Pension drawdown
Discussion
Asking for a friend.
He has a small pension fund of around £100k.
He knows about the opportunity of taking up to 25% tax free.
He would prefer to avoid taking out an annuity.
He is giving up work at the age of 61 due to a back injury.
He has a wealthy spouse so will not be claiming benefits. He has no other income other than a small amount from the fund which remains in the fund.
Can he make further tax free withdrawals over the 25% up to the date that he starts to receive his state pension if these do not take his total income for the year over his personal allowance?
He has a small pension fund of around £100k.
He knows about the opportunity of taking up to 25% tax free.
He would prefer to avoid taking out an annuity.
He is giving up work at the age of 61 due to a back injury.
He has a wealthy spouse so will not be claiming benefits. He has no other income other than a small amount from the fund which remains in the fund.
Can he make further tax free withdrawals over the 25% up to the date that he starts to receive his state pension if these do not take his total income for the year over his personal allowance?
Boringvolvodriver said:
IIRC, once he has had the first 25% tax free, subsequent withdrawals will be made with tax deducted by the fund and he will have to claim the tax back after the end of each tax year.
A friend of mine had that situation and was a bit peed off that he had to claim tax back
That's wrong.A friend of mine had that situation and was a bit peed off that he had to claim tax back
The pension provider should be given the members personal allowance tax code to use.
Crumpet said:
Fast and Spurious said:
Small? Try larger than average..
Off topic, I know, but wow! I Googled it and the average pension pot is £60k! So it’s not just millennials who are crap at saving (that’s the stereotype, right?), it looks like the Baby Boomers were, too!Crumpet said:
Fast and Spurious said:
Small? Try larger than average..
Off topic, I know, but wow! I Googled it and the average pension pot is £60k! So it’s not just millennials who are crap at saving (that’s the stereotype, right?), it looks like the Baby Boomers were, too!And pensions is not the only way people save for retirement, they also use ISA, BTLs, etc...
https://occaminvesting.co.uk/average-pension-pots-...
Edited by nickfrog on Sunday 10th July 08:25
nickfrog said:
For a 61 year old the average is £190k. The average includes people who just started working and have £25 in their pot and people who are very old and have almost finished drawing down.
And pensions is not the only way people save for retirement, they also use ISA, BTLs, etc...
https://occaminvesting.co.uk/average-pension-pots-...
Ah, ok. The Telegraph article I quickly Googled said £61k was the average pension pot ‘after a lifetime of earning’. I’d say the number of retirees with BTLs and significant savings in ISAs will be the minority though, so even £190k isn’t going to go too far. These retirement figures are all rather depressing. And pensions is not the only way people save for retirement, they also use ISA, BTLs, etc...
https://occaminvesting.co.uk/average-pension-pots-...
Edited by nickfrog on Sunday 10th July 08:25
Boringvolvodriver said:
IIRC, once he has had the first 25% tax free, subsequent withdrawals will be made with tax deducted by the fund and he will have to claim the tax back after the end of each tax year.
A friend of mine had that situation and was a bit peed off that he had to claim tax back
Nope. I draw £16760/year (£12570 being 75% of the drawdown which is taxable, and £4190 being 25% tax free). But as my personal allowance is £12570, I pay no tax. I get £1396.66/month paid by my pension provider. A friend of mine had that situation and was a bit peed off that he had to claim tax back
nickfrog said:
For a 61 year old the average is £190k. The average includes people who just started working and have £25 in their pot and people who are very old and have almost finished drawing down.
And pensions is not the only way people save for retirement, they also use ISA, BTLs, etc...
https://occaminvesting.co.uk/average-pension-pots-...
Although that article goes on to say this is the average only for those with pensions and that 55% of people are without so that also skews the average somewhat And pensions is not the only way people save for retirement, they also use ISA, BTLs, etc...
https://occaminvesting.co.uk/average-pension-pots-...
Edited by nickfrog on Sunday 10th July 08:25
fat80b said:
Although that article goes on to say this is the average only for those with pensions and that 55% of people are without so that also skews the average somewhat
True, but hopefully auto enrolment will improve this in the future. I guess some people also rely on state pension which is perhaps viable with near £21k net for a couple (after the latest April 2023 uplift) or simply haven't used the pension facility as had no access to tax relief (self employed ?) but invested elsewhere instead (GA, BTL, ISA...).Edited by nickfrog on Sunday 10th July 09:23
nickfrog said:
True, but hopefully auto enrolment will improve this in the future. I guess some people also rely on state pension which is perhaps viable with near £21k net for a couple (after the latest April 2023 uplift) or simply haven't used the pension facility as had no access to tax relief (self employed ?) but invested elsewhere instead (GA, BTL, ISA...).
Everyone really really should check their state pension forecast - check qualifying years. Any missing any issues fix it now. Edited by nickfrog on Sunday 10th July 09:23
Full state pension when you retire is a very welcome thing.
Welshbeef said:
Everyone really really should check their state pension forecast - check qualifying years. Any missing any issues fix it now.
Full state pension when you retire is a very welcome thing.
Definitely agreed. I've just bought 4 years NI (due to pension reduction as a result of contracting out) for £3700 which increased my state pension by over £1000 pa. So if I live to 70 (state pension age is 66 for me) I'll start to make money, if I live to 90 I'll be quids in given its index linked.Full state pension when you retire is a very welcome thing.
nickfrog said:
True, and buy genuinely missing years as they have a short BEP, 3 years and a bit.
We’ve got 5 years missing for the wife two years payments are much lower so I think we will do those and knowing plenty of working years left rather than do the other 3 years drop into the £2,880 for £3,600 into a SIPP instead. (Wife going to work later this year so maxing our other options before). Welshbeef said:
nickfrog said:
True, and buy genuinely missing years as they have a short BEP, 3 years and a bit.
We’ve got 5 years missing for the wife two years payments are much lower so I think we will do those and knowing plenty of working years left rather than do the other 3 years drop into the £2,880 for £3,600 into a SIPP instead. (Wife going to work later this year so maxing our other options before). nickfrog said:
The two are not incompatible. You can buy the 3 missing years as the BEP remains the same, ie very low while still using the £2,880 as this is just a very slight cash-flow detriment on retirement. Or perhaps you're saying that she won't have missing years by the time she retires.
She certainly won’t have missing years on her normal retirement age - but…. The ability / choice to stop working might be useful. Gassing Station | Finance | Top of Page | What's New | My Stuff