Using a Defined Contribution to wait for a DB pension to Kick in

ttossi

I have a DB pension, that comes into force @ NPA. Retiring Early has a significant adjustment. Bearing in mind at the NPA I will also receive state pension.

So I am considering taking out an additional pension, saving up a lump sum for the puspose of using the lump sum as draw down for a year or two before I claim the DB pension and reducing the adjustment factor.

So as an example
I will Build up a pension pot of £20k , Draw it down in 1 year, taking it down this pension down to Zero.
Am I right in thinking I could 1/4 as tax free. 5k, Then use my tax allowance £12.5k, I will only pay 20% tax on 2.5k

I would have equivalent of £19.5k with only 500 tax?

Is this right ? Are there better options

NoMore

Yep, I'm doing the same but bridging a gap of 5 years not one, so aiming for a 100k pot.

As a higher rate tax payer, the tax relief helps immensely in achieving the amount required in a short space of time.

tacpot12

Yep, and that is my plan too, but the gap is 11 years so the pot is a bit larger.

Your understanding of the tax situation is correct. £19,500 of income after tax and just £500 income tax to pay.

Pension_Geek

Only thing I’d add is that you don’t have the full personal allowance until month 12 of the tax year.

So if you are taking, say, regular income, it’ll work different to taking £15k as a lump sum on say, April 10th. If you take regular income then your pension provider will usually apply a month 1 tax code until they get your own one from HMRC. If you take a lump sum they will still apply the month 1 code and then you’ll have to apply for the tax back.

It’s caught a fair few people out who have expected one net figure and got a different one.