Pension advice
Discussion
I feel like I've been here before, though I've a little more understanding of what is available now.
I have a works DB pension payable from 65. There are large penalties to go early.
To mitigate that, I'm looking for something to allow me to work part time and remain contributing to my DB, or retire early (60) but defer claiming until 65 so whilst there is nothing going in, there are less years I'll be taking out.
20 years to go. Not sure I'll find 5 years money but trying to work out the best place to have it
I will be opening a SIPP, seems sensible to spread. I just need to decide how much to put where.
I will have three pots. As I understand it.
LISA - only about 2.5K in this at present.
Pro - Access at 60, no additional tax to pay.
Con - Only a 25% bonus
Work Brass AVC - About 15K. Will restart regular contribution
Pro - 40% relief, fully managed, protected and deducted at source. 100% tax free on retirement.
Con - Retirement age is 65. Can take earlier but will impact my DB pot.
SIPP - To start regular contribution
Pro - 40% relief. Can take at 58?
Con - Requires self assessment each year. Only 25% tax free lump.
Is that broadly correct? Anything else I should consider?
Thinking maybe to sack off the LISA now I'm into the 40% tax rate and put monthly contributions towards the Brass or the SIPP.
If the SIPP offers the same fund and growth as the AVC, surely for the little bit of admin, getting access 7 years earlier is a massive benefit.
Everyone raves about Railway pensions but could it be better to go private?
Thanks.
I have a works DB pension payable from 65. There are large penalties to go early.
To mitigate that, I'm looking for something to allow me to work part time and remain contributing to my DB, or retire early (60) but defer claiming until 65 so whilst there is nothing going in, there are less years I'll be taking out.
20 years to go. Not sure I'll find 5 years money but trying to work out the best place to have it
I will be opening a SIPP, seems sensible to spread. I just need to decide how much to put where.
I will have three pots. As I understand it.
LISA - only about 2.5K in this at present.
Pro - Access at 60, no additional tax to pay.
Con - Only a 25% bonus
Work Brass AVC - About 15K. Will restart regular contribution
Pro - 40% relief, fully managed, protected and deducted at source. 100% tax free on retirement.
Con - Retirement age is 65. Can take earlier but will impact my DB pot.
SIPP - To start regular contribution
Pro - 40% relief. Can take at 58?
Con - Requires self assessment each year. Only 25% tax free lump.
Is that broadly correct? Anything else I should consider?
Thinking maybe to sack off the LISA now I'm into the 40% tax rate and put monthly contributions towards the Brass or the SIPP.
If the SIPP offers the same fund and growth as the AVC, surely for the little bit of admin, getting access 7 years earlier is a massive benefit.
Everyone raves about Railway pensions but could it be better to go private?
Thanks.
If the AVCs are salary sacrifice then they're more efficient than a SIPP as you save the NI.
Also, how do the AVC management fees compare with a SIPP ?
The relative benefits of LISA and SIPP/AVC at least partly depends what tax rate you expect to be paying in retirement. Worth sitting down with a spreadsheet to understand.
Can you transfer the AVCs (which I'd guess are essentially a DC pension?) into a SIPP at a later date to get earlier access?
Also, how do the AVC management fees compare with a SIPP ?
The relative benefits of LISA and SIPP/AVC at least partly depends what tax rate you expect to be paying in retirement. Worth sitting down with a spreadsheet to understand.
Can you transfer the AVCs (which I'd guess are essentially a DC pension?) into a SIPP at a later date to get earlier access?
supersport said:
Hi Rick,
Given that you are an IM customer, take advantage of the included access to information and have a chat with Nik or Steve.
Hi Mark.Given that you are an IM customer, take advantage of the included access to information and have a chat with Nik or Steve.
Yes, doing that too. Just thought I'd take advantage of PH wisdom also.
xeny said:
If the AVCs are salary sacrifice then they're more efficient than a SIPP as you save the NI.
Also, how do the AVC management fees compare with a SIPP ?
The relative benefits of LISA and SIPP/AVC at least partly depends what tax rate you expect to be paying in retirement. Worth sitting down with a spreadsheet to understand.
Can you transfer the AVCs (which I'd guess are essentially a DC pension?) into a SIPP at a later date to get earlier access?
Hmm, I think my DB pot comes out as salary sacrifice, my Brass/AVC shows as a separate deduction so I don't think there is the NI benefit.Also, how do the AVC management fees compare with a SIPP ?
The relative benefits of LISA and SIPP/AVC at least partly depends what tax rate you expect to be paying in retirement. Worth sitting down with a spreadsheet to understand.
Can you transfer the AVCs (which I'd guess are essentially a DC pension?) into a SIPP at a later date to get earlier access?
No idea what the AVC fees are, just had a good look and they are very well hidden! Update 0.45%
On todays rules, I'm in 40% now, and would be 20% on retirement.
Transferring the AVC, that is a good shout. Hadn't considered that. Worth looking into.
Thnaks.
Edited by Rick101 on Tuesday 10th November 14:59
Edited by Rick101 on Tuesday 10th November 17:23
As recommended by another on this thread - create a spreadsheet to work out all that your work pensions give you - both for what you have accrued to date and what you expect to accrue going forward.
The link between your AVC and DB sounds valuable so make sure you fully understand that and maximise any opportunity that gives you for tax free cash.
Once you have the numbers in front of you it is a lot easier to understand what you should do. It may be (for example) that you will be better off bridging the earnings gap from age 60-65 by taking a loan which you pay off with the tax free cash.
Don't start anything new until you fully understand what you currently have.
The link between your AVC and DB sounds valuable so make sure you fully understand that and maximise any opportunity that gives you for tax free cash.
Once you have the numbers in front of you it is a lot easier to understand what you should do. It may be (for example) that you will be better off bridging the earnings gap from age 60-65 by taking a loan which you pay off with the tax free cash.
Don't start anything new until you fully understand what you currently have.
There's a railway pensions facebook group that is full of useful info and knowledgeable people. If you're not already in it then look it up.
If your pension contributions are salary sacrifice then I'm quite sure your brass payments will be also.
There are probably funds you can choose which will outperform your investments with Brass/AVCs, you'll have to do a bit of research there. (No guarantees, obviously, and historical performance is no indication of future performance.) Brass fees are definitely low, however, and it certainly offers simplicity having everything in the one place (no self assessment for example).
I'm in a similar position, with a similar length of time left to go. You have to try not to think of the reduction in pension for early retirement as a penalty, you'll be drawing your benefits for longer from the same pot, so it's exactly what you would expect. Think of anything beyond age 55 as a bonus instead. I will be maxing out my brass contributions and using this lump some to draw down in parallel with my pension payments, to supplement the reduced annual sum, and this itself is a slidong scale between lump sum and annual pension. I guess it depends what you expect from the money, if you want the lump sum to buy a Ferrari or a higher monthly payment.
Get professional advice now, while you have a long time to take advantage of the potential gains.
If your pension contributions are salary sacrifice then I'm quite sure your brass payments will be also.
There are probably funds you can choose which will outperform your investments with Brass/AVCs, you'll have to do a bit of research there. (No guarantees, obviously, and historical performance is no indication of future performance.) Brass fees are definitely low, however, and it certainly offers simplicity having everything in the one place (no self assessment for example).
I'm in a similar position, with a similar length of time left to go. You have to try not to think of the reduction in pension for early retirement as a penalty, you'll be drawing your benefits for longer from the same pot, so it's exactly what you would expect. Think of anything beyond age 55 as a bonus instead. I will be maxing out my brass contributions and using this lump some to draw down in parallel with my pension payments, to supplement the reduced annual sum, and this itself is a slidong scale between lump sum and annual pension. I guess it depends what you expect from the money, if you want the lump sum to buy a Ferrari or a higher monthly payment.
Get professional advice now, while you have a long time to take advantage of the potential gains.
r44flyer said:
There's a railway pensions facebook group that is full of useful info and knowledgeable people. If you're not already in it then look it up
You have to try not to think of the reduction in pension for early retirement as a penalty, you'll be drawing your benefits for longer from the same pot, so it's exactly what you would expect. Think of anything beyond age 55 as a bonus instead.
Seconded about the Facebook railway pension group, some very good advice postedYou have to try not to think of the reduction in pension for early retirement as a penalty, you'll be drawing your benefits for longer from the same pot, so it's exactly what you would expect. Think of anything beyond age 55 as a bonus instead.
Also agreed on not taking the view that taking your pension early cones with penalties, it doesn't as explained above, less contributions and taking benefits longer means obviously your pot will be reduced.
I'm currently 55 and looking to retire and enjoy what I can now, so am collating as much info as possible before I make the decision.
If your AVC is like mine then it is managed by the same pension company as the DB. If so then there may be a clause which says AVC is taken at the same time as the DB on retirement.
The AVC acts as part of the 25% tax free portion when pension is taken. In that sense, the AVC is tax free because it is using the 25% tax free portion.
You need to make sure that the AVC is within 25% to be completely tax free. You can do this by putting excess fund into your SIPP.
It sounds like your scheme is like mine. The DB is NI free because it is paid via salary sacrifice otherwise you don't get the NI benefit.
AVC is paid separately so like you say, it doesn't benefit from NI savings.
The AVC acts as part of the 25% tax free portion when pension is taken. In that sense, the AVC is tax free because it is using the 25% tax free portion.
You need to make sure that the AVC is within 25% to be completely tax free. You can do this by putting excess fund into your SIPP.
It sounds like your scheme is like mine. The DB is NI free because it is paid via salary sacrifice otherwise you don't get the NI benefit.
AVC is paid separately so like you say, it doesn't benefit from NI savings.
Cheers all.
As I understand it, with the AVC being administered as part of a DB scheme, the tax free allowance is sufficient to take your whole AVC pot on retirement tax free.
A bonus for some but not really what I want to achieve.
Mortgage will be paid off so a small regular amount would suit me better than having a lump of cash I have little use for.
The 25% plus basic allowance of the SIPP I'm sure would be sufficient for the first few years if I have some saving alongside to supplement, say from the LISA.
As I understand it, with the AVC being administered as part of a DB scheme, the tax free allowance is sufficient to take your whole AVC pot on retirement tax free.
A bonus for some but not really what I want to achieve.
Mortgage will be paid off so a small regular amount would suit me better than having a lump of cash I have little use for.
The 25% plus basic allowance of the SIPP I'm sure would be sufficient for the first few years if I have some saving alongside to supplement, say from the LISA.
Rick101 said:
Cheers all.
As I understand it, with the AVC being administered as part of a DB scheme, the tax free allowance is sufficient to take your whole AVC pot on retirement tax free.
A bonus for some but not really what I want to achieve.
Mortgage will be paid off so a small regular amount would suit me better than having a lump of cash I have little use for.
The 25% plus basic allowance of the SIPP I'm sure would be sufficient for the first few years if I have some saving alongside to supplement, say from the LISA.
It sounds like I'm in a similar situation to yourself. My plan is to take the AVC tax free so that portion of tax free is done and dusted. With the funds, I will invest back in SIPP and ISA to use as much as the allowance as possible. The rest I will use for retirement spending and maybe a part in other investments. As I understand it, with the AVC being administered as part of a DB scheme, the tax free allowance is sufficient to take your whole AVC pot on retirement tax free.
A bonus for some but not really what I want to achieve.
Mortgage will be paid off so a small regular amount would suit me better than having a lump of cash I have little use for.
The 25% plus basic allowance of the SIPP I'm sure would be sufficient for the first few years if I have some saving alongside to supplement, say from the LISA.
Don't forget you also get 12000 capital gains allowance (maybe slightly more?). So some of the investment does not have to be in a tax wrapper. For example, 50k invested which builds to 74k means you could still redeem at 37k per year tax free of gains for over two years.
Thanks all, I'm sat with form PM603 right in front of me. BRASS Payroll deduction form
I need to get confirmation from RPS that the AVC part only can be transferred out at a later point.
Plan is to just use the AVC scheme with the simplicity of it being deducted at source and transfer to a private SIPP at say 55 where I can choose a cautious fund and then draw my 25% at 60.
Lump sum sounds nice but all I'd do is reinvest the majority of it anyway as the poster above has suggested.
May as well get started with the BRASS again. Can always adjust if necessary down the line. Should still have a couple of hundred I can point to a SIPP if the transfer option isn't available.
I need to get confirmation from RPS that the AVC part only can be transferred out at a later point.
Plan is to just use the AVC scheme with the simplicity of it being deducted at source and transfer to a private SIPP at say 55 where I can choose a cautious fund and then draw my 25% at 60.
Lump sum sounds nice but all I'd do is reinvest the majority of it anyway as the poster above has suggested.
May as well get started with the BRASS again. Can always adjust if necessary down the line. Should still have a couple of hundred I can point to a SIPP if the transfer option isn't available.
Rick101 said:
Thanks all, I'm sat with form PM603 right in front of me. BRASS Payroll deduction form
I need to get confirmation from RPS that the AVC part only can be transferred out at a later point.
Plan is to just use the AVC scheme with the simplicity of it being deducted at source and transfer to a private SIPP at say 55 where I can choose a cautious fund and then draw my 25% at 60.
Lump sum sounds nice but all I'd do is reinvest the majority of it anyway as the poster above has suggested.
May as well get started with the BRASS again. Can always adjust if necessary down the line. Should still have a couple of hundred I can point to a SIPP if the transfer option isn't available.
Given the link between the DB and AVC schemes, the trustees may well insist on you taking advice before agreeing to transfer out the AVC. Likewise the SIPP provider may also do the same.I need to get confirmation from RPS that the AVC part only can be transferred out at a later point.
Plan is to just use the AVC scheme with the simplicity of it being deducted at source and transfer to a private SIPP at say 55 where I can choose a cautious fund and then draw my 25% at 60.
Lump sum sounds nice but all I'd do is reinvest the majority of it anyway as the poster above has suggested.
May as well get started with the BRASS again. Can always adjust if necessary down the line. Should still have a couple of hundred I can point to a SIPP if the transfer option isn't available.
I think you should think very carefully before giving up what is a very valuable benefit.
Rick101 said:
Why would transferring the AVC be giving up a valuable benefit?
10K in BRASS is surely the same 10K in a SIPP.
Only difference being how much I can access tax free on day 1.
Happy to be corrected.
Thanks.
The tax difference may be material depending on the sums involved and your tax situation in retirement.10K in BRASS is surely the same 10K in a SIPP.
Only difference being how much I can access tax free on day 1.
Happy to be corrected.
Thanks.
10K in BRASS will net you 10K
10K in a SIPP will net you 8.5K if it is taxed at 20% (after the 25% tax free)
LeoSayer said:
Rick101 said:
Why would transferring the AVC be giving up a valuable benefit?
10K in BRASS is surely the same 10K in a SIPP.
Only difference being how much I can access tax free on day 1.
Happy to be corrected.
Thanks.
The tax difference may be material depending on the sums involved and your tax situation in retirement.10K in BRASS is surely the same 10K in a SIPP.
Only difference being how much I can access tax free on day 1.
Happy to be corrected.
Thanks.
10K in BRASS will net you 10K
10K in a SIPP will net you 8.5K if it is taxed at 20% (after the 25% tax free)
It's quite convoluted and adds to the tax return complication which is why I would rather just take the AVC tax free plus avoid any transfer costs moving from AVC to SIPP.
leef44 said:
But he would have some tax-free portion in his DB so in theory still ends in the same tax free amount.
It's quite convoluted and adds to the tax return complication which is why I would rather just take the AVC tax free plus avoid any transfer costs moving from AVC to SIPP.
I thought (possibly incorrectly) that the DB tax free cash will be paid out of the AVC pot if it exists.It's quite convoluted and adds to the tax return complication which is why I would rather just take the AVC tax free plus avoid any transfer costs moving from AVC to SIPP.
If the AVC pot doesn't exist and the OP wants to take DB tax free cash then won't that come from a reduction in the DB annual pension instead?
LeoSayer said:
leef44 said:
But he would have some tax-free portion in his DB so in theory still ends in the same tax free amount.
It's quite convoluted and adds to the tax return complication which is why I would rather just take the AVC tax free plus avoid any transfer costs moving from AVC to SIPP.
I thought (possibly incorrectly) that the DB tax free cash will be paid out of the AVC pot if it exists.It's quite convoluted and adds to the tax return complication which is why I would rather just take the AVC tax free plus avoid any transfer costs moving from AVC to SIPP.
If the AVC pot doesn't exist and the OP wants to take DB tax free cash then won't that come from a reduction in the DB annual pension instead?
He would definitely be able to take 25% tax free as a lump sum but that is what he wanted to avoid.
LeoSayer said:
I thought (possibly incorrectly) that the DB tax free cash will be paid out of the AVC pot if it exists.
If the AVC pot doesn't exist and the OP wants to take DB tax free cash then won't that come from a reduction in the DB annual pension instead?
Yes, if you choose minimum lump sum and maximum annual pension the lump sum is equal to the brass/avc value. Without brass any lump sum comes from the DB pot.If the AVC pot doesn't exist and the OP wants to take DB tax free cash then won't that come from a reduction in the DB annual pension instead?
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