The plan and the numbers - please critique

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  • Mistermeaner
    Mistermeaner Posts: 2,958 Forumite
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    brilliant guys - thanks

    I hadn't really considered tax efficiency on drawdown - well worth considering how to maximise this

    I assume it is perfectly legal for me to go into draw down and cycle my (hopefully) tax free draw down amounts into her pension?
    Left is never right but I always am.
  • Albermarle
    Albermarle Posts: 22,134 Forumite
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    I assume it is perfectly legal for me to go into draw down and cycle my (hopefully) tax free draw down amounts into her pension?
    If I remember rightly there has been some debate on his forum about exactly how the recycling rules apply, but normally as long as you transfer your tax free cash to your wife as a gift, which she then decides to put in a pension herself, then you should be in the clear legally.( probably )
    The morality of well off people taking full advantage of the 40% tax relief during their working life, and then also recycling the tax free cash to get more tax relief, is should we just say , less clear.
  • crv1963
    crv1963 Posts: 1,372 Forumite
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    Mistermeaner wrote: »
    brilliant guys - thanks

    I hadn't really considered tax efficiency on drawdown - well worth considering how to maximise this

    I assume it is perfectly legal for me to go into draw down and cycle my (hopefully) tax free draw down amounts into her pension?

    That's where I got myself in knots when we started planning, understanding 1) joint tax position on retirement not necessarily on accumulation so get as much out under tax free or lower rate income and 2) that can pay into my wife SIPP from my income- easily sorted I transfer the money to her account and she pays the DD, although it could just as easily go from my account by DD.

    There are limits on the tax free lump sum, but once you are in draw down you can save 2880 into your own SIPP, getting that topped up to 3600 with the HMRC contribution. I do believe although others may correct me that you can contribute up to your partners earnings allowance or 40k pa into her pension from your pension income.

    So we are going to try to see if we can put 2880 each into a SIPP from retirement to age 75, either to leave to heirs or if needed to fund any future care needs.

    There are several threads about recycling pension TFLS.

    It took me some time to get my head around the pension stuff. The best thing I was told was to look to get the most income at the lowest rate of tax, hence our opening a SIPP for Mrs CRV.

    The advantages of pensions for us (everyone has personal priorities or different needs) the HMRC boost at our age, the fact that they are passed on outside of inheritance tax and if we go before age 75 the inheritor does not pay tax on drawing down on them from the start. So if Mrs CRV dies before me I can either take her 100k DC pot as a lump sum, or I can draw down at say 3% and then pass it on to our heirs, whereas my DB pension cannot be passed on- apart from her survivors pension of course should I go first (as is likely- I'm slightly older and have already had problems and haven't retired yet!).

    Correcting my earlier comment it should read 7600 pa into your partners pot not 7200 pa.
    CRV1963- Light bulb moment Sept 15- Planning the great escape- aka retirement!
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    By all means have a plan. Be prepared to adjust this as time passes. There's no certainties in life. Investing has no guarantees. We are still in unusual times. With Central Banks pulling the strings to maintain an equlibrium of stability.
  • Mistermeaner
    Mistermeaner Posts: 2,958 Forumite
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    It’s frightening how many people don’t have a plan

    Or worse still a stupid plan

    A wise man one told me to save half of everything you earn

    This absolutely is possible, almost regardless of what you earn, providing you cut your cloth accordingly
    Left is never right but I always am.
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    Mistermeaner wrote: »
    A wise man one told me to save half of everything you earn

    This absolutely is possible, almost regardless of what you earn, providing you cut your cloth accordingly

    There's a real world outside your gated community.
  • atush
    atush Posts: 18,726 Forumite
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    Thereafter I have assumed I will pay £20K per year into (prudent), until I am 50 (again being prudent)
    No further payments from 50 to 57

    Why only 20K as you are paying HRT and would not have to pay 40% tax on those earnings? You have also i assume lost all CB.

    Max your pension at 40K PA.

    You can pay into a pension and a LISA for the OH.

    But you did say in your OP she would go back to work but then say she wont? Confusing.

    For someone of your income with 5 dependents, 20K cash buffer is far too low.
  • Mistermeaner
    Mistermeaner Posts: 2,958 Forumite
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    edited 6 June 2019 at 11:39PM
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    atush wrote: »
    Why only 20K as you are paying HRT and would not have to pay 40% tax on those earnings? You have also i assume lost all CB.

    Max your pension at 40K PA.

    You can pay into a pension and a LISA for the OH.

    But you did say in your OP she would go back to work but then say she wont? Confusing.

    For someone of your income with 5 dependents, 20K cash buffer is far too low.

    Hi Atush

    I planned with prudent numbers to make allowances for the unknown

    20k into pension was for modelling only - intention would be full 40 but I may lose my job or pension rules may change etc

    Re the missus she’s quitting work at the end of mat leave and in the model I’ve assumed she’s not going to work or earn again to be prudent - odds are she will end up doing some form of paid work , particularly when the youngest goes to school (she’s pretty senior in what she does earning 50k+ at moment)

    Prudent assumptions for planning with plenty more of opportunity to do better

    Will look at pension for her as others mentioned to - I hadn’t previously considered tax efficiency when in draw down

    Will also look at cash buffer - 20k would see us through about 9months of no income (we live quite cheap hence being able to save well)

    And yes no child benefit in my gated community

    No gate either
    Left is never right but I always am.
  • Imelda
    Imelda Posts: 1,399 Forumite
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    Are you married?
    Is your house in joint names as joint tenants? Do you have Wills?
    Saving for an early retirement!
  • jimi_man
    jimi_man Posts: 1,101 Forumite
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    crv1963 wrote: »
    This is certainly my thoughts. Having maxed out your own contributions including your carry forward once you have saved as much as you can you need to pour money into your partners retirement provision.

    This way as Linton suggests in #9 to try to reduce joint tax bill on retirement.

    An example of this is we as a couple are prioritising Mrs CRV contributions to a SIPP. This is because although I have tax allowance available to save into a SIPP for myself I will already by virtue of my existing pension provision be a tax payer in retirement. By saving into a SIPP for my wife she will in retirement not be a taxpayer so it saves us tax in the future by saving in her pot now.


    I also have this issue. However I am a 40% tax payer and she is a 20% tax payer. In retirement (before her pensions come into force - about 7 years) I will be a 20% tax payer and she won't be a tax payer at all. If I pay into my pension I am saving 25% tax (40% saving on the way in and 15% on the way out) whereas she is only saving 20% (20% on the way in and 0% on the way out) therefore it surely makes more sense to max mine out first?
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