Credit card for early retirees

graemev4

Seems an obvious issue but can't see any discussion.

The John Lewis cards are ending soon and it seems time to apply for some new cards . In the past, not an issue, regular salary income , choose your card.

But now being in that position of having worked long enough but with the state pension age receding into the distance, of living off private pensions.

In the past, again, this wasn't an issue. You started the pension an got an annuity that was your income . But nowadays the more efficient way to draw a pensions is via "Drawdown" (or similar) . So your spending money comes from making withdrawals from "pots" . If these are classed as "untaxed" (e.g. pension funds) then you pay income tax. If it's "taxed" such as ISAs the there is no income tax.

The upshot of which is your "spending money" is not really "income"  the amount you get (take) each year or month is partly a matter of choice. For me my income tax declaration is pretty much in line with my "incoming money" , it wasn't in the past (due to the Tax free cash element) and for people who mainly have ISAs it bears even less of a relationship.

What the do you say on "Credit card applications" ... Annual Income: "£Whatever I need?"

It feels like they should be asking different questions

born_again

Annual income is what you get paid a year.. So any pension etc.

CSH1

I was wondering this, I am early retired and have a small final salary pension income but can supplement this with drawdown from a private pension and savings/ISAs if needed but my actual 'income' is quite low. People who haven't bought an annuity or have a final salary pension would look like they have no income at all but some may have access to quite large pension pots/savings which the card provider wouldn't see.  

MEM62

Look at you tax return or P60 - that will give you an income figure for the year.    

Nebulous2

I'm early retired, and working part-time, but I have a defined benefit pension, which gives a monthly / annual income, so this doesn't really impact me. 

If you are applying for a credit card, at the question about your income, there will be a text box or link telling you how they define it - what is included or not included. Read that and follow it. I'd expect anything you drew from a pension last financial year to be included, I doubt if money withdrawn from an ISA would be. If in doubt you can always phone them and put your question on record.  Some credit card applications also ask about household income which can help. 

You may find you are much less credit-worthy than before however. If you were earning £50k previously and you are now drawing to the £12k tax allowance I wouldn't expect you to get the same offers, regardless of how much you have in your DC pension pot. 

The other important thing is you need to be consistent. Changing what you put in different applications to game the system can see that recorded and then you'll find everyone turning you down, or worse closing accounts. 

[Deleted User]

They want to know regular income - as Nebulous2 says, you need to check what their terms are. I would assume, before checking, money from savings cannot be used as income because there is nothing to stop you taking the savings out and going on a world cruise for a year or putting the lot on Lame Larry at the 3:30 at Kempton. However, the firm may well be able to give you proper advice before applying if you cannot find it in the small print.

graemev4

Well let's consider an example.

You have a small annuity with pays £4000.

You have a large uncrystalized pot , and draw £61,694 from it.

You have a large ISA and withdraw £25,000 from it

The uncrystalized pot is 25% tax free, so £46,270 is taxable added to the £4000 annuity is £50,270 so in the basic rate band only.

So total tax is (£50,270-£12,571) * 20% = £7,739.9

So the total amount of "spending money" you have is:

 £4,000 +

£61,694 +

£25,000

-------------

£90,694  with tax to pay of £7,740  leaving £82,954

So what is your "income" ?:

1: £82,954

2: £90,694

3:   £4,000

4: £57,954  (disregarding the ISA)

5: £50,270  (The figure HMRC sees)

The next year you may opt for a totally different distribution , e.g if say there were a market crash.

And it's pretty easy to construct scenarios , where HMRC sees £0 or £12,571 ?

Also if you have a big enough pot or are old enough you can live entirely on the Tax free cash in a pot so HMRC sees you having £0 of taxable income.

Young people (starting work recently)  sometimes look to using ISAs exclusively , so they may be comfortably off but actually have zero income . It's quite possible that Mr Musk has $0 income (since he has no need of a salary).

There is no way to see it this is sustainable (e.g you have £5m in your pot) or if that just emptied it. It would seem to make more sense to ask questions about the amount in the pot(s).