AVC & SIPP

[Hawkey99]

I am considering taking part of my pension when I am 55 in February but continuing working. The following calculation were taken from this board a year or so ago which shows I wouldnt actually lose anything by taking my pension early until I am 75, apart from potentially paying extra tax. I realise that if I live past 75 I start to lose money every year.

Living to 75

Assuming retiring at 55 and living until 75
£7,500 (£10,000-25% for early pension) x 20 years = £150,000

Assume retiring at 60 and living until 75
£10,000 x 15 years= £150,000

My question is would it make sense to take my NRA 60 pension at 55, continue to pay significant amount into AVCs to minimise / avoid tax and then pay my pension payment each month into my wife SIPP to get back any tax I have paid on that. My wife is 50. The logic being my family don't have a history of living to an old age and releasing this money earlier.

Does this sound legal, stupid or a possible way forward which would give me my pension money a year early. I know its a personal decision but would appreciate any thoughts.

[RobertT]

Taking your pension before NRA is generally a bad move. Here’s a few points to consider:

1. The extra tax you’ll pay will amount to 20% of your pension, so the £7,500 per year in the very basic example you mention would only actually be £6,000.
2. Have you factored in inflationary increases to your pension each year? That will affect your break even age. Based on £10,000/£6,000 and 2% inflation, it’s likely to be late 60’s.
3. Will your reduced income be enough to live on along with the state pension and other savings, etc when you actually come to retire? That’s the most important figure, not how much you get overall.
4. Your reduced pension will also mean a reduced spouses pension on your death.
5. Also factor in what your wife’s bringing to the table and her tax liabilities.
6. How much will yours and your wife’s state pension be?
7. If you’re continuing to work and pay into the RMPP, based on RM’s latest proposals you’ll be building up another lump sum along with your AVC’s, possibly creating a tax burden further down the line, depending on how you intend to access that money.
8. Don’t underestimate the tax you might pay. All income including the state pension will come under income tax rules.
9. Your plan to put your pension into your wife’s SIPP may come under pension recycling rules, I suggest you do some research on that.

[Hawkey99]

Thank you very much Robert.

Very thought provoking and interesting as always.