How much DD and when & 25% Tax Fee

Nick9967

Probably seems a simple question but would appreciate someone in the know clarifying!
When i move my pension into DD I am likely to need to vary the amount i draw on an annual basis, i.e. £20k year 1-3 then £24k year 4-7  £18k year 8-12 etc etc, is this as simple as me requesting that amount from my provider? do most of them pay annually or can you spread it to a monthly payment or ??
In addition i will need to take the 25% TF but don't need to do that all at the start, can i take this as part of my DD every year an not pay tax on that portion? and can i vary its annual amount until I've used that 25% allowance?
I'm going to be working part time for the first 5 years or so of retirement so want to get straight in my head what is likely to be the best, most efficient scenario. In my head the longer i leave the a portion of the 25% invested the more it will make (i understand it could lose as well)   
 Thanks all

Paul_Herring

How much are you going to be earning "during retirement?" (Your £12,500 tax free allowance will play into this, dictating - depending on how you drawdown - how much you'll be taxed.)

Are you planning on continuing to contribute to a pension "during retirement," and if so, how much? (The £4,000 limit will apply if you flexibly access, or otherwise withdraw any of the 75% taxable part of your pension.)

Simplistically, for example, if you stop earning totally, and don't plan on contributing more than £4,000 per year afterwards, you can take £12,500*1⅓=£16666.67 (with 25% of it tax free, £1388.89 per month, equivalent to that of a gross wage of ~£19,100 after it being taxed & NI'd) without any of it being taxed at 20% (anything more than that will be taxed at 20%, however) and no NI at all..

Withdrawing less, while earning, may incur NI on the wage if you're earning enough, and if the total of gross wage+drawdown is over £12,500 (ignoring any 25%PCLS you take out) you'll be taxed 20% on the excess.

So, not a simple answer. Nor, really, is the question simple - more details are required!

[Deleted User]

Actually it's not a simple answer to what is a simple question.
Rather than write it all out - download this great guide from here https://www.moneysavingexpert.com/content/dam/mse/documents/guides/pensionguide-2017_updated.pdf

Nick9967

Thanks

How much are you going to be earning "during retirement?" (Your £12,500 tax free allowance will play into this, dictating - depending on how you drawdown - how much you'll be taxed.)
Approx £9 pa
Are you planning on continuing to contribute to a pension "during retirement," and if so, how much? (The £4,000 limit will apply if you flexibly access, or otherwise withdraw any of the 75% taxable part of your pension.)
No
Thanks uk0378 didn't know that existed

Paul_Herring

https://www.moneysavingexpert.com/content/dam/mse/documents/guides/pensionguide-2017_updated.pdf

Do note that that version itself is outdated. Though the bits I've noticed while skimming it may not affect you personally, for anyone else seeing this (and for visitors from the future, these are 2020/21 numbers):

- from 2028, access age will be 57, not 55 - this is now known, rather than just being speculation

- Money Purchase Annual Allowance [MPAA] (how much you can still contribute after touching the 75%) is now £4,000, not £10,000, per year.

- tax free allowance [TFA] is £12,500, not £11,000, 40% bracket is £50K, not £43K (this one most people should notice.)

dunstonh

When i move my pension into DD I am likely to need to vary the amount i draw on an annual basis, i.e. £20k year 1-3 then £24k year 4-7  £18k year 8-12 etc etc, is this as simple as me requesting that amount from my provider?

Yes

do most of them pay annually or can you spread it to a monthly payment or ??

Monthly is by far the most common requested but most providers platforms have the usual frequencies (monthly, quarterly, half yearly and yearly as well as ad-hoc one off)

In addition i will need to take the 25% TF but don't need to do that all at the start, can i take this as part of my DD every year an not pay tax on that portion?

Phased flexi-acces drawdown is an extremely popular method where each payment you draw is made up of 25% tax free and 75% taxable.    If you do not need the money at the outset, then you do not take it unless there is another justification for doing so.

and can i vary its annual amount until I've used that 25% allowance?

You will never use up the 25% lump sum if each withdrawal is split 75/25.   You will only use it up if you take a greater amount of the withdrawal as the tax free withdrawal.

Albermarle

Most of what you are asking is technically possible and within DD rules.
However the admin associated with DD is much more complicated  that when you are adding to the pension.
Firstly the process with the providers is still semi in the dark ages with forms to fill in etc. Long telecons etc Maybe you will have to go through the process each time you want to vary the amount withdrawn etc Plus quite probably some time on the phone to HMRC.
Maybe it will not be that bad but for sure you can not just go on line and change payments schedules at the click of a mouse .

xylophone

 (The £4,000 limit will apply if you flexibly access, or otherwise withdraw any of the 75% taxable part of your pension.)

Unless the contributions were to a DB Scheme.  https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/money-purchase-annual-allowance/

https://www.hl.co.uk/news/articles/archive/withdrawing-money-from-a-pension-which-option-might-you-choose is from 2016 but has a useful comparison chart.

Nick9967

and can i vary its annual amount until I've used that 25% allowance?

You will never use up the 25% lump sum if each withdrawal is split 75/25.   You will only use it up if you take a greater amount of the withdrawal as the tax free withdrawal.

Confused my self now,
Example:
Total Pot is £300k 
Semi retire at 58 PT working at £9k pa
take £60k tax free
Remaining draw down at £8,500 pa  does that mean £2,125 (25% of 8500) is tax free? regardless of annual income , and will that 2125 tax free stop at year 7 as by then i will have used up my original £75k (25%) tax free allowance?

Albermarle

This is what happens .
To start with your £300K pot is 'uncrystallised'
To get £60K tax free when you first start drawdown then £240K is crystallised. You get £60K tax free ( 25%) and the remaining £180K ( 75%) is now crystallised 
So left you have £60K uncrystallised and £180 K crystallised (and both parts remain invested )  Anything you take from the crystallised pot is taxable ( although depending on your other income you may or may not actually pay tax on it ) 

You can still take a further £15K tax free by crystallising the £60K later 
 , which may or may not have grown or shrunk in the meantime.

Nick9967

Ah ok a little clearer for me thanks, so regardless of what i take from my original pot (to a max TF 25%) the remaining pot still gives me 25% ongoing tax free until I've used that second 25% up - regardless of my other PT salary income in that year, and so 
that changes my entire calculation in my own spreadsheets as I'm getting more tax free income than i imagined i would be.