Pension Planning
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jim8888
Posts: 375 Forumite
I turn 55 in November and have around £600k in a SIPP that I can crystallise and take the 25% tax free lump sum. I have another Defined Benefit pension which will pay 30k a year when I turn 60 - so that's also worth £600k, taking me over the LTA. I'm planning to retire in about three years time (assuming I still enjoy my job and don't go before then) and I will probably contribute to the company scheme while I'm there, even though it seems I'll be taxed at 55% on this extra money I'm putting away during that time.
My question is am I'm doing the right thing crystallising the SIPP at 55? I'm thinking that this minimises my exposure to the LTA (assuming it continued to grow until I turned 60 and I didn't touch it until then.) I probably want the security of the DB pension, so wouldn't transfer it out. I wouldn't take any drawdown from the SIPP after taking the lump sum while I continued working.
Am I on the right track and is there anything else I should be considering doing in terms of tax/investing efficiency?
My question is am I'm doing the right thing crystallising the SIPP at 55? I'm thinking that this minimises my exposure to the LTA (assuming it continued to grow until I turned 60 and I didn't touch it until then.) I probably want the security of the DB pension, so wouldn't transfer it out. I wouldn't take any drawdown from the SIPP after taking the lump sum while I continued working.
Am I on the right track and is there anything else I should be considering doing in terms of tax/investing efficiency?
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Comments
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Can you take the DB pension early? If the scheme allows you to take a reduced pension of say 27k at 58, instead of 30k at 60 then that would reduce any lifetime allowance liability.
Is that figure of 30k what you have already accrued, or what you would get if you kept working to 60?0 -
Don't get so carried away by trying to avoid the LTA that you miss the bigger picture. Given the amounts involved, this really might be one of those cases where proper financial advice (the sort you pay for, based on a full fact find) would be worthwhile.0
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Thanks, yes, my DB is an estimate of what I could get at 60, and I could take it earlier. I am also thinking that I need proper financial advice, but my previous experience of getting such has not been good - at least not as good as what I've learned on this, and other, forums!0
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Thanks, yes, my DB is an estimate of what I could get at 60, and I could take it earlier. I am also thinking that I need proper financial advice, but my previous experience of getting such has not been good - at least not as good as what I've learned on this, and other, forums!
I am curious now, what did FA or IFA do that made you have a bad experience with them? My personal experience with an IFA is good and pretty straightforward. I agreed that you would need a proper financial advice!0 -
There is no way to avoid the LTA other than to avoid putting more cash into your pension, and any cash you take you of your pensions that are in excess of the LTA will be taxed at 55%. This means that if you crystallise all your SIPP before drawing on your DB pension, it will be the DB pension that is taxed, so it will pay you less than you expect. Given the returns on the SIPP are more uncertain, there might be an argument to delay crystallising the SIPP, until the DB pension is in payment. You can do this by using Uncrystallised Fund Pension Lump Sums (UFPLS) to withdraw cash from the SIPP.
Whether this is acceptable depends on whether you want to take the 25% lump sump out of your SIPP or whether you are happy to leave it invested in order to pay you more pension at a later date.
If your employer will match your contributions to their pension scheme, then even with the LTA charge you are only losing 5% of your contributions, so you are still benefiting from at least a 15% tax rebate, but all your employer's contributions go directly to the government as a result of the LTA.
I imagine that you pay higher rate tax at the moment, if so your tax rebate will be worth more than 15%.
If your employer doesn't match your pension contributions equally, then more of your own money will be lost in the LTA charge.The comments I post are my personal opinion. While I try to check everything is correct before posting, I can and do make mistakes, so always try to check official information sources before relying on my posts.0 -
Maybe IFA's and FA's are more regulated and improved these days, but the four separate pieces of advice I got over the years cost me thousands of pounds in commission to receive very basic advice and services that I could have done myself. Mortgage advice, investment advice and (small) pension transfers - the only upside was that the experiences caused me to think I could do a better job myself for free.
As an aside, I've a friend who's a highly qualified IFA. He says the biggest and most frequent help he gives to his higher net worth clients is pointing out to them that they can claim a further 20% tax relief on their pension contributions as higher rate tax payers. Loads of them don't know about this and are generally delighted when he takes them through it. Given that, I do wonder what experience other IFA's would have when things get a bit more complicated - obviously, if you get a good one, you could get great advice. But how do you find one to suit your specific needs?0 -
My question is am I'm doing the right thing crystallising the SIPP at 55? I'm thinking that this minimises my exposure to the LTA (assuming it continued to grow until I turned 60 and I didn't touch it until then.)
Consider instead plunging a large chunk of the SIPP money into risky investments. If they go down your LTA problem would be solved. If they shoot up the gain will compensate you for your LTA excess tax.
Anyway, in your shoes I'd be leery of crystallising at 55: lots might happen before you are 60 e.g. a big market crash.I probably want the security of the DB pension, so wouldn't transfer it out. I wouldn't take any drawdown from the SIPP after taking the lump sum while I continued working.
(i) Drawing money from the SIPP beyond the TFLS will limit your future contributions to your DB pension, employee and employer, to £4k p.a.
(ii) Consider reducing the value of the DB pension for LTA purposes by commuting part of it for a TFLS.Free the dunston one next time too.0 -
i) Consider reducing the value of the DB pension for LTA purposes by commuting part of it for a TFLS.
I was interested to see this comment. I understand that if you take a DB pension early , then the 20X multiplication factor is still used , so in effect you reduce the amount going to your LTA.
However I thought whenever you take the TFLS , this is still accounted for in the calculation and therefore has little/no effect on the LTA. Happy to be corrected !0 -
I was under the impression that a DB pension wasn't calculated in the same way for LTA as a DC pot. Have you actually asked your DB provider what the % for LTA is?0
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I have looked on Google.
When taking A DB scheme pension , you normally have the choice to take a reduced pension + a TFLS or take the full pension and no lump sum.
For LTA purposes the pension you receive is multiplied by 20 and then any lump sum is added on.
It seems in general that the calculation is that if you take the reduced pension and lump sum , this will tend to give you a lower amount for LTA purposes than taking just the full pension.
However apart from LTA it is generally considered poor value to take a DB scheme in this way, and it is better to take the full pension without the lumo sum.
Although that does not take into account that the lump sum is income tax free .0
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