Tax on a SIPP drawdown question

AnotherJoe

is this the right forum to ask a simple tax question about drawdown from SIPP and taxation and check my maths looks OK?
If not, which one is?
Thanks

robber2

This is the one

AnotherJoe

OK thanks, here goes then


I'm looking into 2017 as my tentative retirement date.
DC scheme £600K
Drawdown at 5% of that = £30k
25% of that is £7.5k
Leaving £22.5k to pay tax on
Allowance £11k
Leaves £11.5k to pay 20% tax on = £2,300
So "take home pension" = £30k - £2,300 = £27,700


Then in 2021 I'll be on SP at £7k plus a DB pension of £7k.
So at that time my additional tax would be another 20% of £14k = £2,800 leaving £11,200
So will go up to £27,700 + £11,200 = £38,900

Also I can additionally “draw down” on any money from ISAs, cash savings, capital gains under the yearly limit, without any further tax charge ?
Current intent is to do that to “fill out” the years between 2017 and 2021 in particular.

maximumgardener

yes ...your calculations look correct.

& yes ....you can supplement your income using tax free savings from isa's etc etc

maximumgardener

just a thought...George O just may tinker with the "rules" so things may be different in 2021

also

4% is sometimes referred to as SWR (safe withdrawal rate) . no guarantees in this life though!

AnotherJoe

Thanks mg. I was thinking 5%, first because I have the gap to make up until 2021, and second I would rather spend it whilst I'm active than keep it for when I'm 90 if I ever make it. It might be 6%.

So I'm content to run it down to a certain extent, I'm not planning in keeping it steady state, and at effectively 1% or 2% annual decrement (eg 5% or 6% minus the 'safe' 4%) it will outlast me anyway, plus when I get to 2021 I could drop to 2% or 3%. £600k when I'm underground or floating out of a chimney wont do me any good :rotfl:

Just wanted to be sure I wasn't missing something obvious.

The only other thing is, I could take the full 25% lump sum up front then pass that into ISAs over time (£30k a year for a couple) & savings of other sorts. Obviously then I take a 20% tax on all drawdown immediately. Is that a zero sum game?

mgdavid

Don't forget you have to retire in March 2017 in order to use the whole 2017/18 tax allowance against your pension income.
Otherwise there's abit more maths to do.

AnotherJoe

Doh! Excellent point, hadn't considered that at all. So yes as a 40% tax payer I need to time it right, I was thinking of fixing it to a birthday, but just before the start of a new tax year is a far better plan, otherwise I'm paying 40% on all the SIPP drawdown except the 25% portion.
So that focuses things, I'm looking at either March 2017 which is only a year away, or more likely, 2018 then.

Which also has the benefit of a shorter time till SP and DB kicks in.

Since I can hardly believe the next olympics is coming up soonish, since it only seems like a couple of months ago I was watching it, that will get here fast enough.

bigadaj

It may be convenient in tax terms to stop working a few months into the tax year, so minimising the tax paid on your salary for that year. There's no requirement to start your pension as soon as you stop working and it may be more tax efficient.

Optimal time may well be four to six months in, though depends on your current salary, and it may not align with your lifestyle requirements, though again depends on your plan, May always seems a good time to finish in the uk, but if you plan on going to sunnier climes then finishing in Autumn or winter may be just as good.

AnotherJoe

bigadaj wrote: »

It may be convenient in tax terms to stop working a few months into the tax year, so minimising the tax paid on your salary for that year. There's no requirement to start your pension as soon as you stop working and it may be more tax efficient

So you are saying, for example, work until just before any SIPP drawdown I'd take plus the pay for that part year, took me into 40% ? I can see the logic there. Though the downside is, that would still mean I'd pay an additional £2,200 that year on the drawdown from my SIPP ? Either that or postpone the drawdown until the next tax year and live off other sources ? In that case, might be a plan to stop pension contributions for that final part year and save that as cash to spend when I retire.

I see a little spreadsheet work coming on

maximumgardener

AnotherJoe wrote: »

Thanks mg. I was thinking 5%, first because I have the gap to make up until 2021, and second I would rather spend it whilst I'm active than keep it for when I'm 90 if I ever make it. It might be 6%.

So I'm content to run it down to a certain extent, I'm not planning in keeping it steady state, and at effectively 1% or 2% annual decrement (eg 5% or 6% minus the 'safe' 4%) it will outlast me anyway, plus when I get to 2021 I could drop to 2% or 3%. £600k when I'm underground or floating out of a chimney wont do me any good :rotfl:

Just wanted to be sure I wasn't missing something obvious.

The only other thing is, I could take the full 25% lump sum up front then pass that into ISAs over time (£30k a year for a couple) & savings of other sorts. Obviously then I take a 20% tax on all drawdown immediately. Is that a zero sum game?

I reckon you have it sorted!.
40% taxpayer now but ensure you pay 20% in retirement.
as you say , you could take the £150k TFLS and invest it in ISA's and then DD the ISA's to suit your situation in early retirement. That way your 400k can stay invested . Woo hoo:beer:
Happy days! best of luck.
MG