Advice please

MARKM7962

Dear All

Could you offer some advice with regards to pensions as my wife and I are making plans for retirement in 2025 when we are both 63.

1. We both have pension plans that we can start to draw on from when we are 55. My plan is to draw the 25% tax free lump sums from both plans and invest then invest that amount in either an interest account or an ISA in joint names
2. Then as the higher rate of tax starts at £43,000, I am going to start withdrawing from each pot the difference between £42999 and our individual salaries to ensure that we pay the lower rate of tax on this figure. It will take approx five years to empty the pots and the Pension provider has confirmed that there are no additional charges for doing this. That money will be then also be invested.
3. We have been very meticulous with our income and our mortgage is being paid off in Oct 2017. The mortgage payment will then be saved every month and we should have a sizeable balance by the time we retire
4. With the State Pension kicking in in 2029, I have checked on the Govt Website and we both qualify for the full amount of £155 each less tax per week so that is an added bonus

I believe that this is the right way forward as we wanted to get the money out of the pension pots and into our accounts where we can both access it in case anything happens to either of us and the other has financial security.

I wanted to see if there is a flaw in my thought process.

Thanks

Mark

jem16

MARKM7962 wrote: »

1. We both have pension plans that we can start to draw on from when we are 55. My plan is to draw the 25% tax free lump sums from both plans and invest then invest that amount in either an interest account or an ISA in joint names

You can't have a joint ISA so that's a non starter. If it's an interest account it's likely to lose value and also be subject to tax.

2. Then as the higher rate of tax starts at £43,000, I am going to start withdrawing from each pot the difference between £42999 and our individual salaries to ensure that we pay the lower rate of tax on this figure. It will take approx five years to empty the pots and the Pension provider has confirmed that there are no additional charges for doing this. That money will be then also be invested.

It's already invested where it is but you're going to take it out of a tax-free environment into a taxable environment. What are you trying to achieve with this?

I believe that this is the right way forward as we wanted to get the money out of the pension pots and into our accounts where we can both access it in case anything happens to either of us and the other has financial security.

I can't really see the point of removing money from a tax-free pension pot to pay tax on it and then to invest it in a taxable environment. If either of you were to die before age 75, the entire pot passes tax free to the other. After age 75 it still passes on but tax would be paid in the normal manner if used to withdraw income.

I wanted to see if there is a flaw in my thought process.

There seems to be a few flaws that you need to research more clearly.

sandsy

It sounds tax inefficient. You are proposing paying 20% tax on every pound of income taken out above the tax free cash.

But if you wait until you have no other income, the first £11k of each pound drawn will be tax free due to the personal allowance. And as previously mentioned, leaving the money invested in the pension has benefits if either of you pass away early.

Also consider investing your saved mortgage payment in the pension to attract tax relief and boost your pension pot even further.