Two different types of Drawdown?

Linton

hyperhypo wrote: »

again apologies for the dreadful appearance of my last post ...i won't be using a phone to compose it again.

The gist of my question in flexi drawdown does the usual tax allowance apply to income from pensions ie in addition to taking 25% without paying tax.

Does the notion of a tax allowance apply in retirement ?

Any money taken from a pension either directly after the first 25% or via an annuity is taxed exactly the same as say income from employment. So yes, a tax allowance works in exactly the same way. Pensions are taxed using PAYE. Note however that any State Pension you receive is paid gross and so could use up most of your tax allowance.

jamesd

As Linton wrote, pension payments are just PAYE income but without NI deductions. So you get all of your usual allowances and tax bands.

Your plan seems entirely possible, though you do need to ensure that you'll have sufficient income when you get to state pension age for the rest of your life.

hyperhypo

Linton, James, thank you both ...

forbear my wearing my ignorance of this a little heavily here but as an example i might elect to treat a dc pot thus , take a £24k chunk
example perhaps ... my notional annual salary in retirement taken as a flexi-crystal from whatever DC pot i've managed to save after 60.

Of this 6k is tax free ... of the remaining 18k the usual annual allowance applies thus tax payable on around 8k assuming no other income at that time....

..so for tax or ni purposes e.g age 60, a gross £24k crystallisation is similar (in tax purposes) to someone earning £18k p.a on PAYE....in other words the 25% tax free isn't taken into account in the subsequent PAYE calculations

My general idea is that post 63 my dc pension of £13k kicks so would need to flex less on the dc pot.... in other words it would need to be flexible enough to work hard from 60-61 to 63 and then less so until i'm 66 when dc + state pension might. The dc is linked to RPI.

jamesd

That's right.

Am am puzzled by your mention of a DC pension,shouldn't that be DB with a defined benefit of £13k? Or is that the projected income from an annuity purchased with a DC pension pot?

hyperhypo

James my mistake..... The 13k in current money is a final salary deferred scheme linked toRPI due at 63....I was under impression that all drawdown outside of the 25% was taxed at marginal rate with no tax code allowance so appreciate your clarification.

jamesd

Thanks. If you're considering taking the lump sum from the DB pension you might write more about how much the lump sum would reduce the income. We usually end up pointing out that it would be a bad move and cheaper to borrow to get a lump sum than to take it out of the pension.

hyperhypo

Hadn't envisaged any cash from the db, leave alone. My interest in this thread was flexible drawdown from the dc pot I'm putting into presently...build up over next 5 years and then say at 61 stop working and commence the flexi until db starts at 63. It's beginning to feel like aplan....it would not exist without this forum so thanks to all who contribute