Edinvestor

conradmum

Can I ask where you get your figure of £10,000 as the maximum advisable for pension income? I thought tax started to be paid at around £7000 for pensioners?
And also, does that figure include the basic state pension, or are you referring to pension income from other pensions only?

wotsthat

I don't know Ed's logic for this but for me:

- £10,000 is a nice round figure
- yes tax is only payable on the first £7000 or so but it's going to be a difficult (impossible?) job to spend a working life investing to attain exactly the return you need to be £1 under the tax bands
- the first chunk of taxable income, today, is only 10% and so is a buffer if investments have performed better than expected. A little tax to pay won't take the shine off this happy event.
- anything over £10000 may be best coming from tax free income i.e. ISA's

dunstonh

£7280 is the age 65 allowance.
£2150 is the 10% lower rate tax band

Total = £9,430.

10k is an easy figure to keep in mind. That figure should include state pensions as they are paid gross but are taxable.

You are never going to get it exact as allowances change and investment returns are variable. 10k just sticks in the mind easier.

EdInvestor

DH explains it well.

If you are already over the 10k level, the next thing to avoid is going over 20k in pension income: at this point you get punitively taxed, as they start to withdraw the age allowance.

If you are are already over 25k (age allowance is gone by now) the next thing to avoid is getting into the higher rate 40% band.

A bit of forward planning with ISAs and pensions can save thousands later in retirement, and arguably you need the tax savings more then, than while you are still working.