ie the main scheme + AVC). That limit is set by HMRC, so a scheme can't just override it, whatever any booklet or website leads members to believe.

kermchem

Does the DB scheme and AVC treat you the same if you retire and take pension immediately versus retiring and taking the pension as a deferred member?

daveyjp

Is there an option of using the AVC to buy extra DB years to reduce the impact of taking the pension early? You may be able to use it to increase the income to £43k in 6 months, rather than a few years.

Chilleddays

Thanks for the responses. Scheme allows for a survivors pension to nominated person who is eligible if they are cohabiting at the time of death. My partner is the nominated person. I could potentially give up the survivors pensions to get a higher pension for myself as partner already has their own pension, albeit lower than than mine.

DB pension will definitely cover normal expenditure. The £50k from the COMP will be reduced by 25% to fund the Australia trip ( not planned yet, but (£12,500 should be plenty). This will leave £37,500 gross potentially reducing to £30,000 - £32000 after 20% tax ((depending when I draw it down). i think this will last 12 to 18 months based on current spending levels.

AVC should be less than 25% of capital value of the DB scheme. I could potentially give up some of the DP pension for a larger tax free sum but I don’t have a particular need for it. The kids might disagree though!

Chilleddays

https://forums.moneysavingexpert.com/discussion/comment/82058830#Comment_82058830

i think there is a minor difference re part of the pension accrued before 2013 increasing by RPI (restricted to 5%) when deferred, but this changes to CPI (restricted again to 5%) when in payment. Remainder of pension increases by CPI restriced to 2.5% in both scenerios. I am led to believe that the actuarial reduction takes account of this but difficult to ascertain whether it actually does.

Chilleddays

https://forums.moneysavingexpert.com/discussion/comment/82058839#Comment_82058839

No, but I could potentially use the Cash free AVCs to buy an annuity, although this would reduce the amount available to “gift” to the children.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82058857#Comment_82058857

As you are very comfortably covered by guaranteed income already ( + state pension to come), it would not normally make sense to buy an annuity in your case. Better to keep the flexibility.

DRS1

Just to hark back to the survivor's benefits, your pension sounds like the LGPS. If your partner is not also in the LGPS then you might want to check what their pension scheme says. Of course that one may be a pot of money (a DC scheme) and you may be nominated to receive the lot. But not every DB scheme is quite as socially open minded as the LGPS.

handsome0707

you should really look at long term implications for taxation

Assuming you fully retire

At 63 take 36K DB + whole of your 130K AVC tax free, take more tax free from your DB pot if possible

at 63 take 25% of your 50K SERPs DC pot also

Aim to deplete SERPs pot before you reach 67

At 67 in today’s money, you will have 36K DB + 12.5K state pension = 48.5K which will keep you in 20% tax bracket ( just below 50.2K threshold for 40% tax)

Between 63-67 use your remainder 37.5K as drawdown ( over 4 years giving you @ 10K a year) + some of your tax free lump sums if you run short of money,

This way you can have regular income of

46K between 63-67 and

48.5K from 67 onwards

Leave a bit of leeway to 50.2K threshold as interest above £1000 a year on non isa accounts will be taxed at 22% and added to your gross pension income for tax reasons

Breaching 50.2K income will reduce your savings allowance to £500 and you’ll start to pay 40% tax