“I took early retirement – when should I release my £1m pension?”


Daniel Hough, financial planner at Brewin Dolphin

We believe that Mr. Jones has sufficient funds for his retirement. He already has a large pension, and instead of going back to work, he should focus on streamlining and making the most of his existing assets.

On paper, he violated the life allowance. But since he has not taken any money from his pension, it has not yet “crystallized”. The lifetime allowance of £1,073,100 is frozen until at least April 2026.

Mr Jones would like a retirement income of around £4,000 a month – or £48,000 a year after tax. I would suggest taking £12,570 a year as income from the pension, which would fall under the non-taxable personal allowance. This can be supplemented by using the tax-free 25% of his pension, up to £35,430 a year, which he could do for at least the first eight years.

When Mr Jones starts drawing his state pension, in about five years, we can reduce the pressure on his investments. A full state pension from 35 years of National Insurance contributions will be around £10,000 a year. We can then exchange around £10,000 of cash a year taken from the tax free lump sum and when that money is exhausted he can withdraw money as taxable income from his pension.

Mr Jones has two Sipps: M&G’s has around £900,000 in assets, more than a third of which is in a bond fund, which is lower risk but has further lost value, while the majority Scottish Widows Sipp money is in cash. Having two Sipps means unnecessary duplication, so it would make sense to bundle them with one supplier.

It’s also worth having an emergency cash fund if circumstances change. There is already £30,000 of cash available, so I would suggest leaving that as it is.

Daniel Boardman-Weston, Managing Director of BRI Wealth Management

Mr Jones’ income requirements of between £48,000 and £60,000 a year appear achievable given his pension assets of £1.2million and other investable assets of around £150,000.

A 4% withdrawal rate on those assets would equate to around £52,000 a year and, taking into account the growth in dividends and the state pension once he qualifies, his annual income should be comfortably over £60,000 in the coming years. Given the high proportion of his money held in cash or low-risk fixed rate investments (£570,000 or 44% of his savings), he may consider investing in a broader mix of stocks, bonds and real estate funds for higher levels. revenue, given recent market declines.

The majority of his investments are in “passive” funds, which simply track a basket of stocks, and while this reduces the overall cost of investing, he can benefit from more active management during this turbulent time.

For exposure to UK dividends, we like the Gresham House UK Multi Cap Income fund, which has a yield of over 4%. For international equities, the Liontrust Global Dividend fund is a good choice. For fixed interest, the Artemis Corporate Bond fund offers exposure to good quality corporate debt and pays a yield of 3.4pc.

When it comes to the lifetime allowance violation, Mr. Jones should be mindful not to let the tax tail stir the investment dog. Hoping that the government will increase the lifetime allowance is a bit of a gamble and the priority should be his financial security.

Using the 4% withdrawal rate above, Mr Jones would draw around £46,000 a year from his pension. It would be wise to use his personal allowance ensuring that £12,570 a year is paid as taxable income; if we assume the remainder (£33,430) is tax free, it should crystallize £133,720, which means using 12.5% ​​of the current lifetime allowance.

He could repeat this process every year, so it would take eight years before the allocation was exceeded. In the meantime, while the allocation is frozen until 2026, beyond that point it is expected to increase with inflation.

This could mean that he never triggers the lifetime allowance. The alternative would be to draw exclusively on his other invested assets, which would likely lead to capital depletion.

Reader Service: Pension vs. ISA? Find out what might be best for your retirement and how find your old pension to boost your savings.


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