Which order might be "best", DC or DB pension drawing

Dazed_and_C0nfused

You only need taxable income of £2350.80 to make full use of your Personal Allowance.

What is the reason for taking £5950.80?

jamesd

I think you may have misunderstood PensionPawn or the idea's inapplicability to your situation.

Your base case is that you appear to have time to do both:

1. Taking all of the DC money out within your personal allowance and

2. Also gain £720 a year in tax break by paying in £2880 net and withdrawing £3,600 gross, the taxable portion falling within your personal allowance. You must not literally withdraw an extra £3,600, because you are already drawing up to your personal allowance. What the gross £3,600 a year contribution does is increase the number of years worth of money you have in the pot to draw out at personal allowance amount each year.

What PensionPawn seems to be describing is a different case where either it is impossible to get all the DC out without tax or where the extra income is needed. An emotional prop to help feel better about the £720 of tax payable is then used, observing that while £720 is payable at least there's £720 of relief going into the pension. But you can have £0 of income tax and still get the £720 of relief going into the pension, a better position.

Ldak

Hello Dazed/Jamesd
Uniquely skilled at misunderstanding...
Took about three readings but think I have it now.
So take only the £2350.80 to max the personal allowance, pay in £2880, withdraw £3600 when relief is added.
Only if I cannot spare the £2880 for the SIPP from the £12570 allowance/income, consider taking the "extra" £3600 from the DC pot? Getting 25% as tax free lump sum from it, paying £540 tax on the rest for an effective tax rate of 15% on it?

kidmugsy

Ldak said:

So take only the £2350.80 to max the personal allowance, pay in £2880, withdraw £3600 when relief is added.

Yes, but do realise that three-quarters of the £3600 will be taxed because you've just exhausted your Personal Allowance.  You might therefore prefer to leave that £3,600 invested for the future.  

ISA money is easily replaced.  So your £20k could come from that, with a long term plan to replace it (if you want to) when you have heaps of income after your State Pension begins.  Or when you take a lump sum, if you do, from your DB pension.

Which leads to the DB pension: if you are tempted to leave it until age 65 you could even enquire whether there's any advantage in leaving it longer.  A friend of mine found he'd get an extra 6% on his by leaving it for an extra year, so he left it for two extra years.  Sometimes DB schemes have idiosyncratic rules - it's worth checking yours.

jamesd

I was assuming that you were waiting to claim the DB later, because that's likely to be the best route. Leaves your whole personal allowance available and you can top up income if needed from ISA. Result is both the DC out with no tax and a higher DB, a nice combination.

Ldak

Thanks Kidmugsy...

Ldak

Thanks Jamesd.....sorted!
Sounds like a plan, sorry for not getting it quicker...max DC income to personal allowance level only, provided sufficient, postpone DB income if advantageous terms available, consider DB lump sum re ISA build-up.
Thanks to everyone!