Cash needed: Taking drawdown tax free % vs cashing in ISA?

Nickvale

I'm 62, not working and getting a final salary pension of around 800 p/m. I've got savings in both cash and stock ISAs plus about twice as much in various defined contribution pensions. I'm planning on taking an expensive (£14,000ish) holiday next year (I deserve it!) and am wondering whether it would be more cost effective to finance it by taking savings out of the ISAs or going into drawdown on some of my pensions and using my tax free 25% (I don't need any additional income yet). Any opinions on what choice I should go for to fund the holiday, or the criteria I should use to decide? Thx Nick

Linton

If your only income is the, say, £9600/year from your DB pension that would leave you about £2K unused tax allowance. If you have no intention of working again it would be sensible to use this to get as much taxable money out of your pension as possible. So every year you could use UFPLS to withdraw £2K taxable and £667 tax free (25% of total) from your pension. However note that once you have withdrawn any taxable money your annual allowed DC pension contributions are reduced to £4K, hence the condition on not working again.


The remainder could either come from your ISA or your pension, it doesnt matter. Once you get your state pension your drawdowns will be taxed at 75% X 20% any way.

nrsql

I would go for the pension if there are no other oddities - like problems with moving to drawdown, extra fees, needing to switch providers etc.
because

Pension is locked and you might come up against rule changes in the future (e.g. annual tax while it's in the pension) so good idea to reduce it as much as possible .
The tfls doesn't reduce the amount you can add later.
The ISA is tax free whereas the pension won't be when you start taking it out - i.e. the isa gives you more flexibility.

There will be arguments against this e.g. the rule changes might make it benificial to not take the tfls or they might do something retrospective to ISAs, it's a more complicated process, ....

xylophone

The personal allowance will rise to £12,500 in the tax year 2019-20.

You might wish to draw down one of your pensions to take advantage of any unused PA?

Dazed_and_confused

The amount of unused Personal Allowance would depend on whether the op is actually entitled to the full £12,500.

On their current income it's entirely possible, if married, that they may have applied for Marriage Allowance and only have a reduced Personal Allowance of £11,250.

kidmugsy

Maybe after his holiday he should plan each tax year to do the SIPP money-go-round: £2,880 net in; £3,600 out, being £900 TFLS and £2,700 taxable, but presumably untaxed in whole or in part.

That way he can keep his existing DC pensions well stocked with capital for his wife to draw tax-free if he dies before 75.