New pension rules and how to maximize value?
Discussion
With the new pension rules are there any obvious tricks to make the best and most tax efficient use of them? Specifically, I'm NOT thinking of this purely in pension terms, more a way to use the pension system to be tax efficient when coming close to retirement. If that makes me a bad person then I apologize!
I'm a little way off even 50 at the moment let alone 55, and have a decent company scheme running but at some point, looking at the rules, it would seem that I can pour in the cash into a pension, almost double my money as a high rate tax payer and then start to draw it back out again at 55 in a more efficient way - without really considering it as a pension, just a short term investment of say 5 years.
Is it possible for instance, once 55 to still be paying into one pension fund while having a different pension fund you're taking cash free lump sums out of? Or would the lump sums coming out be taxed at my higher rate of income and so I'd effectively be no better off (assuming I'm still working)?
I guess it also feels like there should be some short term way of smoothing the transition into retirement where it makes sense to use a SIPP to knock down short term income say between 53 and 56 but help fund earlier retirement at 57 without drawing down against your main pension which you might take at 60. ie, a 1k a month salary sacrifice while working results in nearly 2k into a pension which even ignoring any gains could come straight out a few years later as 2k a month income.
I'm only interested in rules of thumb to even know if its worth investigating further.
I'm a little way off even 50 at the moment let alone 55, and have a decent company scheme running but at some point, looking at the rules, it would seem that I can pour in the cash into a pension, almost double my money as a high rate tax payer and then start to draw it back out again at 55 in a more efficient way - without really considering it as a pension, just a short term investment of say 5 years.
Is it possible for instance, once 55 to still be paying into one pension fund while having a different pension fund you're taking cash free lump sums out of? Or would the lump sums coming out be taxed at my higher rate of income and so I'd effectively be no better off (assuming I'm still working)?
I guess it also feels like there should be some short term way of smoothing the transition into retirement where it makes sense to use a SIPP to knock down short term income say between 53 and 56 but help fund earlier retirement at 57 without drawing down against your main pension which you might take at 60. ie, a 1k a month salary sacrifice while working results in nearly 2k into a pension which even ignoring any gains could come straight out a few years later as 2k a month income.
I'm only interested in rules of thumb to even know if its worth investigating further.
You can more or less do as you have outlined, but.
When you crystallise some pension funds, only 25% can be paid as a tax free lump sum. The remaining 75% will be subject to income tax as you decide to draw it.
Yes you can continue to make further pension provision even when you have crystallised some pension fund. The maximum annual contribution is £40,000 which is reduced to £10,000 if you draw any income from the crystallised fund other than the tax fee cash.
When you crystallise some pension funds, only 25% can be paid as a tax free lump sum. The remaining 75% will be subject to income tax as you decide to draw it.
Yes you can continue to make further pension provision even when you have crystallised some pension fund. The maximum annual contribution is £40,000 which is reduced to £10,000 if you draw any income from the crystallised fund other than the tax fee cash.
Coffee,
Would you drive your Disco 50 yards to go the shop for a pint of milk? If not, you might not need a SIPP. I'm not saying don't get a SIPP, I'm suggesting that you look at the cheapest, more suitable vehicle. I spent an hour this morning reviewing fund performance for a client; the passive Vanguard fund over the past year, has had lower volatility, been cheaper and offered far better returns in respect of activity than its (broadly) active counterpart. If you go down the passive route, completely or partially, then why lose that cost benefit by having an expensive pension product to plonk it in?
In terms of the bigger picture, FCA (director of policy) David Geale told the Pensions Bill committee yesterday that under current arrangements those with £50,000+ saved are potentially suitable for flexi-access drawdown. Strange, given that until recently, it was £100,000. Clients can still utilise salary sacrifice to pay in sums to their pension without paying any tax and then gaining immediate access money tax free as a lump sum. The loophole is going to potentially cost HMT £2bns pa. Watch this space! I would like to say I'm amazed that the gaffe/loophole wasn't discovered before now. But I can't..!
Would you drive your Disco 50 yards to go the shop for a pint of milk? If not, you might not need a SIPP. I'm not saying don't get a SIPP, I'm suggesting that you look at the cheapest, more suitable vehicle. I spent an hour this morning reviewing fund performance for a client; the passive Vanguard fund over the past year, has had lower volatility, been cheaper and offered far better returns in respect of activity than its (broadly) active counterpart. If you go down the passive route, completely or partially, then why lose that cost benefit by having an expensive pension product to plonk it in?
In terms of the bigger picture, FCA (director of policy) David Geale told the Pensions Bill committee yesterday that under current arrangements those with £50,000+ saved are potentially suitable for flexi-access drawdown. Strange, given that until recently, it was £100,000. Clients can still utilise salary sacrifice to pay in sums to their pension without paying any tax and then gaining immediate access money tax free as a lump sum. The loophole is going to potentially cost HMT £2bns pa. Watch this space! I would like to say I'm amazed that the gaffe/loophole wasn't discovered before now. But I can't..!
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