does my pension plan have any flaws ?

lilactime1936

ok here goes . im 56 and want to retire when iam 63 . this is my plan
at 63 i will have approx 150000 in a personal pension
i will also have approx 25000 in a workplace pension
at 63 can i take 12000 or what ever the tax fresh hold is
64 the same again more or less wiping it out
at 65 take the 25 percent tax free out of my personal pension which would easily last 2 years
at 67 state pension kicks in i start drawing down on personal pension .
any flaws in my plan ?

MallyGirl

does that give you enough to live on?

cfw1994

lilactime1936 wrote: »

ok here goes . im 56 and want to retire when iam 63 . this is my plan
at 63 i will have approx 150000 in a personal pension
i will also have approx 25000 in a workplace pension
at 63 can i take 12000 or what ever the tax fresh hold is
64 the same again more or less wiping it out
at 65 take the 25 percent tax free out of my personal pension which would easily last 2 years
at 67 state pension kicks in i start drawing down on personal pension .
any flaws in my plan ?

I'm no expert but you mean at 63 take the tax-free lump from the workplace pension? This is a DC (defined contribution) scheme, not DB (defined benefit)?

That, I believe, is known as the Pension Commencement Lump Sum (PCLS - still learning new acronyms every day!)....but is limited to 25% of the pension....
So if only coming from the workplace one, then that is £6,250. Nothing to stop you taking more out, but that will be part of normal taxable income: if you take another £6,250 this would take you just over the tax threshold (£11,850 this year), assuming you have no other source of income, so a little income tax payable against the bit over.
Rinse, repeat the next year.
& yes, the rest of this makes sense to me.

But I am just a human (or perhaps not?!) on the internet....some wise souls will pop up to give better advice shortly...

dunstonh

You can do what you want but we cant tell if it is sensible or not as you havent mentioned what your target income in retirement is and what other income there will be.

Dox

lilactime1936 wrote: »

ok here goes . im 56 and want to retire when iam 63 . this is my plan
at 63 i will have approx 150000 in a personal pension
i will also have approx 25000 in a workplace pension
at 63 can i take 12000 or what ever the tax fresh hold is
64 the same again more or less wiping it out
at 65 take the 25 percent tax free out of my personal pension which would easily last 2 years
at 67 state pension kicks in i start drawing down on personal pension .
any flaws in my plan ?

You've given absolutely no indication of how much you will need to live comfortably in retirement, or the sort of standard of living you have now/aspire to in future. Any debts/children to support/other considerations? State of health? Attitude to risk?

BLB53

If £12K p.a. is sufficient for your needs in retirement until the state pension kicks in then sounds like you have it sorted.

k6chris

BLB53 wrote: »

If £12K p.a. is sufficient for your needs in retirement until the state pension kicks in then sounds like you have it sorted.

You can test this out by starting today to adapt your spending to live of your projected retirement income and put the excess you earn each month into your pension - this will quickly tell you if your plan makes sense as well as providing additional funds for when you do retire. If you discover there is no way you can actually live off £1,000 a month, then you have an answer to your question - ditto if you can live comfortably off it! Simples.

kidmugsy

lilactime1936 wrote: »

at 63 i will have approx 150000 in a personal pension
i will also have approx 25000 in a workplace pension

at 63 can i take 12000 or what ever the tax fresh hold is
64 the same again more or less wiping it out
at 65 take the 25 percent tax free out of my personal pension which would easily last 2 years
at 67 state pension kicks in i start drawing down on personal pension .
any flaws in my plan ?

Is your plan to use up your Personal Allowance against income tax each year? For example suppose you retire at 63 and that is half way through a tax year. Your earnings might already have used up your PA for that year. So you draw as much tax-free lump sum (Pension Commencement Lump Sum) as you like. The max available will be 0.25 x (£150k + £25k) = £44k approx. You might decide to draw the lot, spend part, and save the rest earning the best interest rate you can find. That will leave you £130k approx in the "crystallised" pensions.

In the next tax year you will presumably have no earnings and a little interest (which will be tax-free anyway). So you drawdown the PA (presumably £12.5k or bigger) and spend as much of the left-over TFLS as you need. Carry on like this, making max use of the PA, until your State Pension begins. If you need to draw out a bit more than the PA so be it; you'll pay a bit of 20% tax but at least there will be no National Insurance to pay.

If this is your plan it would make sense to sell enough of your investments within the pension to cover the drawdowns you want to do before the State Pension begins. You might choose to leave the rest invested as you'd expect to draw it down over many years as the supplement to your state pension.

MK62

lilactime1936 wrote: »

ok here goes . im 56 and want to retire when iam 63 . this is my plan
at 63 i will have approx 150000 in a personal pension
i will also have approx 25000 in a workplace pension
at 63 can i take 12000 or what ever the tax fresh hold is
64 the same again more or less wiping it out
at 65 take the 25 percent tax free out of my personal pension which would easily last 2 years
at 67 state pension kicks in i start drawing down on personal pension .
any flaws in my plan ?

On the face of it, it's not the most tax efficient withdrawal plan, but it depends on your goals and perhaps a few other factors as to whether you'd actually gain any practical benefit from a more tax efficient plan.

lilactime1936

well by the time im 63 i will have only bills to pay £12000 per year is enough to live on with the savings and any inheritance i will get . iam fit and healthy but as you know anything can happen . ive not really looked into professional advice its just that my plan seems the most simple way to do things . nearer the date i may seek advice . and of course my pensions may be worth more or less .

MK62

lilactime1936 wrote: »

its just that my plan seems the most simple way to do things

It probably is.....but thanks to the nuances of the tax system, the simplest way isn't always the most tax efficient way.
That said though, your plan isn't the worst either - you'll still pay no tax, and depending on your actual goals and overall position, you may not actually gain anything from what is, I should actually have said, a "potentially" more tax efficient method (which may save you tax later on, once the SP has kicked in)