Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Bhoddhisatva,scotia,Anonymous,Cornytiv34, for Donating to support the site

Spending in Retirement

Emptysea34
Posts: 3
Joined: August 13th, 2020, 12:46 pm
Been thanked: 1 time

Spending in Retirement

#440098

Postby Emptysea34 » September 6th, 2021, 4:37 pm

Hello everyone,

I am getting close to my pension LTA and am wondering in what order to access my assets. IHT is not really a consideration as I have no dependants and anything left will mainly go to charity. In an ideal world I would spend everything before I die, although this is looking like a very unlikely scenario.

Financial advisers usually recommend using other assets (e.g. cash, ISA's etc) first and accessing the pension last. Apart from IHT (which, as I say, is not a problem for me) I can't understand why this is the recommendation. Can anyone shed any light on this?

My thoughts are to crystallise the pension, take the tax free cash and spend it, then use the rest for income minimising income and LTA tax

Appreciate any comments.

Kantwebefriends
Lemon Slice
Posts: 356
Joined: November 5th, 2016, 4:02 pm
Has thanked: 26 times
Been thanked: 102 times

Re: Spending in Retirement

#440106

Postby Kantwebefriends » September 6th, 2021, 4:54 pm

You are right, probably, that by far the biggest incentive for leaving pensions until last is avoiding IHT (though you might like the idea that a pension company is likely to get cash into the hands of your nominees faster than a bequest is likely to reach an inheritor).

Others might include (or so I understand)

(i) your pension is protected in bankruptcy, your ISA isn't

(ii) if you go into a care home "they", the Council I suppose, can pillage your ISA but for your pension the most they can do is deem that you draw an income from it and pillage that.

If you anyway assume that you will pay for all your own care I doubt that (ii) will much matter to you.

The case for crystallising a pension is (a) you get the tax-free lump sum before the laws change - might it be capped in future? - and you get to use the current generous annual ISA subscription limit, (b) you presumably lock in the current value of LTA.

There are a few investments you can hold in, for example, SIPPs but not in ISAs. Some investors might hope to take advantage of that.

JohnB
Lemon Quarter
Posts: 2497
Joined: January 15th, 2017, 9:20 am
Has thanked: 677 times
Been thanked: 997 times

Re: Spending in Retirement

#440112

Postby JohnB » September 6th, 2021, 5:03 pm

You want to minimise tax, so you want to take full allowance of personal, dividend and capital gains allowances, which requires some money to be unsheltered and some coming from pensions at all times. Beyond that it makes little difference until your required income exceeds the higher rate tax threshold, and then you don't want to drawing down a pension that fast. This is often a problem when you require home care or go into a home and your expenditure rockets. Best to have some ISA left for that than suck £80k a year our of a pension and have it taxed at 40%

tacpot12
2 Lemon pips
Posts: 134
Joined: July 19th, 2018, 10:24 am
Has thanked: 141 times
Been thanked: 77 times

Re: Spending in Retirement

#440120

Postby tacpot12 » September 6th, 2021, 5:41 pm

The recommendation is common because DB pension schemes often have reductions that are made if the pension is taken before the normal retirement age for the scheme, or, as in the case of the State Retirement Age, are boosted if you defer taking them.

It is less relevant to DC pension schemes where taking a mix on income from the pension and from ISAs can be a better overall strategy.

Emptysea34
Posts: 3
Joined: August 13th, 2020, 12:46 pm
Been thanked: 1 time

Re: Spending in Retirement

#441689

Postby Emptysea34 » September 12th, 2021, 5:54 pm

Many thanks for your comments. They were very helpful and have helped considerably in clarifying the decisions I need to make.


Return to “Pensions - Practical Problems”

Who is online

Users browsing this forum: No registered users and 7 guests