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Maximum Pension vs Maximum Lump Sum

Ldak
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Re: Maximum Pension vs Maximum Lump Sum

#406298

Postby Ldak » April 22nd, 2021, 8:10 pm

BigB wrote:
AJC5001 wrote:
Ldak wrote:Hello Adrian

Thanks for wading in.

Appreciate SP comments but what can you do if the DB pensions conbined overflow the personal allowance? Wife has full SP due, I have 4 years to top up to get full SP.


You can't do anything except pay the tax due. Some people are not aware that the State Pension is taxable and get a shock when 20% of it disappears.
Before April 2016 it used to be worthwhile for some to defer the State Pension as it gave a useful increase, but deferring the new State Pension is not so good. https://www.gov.uk/deferring-state-pension

If you have £2500 (ish) personal allowance left, you'll have to decide for yourself which of the DB pension, the SIPP or the State Pension uses up that amount.

Adrian


Is it an option to take the lump sums from pensions and reinvest them into ISAs across your and your wife's allowances. To then be used as an income source. You could transfer your 51k over 2 tax years. Your wife's SIPP lump sum will be 70k+ at some point - that could also be transferred in 2 later years with both your allowances. Increasing tax free ISA income and reducing pension/SIPP income, so maybe better use against your tax free allowances?

B


Hello BigB

Indeed it is.

With both our ISAs maximised already this year, and my wife continuing to work and have the funds hopefully to max her ISA the next two years, it will take quite a while to squirrel away my £51k if taken now. However, it could be left till after she retires I guess.


I do like he idea of never paying tax on the 25% tax free lump sum once received when finally taken as income to spend.

Thanks

xeny
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Re: Maximum Pension vs Maximum Lump Sum

#406302

Postby xeny » April 22nd, 2021, 8:18 pm

Ldak wrote:With both our ISAs maximised already this year, and my wife continuing to work and have the funds hopefully to max her ISA the next two years, it will take quite a while to squirrel away my £51k if taken now. However, it could be left till after she retires I guess.


Thanks


If your wife is still working, and you have cash to play with, is it not more tax efficient for her to make every pension contribution she possibly can (up to either her taxable salary or the £40K limit) rather than put it in ISAs ?

In an ideal world you'd do this by salary sacrifice to avoid paying unnecessary NI, but even as a SIP you'll save on income tax overall.

Ldak
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Re: Maximum Pension vs Maximum Lump Sum

#406359

Postby Ldak » April 22nd, 2021, 10:18 pm

xeny wrote:
Ldak wrote:With both our ISAs maximised already this year, and my wife continuing to work and have the funds hopefully to max her ISA the next two years, it will take quite a while to squirrel away my £51k if taken now. However, it could be left till after she retires I guess.


Thanks


If your wife is still working, and you have cash to play with, is it not more tax efficient for her to make every pension contribution she possibly can (up to either her taxable salary or the £40K limit) rather than put it in ISAs ?

In an ideal world you'd do this by salary sacrifice to avoid paying unnecessary NI, but even as a SIP you'll save on income tax overall.


Hello xeny

She is indeed luckily maxing her employer matched salary sacrificed workplace pension subject to monthly cash needs. Pretty much all cash previously held in bank accounts is now is her (year old too) SIPP or shares ISA. Some in ISAs to enable withdrawal before touching SIPP. Opened a SIPP in Feb 2020 as no thought given previously given to her workplace pension possibilities and wanted to fuller utilise her 2019-20 annual allowance since we'd discovered it, erm, existed.

We've only cottoned on to this financial foresight thing since February last year, yes, just pre-crash. Learnt enough early on enough to keep investing through the low in March and beyond and have now used up dormant cash and looking to tweak where it's held and the best strategy for withdrawing it. Much good advice here and very gla to receive it.

Thanks for your suggestions.

xxd09
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Re: Maximum Pension vs Maximum Lump Sum

#406400

Postby xxd09 » April 23rd, 2021, 12:05 am

I run Quicken 2004 and log expenses so I and my wife have some ideas of current expenditures
I did this for some years before retiral
You and your wife would need to have a handle on an expenses figure-before you retire and it’s too late!
As a rough guide I found we spent the same amount after retiral as we did when earning
More time to fill,able to travel etc etc
xxd09

BigB
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Re: Maximum Pension vs Maximum Lump Sum

#406431

Postby BigB » April 23rd, 2021, 9:23 am

Ldak wrote:
BigB wrote:
AJC5001 wrote:
You can't do anything except pay the tax due. Some people are not aware that the State Pension is taxable and get a shock when 20% of it disappears.
Before April 2016 it used to be worthwhile for some to defer the State Pension as it gave a useful increase, but deferring the new State Pension is not so good. https://www.gov.uk/deferring-state-pension

If you have £2500 (ish) personal allowance left, you'll have to decide for yourself which of the DB pension, the SIPP or the State Pension uses up that amount.

Adrian


Is it an option to take the lump sums from pensions and reinvest them into ISAs across your and your wife's allowances. To then be used as an income source. You could transfer your 51k over 2 tax years. Your wife's SIPP lump sum will be 70k+ at some point - that could also be transferred in 2 later years with both your allowances. Increasing tax free ISA income and reducing pension/SIPP income, so maybe better use against your tax free allowances?

B


Hello BigB

Indeed it is.

With both our ISAs maximised already this year, and my wife continuing to work and have the funds hopefully to max her ISA the next two years, it will take quite a while to squirrel away my £51k if taken now. However, it could be left till after she retires I guess.


I do like he idea of never paying tax on the 25% tax free lump sum once received when finally taken as income to spend.

Thanks


Hi Ldak,

Is it also an option to run share accounts in you/your wife's name and to park lump monies there in no dividend growth investments (no dividends means no income tax) and you can sell lumps on an annual basis as tax free income up to your individual CGT allowances of 12.3k each?

B

Ldak
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Re: Maximum Pension vs Maximum Lump Sum

#406606

Postby Ldak » April 24th, 2021, 9:03 am

BigB wrote:
Ldak wrote:
BigB wrote:
Is it an option to take the lump sums from pensions and reinvest them into ISAs across your and your wife's allowances. To then be used as an income source. You could transfer your 51k over 2 tax years. Your wife's SIPP lump sum will be 70k+ at some point - that could also be transferred in 2 later years with both your allowances. Increasing tax free ISA income and reducing pension/SIPP income, so maybe better use against your tax free allowances?

B


Hello BigB

Indeed it is.

With both our ISAs maximised already this year, and my wife continuing to work and have the funds hopefully to max her ISA the next two years, it will take quite a while to squirrel away my £51k if taken now. However, it could be left till after she retires I guess.


I do like he idea of never paying tax on the 25% tax free lump sum once received when finally taken as income to spend.

Thanks


Hi Ldak,

Is it also an option to run share accounts in you/your wife's name and to park lump monies there in no dividend growth investments (no dividends means no income tax) and you can sell lumps on an annual basis as tax free income up to your individual CGT allowances of 12.3k each?

B


Hello BigB

Sorry for delay in response. Wife's birthday yesterday.

Oh yes, CGT. Tend to think of CGT just as a final cash output mechanism as opposed to a holding mechanism to 'drip feed' funds to a more tax efficient vehicle eg. ISA

Thanks.

Had lots of good input for which I'm very appreciative.

Going to take this weekend to weigh them up again and sketch a map.

Would be interesting to have a thread of what people had accumulated at retirement point and where they moved it and why. Not a boasting avenue obviously, just a thought summarising record.

Don't want to create a hobby out of this but will never advise putting money in a savings account again. Trackers going forward methinks.

Many, many thanks all.

Best wishes...

Alaric
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Re: Maximum Pension vs Maximum Lump Sum

#406616

Postby Alaric » April 24th, 2021, 9:56 am

Ldak wrote:Oh yes, CGT. Tend to think of CGT just as a final cash output mechanism as opposed to a holding mechanism to 'drip feed' funds to a more tax efficient vehicle eg. ISA


I doubt it's a widely employed mechanism, as anti-avoidance measures might be deployed if it were, but trackers enable the CGT book cost to be periodically revalued. The underlying point is that there are various brands of tracker on popular indexes. So the investor sells the ishares version and buys the Vanguard one. It's still the same exposure but it counts as unrelated disposals and purchases. There's no tax if the gain is inside the annual limit.


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