Starting the process of accessing your DC pension

[figbat]

Because there really isn't anything to talk about with those. Most of them have a lump sum element, but you often can't change that, and you then just get what it is, there is nothing you can do to alter the amount.

The only time there is really anythiong to mention is the ones where you can vary the lump sum, and the amount of pension then varies up or down accordingly.

Well, one other option is to cash in the DB pension. In most cases this is not a good option but it exists. You can also transfer it.

 

[T4tomo]

My view is now swinging round. Annuities are high, at 70+ I would hope to get +/- 8%. I believe on my death anything remaining in my pension pot becomes taxable which reduces the benefit to my children. I'm wondering if the best option now is to take an annuity from the pension and pay the tax and protect the invested savings and life insurance pay out via a tax efficient savings/investment scheme?

My final decision will be based on my own views in consultation with my FA in whom I have complete faith. I'm very interested to hear what others say as there could well be points I haven't considered.

Firstly sorry to hear of your situation, cant be easy.

Buying an annuity used to be a bit of a no no, but with the current historically unprecedented high rates, its definitely worth considering with at least some of the pension pot, particularly if you think you need more of an income that the State and Survivors pensions provide, as an ~8% guaranteed return* is not to be sniffed at.

You also have the option to buy a "purchased life annuity" from the life policy. These suffer less tax than a "Pension annuity" as most of monthly income it is treated as a return of capital, with just the "interest element" being taxed. Its can be thought of as just taking the risk out of your investment return.

Remaining Pension pots will in future be added to the Estate for IHT purposes, that doesn't necessarily mean they will be taxed, depending on what else is in the estate e.g. property wise vs nil rate band and residential property nil rate allowance.

Slightly morbid planning bit alert: If you think that you are going to be over the effective £1m IHT threshold then it would be best to gift some of the life assurance payout (and /or the 25% TFLS from your DC pot if not already taken) to your children now as that will reduce or eliminate IHT in a year 4-7+ scenario. Its better for it to be invested in their names (or some put away in their pension funds) than yours and avoiding the IHT hit down the line. - They can always treat you to the odd holiday if you're running short on funds!

*obviously cant be compared to an investment return as the capital has gone

 

[Emanresu]

Another one for 'be nice to your children' rather than sitting on any surplus. They will choose your care home after all.

As a DB pension holder rather than a DC one, it's interesting to see the issue that DC holders have. DB is essentially an annuity guaranteed by the terms of the scheme. You're locked in until you peg out.

With DC you can spend more or spend less depending on you needs and desires as you are managing your own money. DB/annuity is a fixed income and all that entails.

 

[Cletus Van Damme]

I have a deferred DB pension that I can take from 55, I'm 57 in October, I obviously get penalised taking it early. I'm still working paying into a DC scheme. I have thought about taking this pension to pay off my mortgage and have quite a lot left over from the 25% tax free. The issues is with taking the pension it will push me into the 40% tax bracket quite a lot what it pays out monthly, whilst still working. I had thought about paying a lot more into my works DC pension so I don't get taxed as much, but I'm kind of bothered that this might be classed as pension recycling and the inland revenue will fleece me. I've researched this a little but can't find any info, most seem to suggest people doing it with the tax free lump sum, which I cannot understand. Just that I watched a video on youtube from a financial advisor that was advising to do this in some circumstances.

Just wondered if anybody knew anything really as I'm obviously not that clued up.

 

[wakemalcolm]

I have a deferred DB pension that I can take from 55, I'm 57 in October, I obviously get penalised taking it early. I'm still working paying into a DC scheme. I have thought about taking this pension to pay off my mortgage and have quite a lot left over from the 25% tax free. The issues is with taking the pension it will push me into the 40% tax bracket quite a lot what it pays out monthly, whilst still working. I had thought about paying a lot more into my works DC pension so I don't get taxed as much, but I'm kind of bothered that this might be classed as pension recycling and the inland revenue will fleece me. I've researched this a little but can't find any info, most seem to suggest people doing it with the tax free lump sum, which I cannot understand. Just that I watched a video on youtube from a financial advisor that was advising to do this in some circumstances.

Just wondered if anybody knew anything really as I'm obviously not that clued up.

Have a look at this, especially the flow chart (& on this occasion, pretend that you're an adviser when prompted)

https://adviser.royallondon.com/tec...ns-and-tax-relief/recycling-of-tax-free-cash/

Royal London have a habit of putting together guides and tools that simplify things nicely.

Full disclosure: I did work with the author in a previous life but this wasn't at Royal London or as a technical consultant; I'm not licensed to give advice either. I think the meaningful money podcast have covered this recently too but they've got an awful lot of episodes.

If it still makes no sense you might get some guidance from your DC product provider as long as you ask a specific question rather than ask: what should I do?

Pensions Wise might also be able to tell you what's what, but if you're looking for advice or something nuanced, make nice with an adviser.