My First post - Pension Sanity check required

advent2016 · 20 June 2018 at 12:31PM

I'm 60. My pension pot is £900,000 (£700,000 brought in from my final salary pension) invested with an investment company I've been with since my 30s and so far have been totally reliable (so far)
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My adviser (who looks about 12) says I can have £3000 per month after tax (and no tax will be payable as they can use my tax free allowances) for the rest of my life rising with inflation and I should be able to take lump sums occasionally for cars, holiday etc. without affecting growth or tax position.
I also have a mortgage free house.
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Do these figures stack up?
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It looks like I could draw down 900K over 20 years and receive £45,000 PA (when I could downsize my house by 50% and use the remainder as income), but my adviser says he needs to reserve approx half for growth and exceptional market conditions to meet my current £36K pension over my expected life. He said ignore the house for now.
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What does the team think?

Brynsam · 20 June 2018 at 12:44PM

You don't seem to have much confidence in your adviser. You need him to pin him down and get him to set out, in writing, exactly what his thinking is and why. Does he know your date of death, for example?

Comments on this forum might be all very interesting but they aren't a substitute for advice from a quality adviser - and nor are they actionable, unlike advice direct from your adviser (hence the 'get it in writing' comment).

Dazed_and_confused · 20 June 2018 at 12:45PM

This doesn't make sense

My adviser (who looks about 12) says I can have £3000 per month after tax (and no tax will be payable as they can use my tax free allowances)

How can it be after tax if no tax is payable. And how is no tax payable on £30k+?

Spreadsheetman · 20 June 2018 at 12:55PM

If you drew £36k then you could get 25% tax free (£9k) and the remaining £27k would be taxable. Take off the £11k8 personal allowance and apply 20% tax & that is £3040 tax leaving £32,960 after tax.

TBC15 · 20 June 2018 at 1:09PM

Any other good stuff ISAs, other investments, married etc that could have a bearing or not?

cloud_dog · 20 June 2018 at 1:18PM

I'm sure the IFA would have considered this but... With LTA knocking on the door, might it be sensible to take the TFLS (25%) now, invest this in an ISA (over the coming years), and then take the same (taxable) proportion from the pension?

So, part of your income would come from the non-pension pot, utilising ISA and GCT allowance until it is all sheltered within the ISA, and the remainder from the pension pot (taxable above your personal allowance).

MK62 · 20 June 2018 at 1:34PM

Notwithstanding the usual potential risks.....such as longer life than average, poor investment returns etc......then the figure of £36000pa does appear to be in the ballpark.

It won't be tax free however, as the others mentioned, and you may have to be a little pragmatic on the amount and frequency of any further lump sum withdrawals, which may well also take you into higher rate tax for larger lump sums, such as for a car (unless you finance these or part of these from your tax free lump sum)

If you have a state pension coming, don't forget to account for that in your planning too.

Not sure about withdrawing £45000pa for c20 years and then relying on income from downsizing after that....but it's your money and hence your decision.

ukdw · 20 June 2018 at 1:56PM

Did he include state pension in 5/6 years in his calculations? I.e. if we assume yes - About £9k of the £36k could come from that - leaving £27k net to come out of the pension.

Also when he said you wouldntt have to pay any tax - did he mean just for say the next 10 years which could be done by using the 25% tax free allowances - however you would run out of tax free cash in about 10 years - if we assume yes - you would then have to increase the drawdown amount up to about £35k once the tax free allowance has run out to pay the 20% tax

So in simple terms, and ignoring extra withdrawals for cars etc, adding it all up to age 95 for example.
5 x 36k = £180k
5 x 27k = £135k
25 x 35k = £ 875k
Total £1,190. -
Growth up to inflation could cover the inflation linking. So to make this work you would only need to earn about £300k above inflation over the next 35 years from a starting pot of £900k.

Whether you could make it up by about another £9k to £45k out of house downsizing proceeds (which would also be tax free) would depend on the value of your house.

tacpot12 · 20 June 2018 at 2:30PM

Your advisor seems well aware of the risk of drawing down from a pension portfolio over a potentially long period; and the numbers certainly stack up.

Your can retire! Well done.

kidmugsy · 20 June 2018 at 3:02PM

advent2016 wrote: »

My pension pot is £900,000 ... I can have £3000 per month after tax ... for the rest of my life rising with inflation and I should be able to take lump sums occasionally for cars, holiday etc. without affecting growth ...

Nah, the point about the taking of lump sums not impairing growth is pure baloney. Otherwise take the lot out and still keep that growth running. You must have misunderstood.

What you could do is this. Remove the 25% tax-free lump sum = £225k. Put as much as you can into current accounts and regular savers paying 5% interest. Bung £20k each into an ISA for you and your wife: invest some of it in commodities or REITs or P2P or corporate bonds or convertibles or whatever. Bung a bit into your wife's pension. Bung up to £50k each into premium bonds or perhaps you use PBs and your wife can use the highest yielding savings accounts she can find. Bung £45k into gold sovereigns stored somewhere secure. (The Royal Mint?). So there's a quarter of your pension wealth saved or invested in a diversified portfolio of not-equities or at least not conventional equities.

The remaining 75% that stays behind is invested predominantly in equities, and from that you draw £11,850 per annum tax-free and as much more as you want to, taxed. Then all you have to do is pray that equity markets don't suffer any downturns that are both severe and long-lasting.

advent2016 · 21 June 2018 at 12:05PM

Thanks for the useful replies
My advisor replied to me and said it's 3K per month for a year and during this time they will work out the most tax efficient method to provide my income over time. Factoring in my state pension when the time arises and other pensions. He further said that I may pay some tax, and it would be in the 25% bracket and (hopefully) not 40%.
He said they can raise 25% tax free each year from investment pots.

I feel a bit more reassured.
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I have some savings of my own not included above. I've had 30K in Premium bonds but only get about £300 a year which is 1%. My ISA rose by 9% in the same time.
I have some other savings that I'm just drawing down as required , though it may not be their best use.

My First post - Pension Sanity check required

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