Drawing pension whilst still working

kidmugsy

If you insist on buying an annuity, then you are surely going to make larger pension contributions to let you avoid higher rate tax.

If there's an attractive way to do that at your work, so be it.

Instead, or perhaps in addition, consider an Immediate Vesting Personal Pension. The idea is that you bung in a contribution and they immediately crystallise the pension, paying you your lump sum and the first of your annual annuity payments. Bingo, you've got another wee lump sum back there and then. You could do this year after year. Here's a link.
https://forums.moneysavingexpert.com/discussion/2306269

jamesd

reheat wrote: »

Surely salary sacrifice would mean my taxable salary would be lower, and so further below the 40% threshold?

Your taxable salary at work would be lower but your total taxable income would be the same.

reheat wrote: »

If this was not the case then how could my NI be lower?

NI is due on taxable income from PAYE employment. Salary sacrifice reduces that number. So you pay NI on a lower income from employment. But you pay income tax on the employment income plus pension income. Even if some of that tax ends up being paid via the pension company PAYE, which I suppose will be set up to charge basic rate tax on the whole pension income, with work getting the personal allowance to use.

reheat

jamesd wrote: »

Whether it is salary sacrifice or not has no effect at all on whether you go below the higher rate threshold or not. Salary sacrifice is a good thing but that is not one of its advantages. The saved NI is.

I don't understand this. If my normal monthly salary is at the 40% threshold of £3454, and I do a 7% pension salary sacrifice of £242, then my taxable salary will come down to £3212 surely, leaving £242 'headroom' before hitting the 40% tax band again. So in this example, if I were to then earn a further £242 a month, without salary sacrifice it would be taxed at 40%, but with salary sacrifice it would be taxed at 20%? Quite apart form any NI considerations? Some info I read seems to think there is a potential tax advantage. What am I missing here?

atush

I think the point is, your total salary would include any new pension, but NI is only for your paid employement.

You really should not be taking a poor rate annuity at your age when you don't require the income. Instead, draw the 25% and leave the rest of the pension in DD.

jamesd

Agree. It's a bad idea to buy an annuity now when the income is not required. Assuming an IFA is involved my first thought runs along the lines of a mis-sale of an unnecessary product, with drawdown but taking no income the appropriate solution. I definitely wouldn't want to be an IFA facing a complaint about me selling an annuity when told there was no income requirement.

ermine

The crucial requirement is I need to access the 25% income from this particular pension fund. Due to redundancy having to relocate to expensive area, and need to boost the house-purchase fund.

Assuming you mean the 25% pension commencement lump sum, are you really saying you are going to stiff your retirement income for a win of 27.5k max now since your SIPP ends up < 100K? How are you planning to pay off your mortgage in retirement? Are there any other ways of borrowing that?

Have you added up the total cost of moving to a dearer part of the country, given you are so close to retirement age?

reheat

ermine wrote: »

How are you planning to pay off your mortgage in retirement? Are there any other ways of borrowing that?

The plan is to only borrow what can be paid off in 5 years. With existing house proceeds and 25% lump sum, a 20K mortgage would get us up to about 200K.

reheat

jamesd wrote: »

Agree. It's a bad idea to buy an annuity now when the income is not required. Assuming an IFA is involved my first thought runs along the lines of a mis-sale of an unnecessary product, with drawdown but taking no income the appropriate solution. I definitely wouldn't want to be an IFA facing a complaint about me selling an annuity when told there was no income requirement.

I did pursue quite hard enquiring into the possibility of me doing a SIPP, and with the fund in something equivalent to a normal 'lifestyle' pension fund, but FA kept saying too risky for my level of fund, given SIPP fees and post-25% investment of less than 70K. I pointed out that I was not interested in drawing down on the fund as a pension, but only as a holding investment till retirement. But advice was still that it is too risky.

jamesd

You need a different adviser. Or maybe none at all. You might try sending a private message to one of the IFAs who post here if you don't know any local ones or don't want to search.

It seems more a case of this FA just not wanting the business because of their cost base than your needs, so they get some money out of you with the annuity sale and have no ongoing obligation.

Please also read this post from an IFA. It's a description of the mis-selling that I think is happening to you.

A pension can hold a vast array of investments, including even savings accounts at banks or money market accounts that are close to that in risk and have minimal chance of any loss of value except to inflation and costs. Costs don't have to be high, you can do drawdown DIY for under £100 a year in fees, whether you're taking an income or not. You don't even need a SIPP or anything fancy, even the more basic products have a sufficient range of investments, they just aren't hard to get.