Early retirement (for now) Pension V savings for an income

Secret2ndAccount

State Pension next year is £203.85 per week. 52 x £203.85 = £10,600.  I think some years you will get 53x, but let’s go with 10,600

Personal allowance = £12,570

£12,570 - £10,600 = £1,970  so you can take  another £1,970 taxable from your pension, along with a tax free 25% of £656.

That’s a total number of £13226 with no tax.

Any further money you draw from your pension in this way will effectively be taxed at 15%.

For an income of 25k after tax, you would need to draw £16,478 of which £2,078 would be lost to tax.

For each additional £1k of income after that, you would draw £1,176, and pay £176 in tax.

P933alilli

Thanks, my DC pension is only 39k at this moment in time. i always intended to take 25% tax free lump sum and then withdraw below my personal allowance each year to avoid tax  . But if i was at state pension age now the personal allowance would leave only £1970 after deducting from the state pension as explained above. Then to avoid any tax it would take another 11 years to deplete. So i don't know why I'm continuing with my dc pension. I may as well take it now and make use of my personal allowance each year and stick what i can in a S&S isa or even cash isa! I guess if the dc pension did really well that it would be worthwhile but i'm only contributing £3600 per year. Unless i'm missing some other way?
  

Nebulous2

Collyflower1 said:

Thanks, my DC pension is only 39k at this moment in time. i always intended to take 25% tax free lump sum and then withdraw below my personal allowance each year to avoid tax  . But if i was at state pension age now the personal allowance would leave only £1970 after deducting from the state pension as explained above. Then to avoid any tax it would take another 11 years to deplete. So i don't know why I'm continuing with my dc pension. I may as well take it now and make use of my personal allowance each year and stick what i can in a S&S isa or even cash isa! I guess if the dc pension did really well that it would be worthwhile but i'm only contributing £3600 per year. Unless i'm missing some other way?
  

It's not all about saving tax. However if you aren't using your personal allowance now, and you think you will in retirement, then you could pay in £2880 each year and take £3600 out. You could also take some of the accrued money out without paying tax if you are under your tax allowance. 

You don't know what the state pension will be later, nor what the personal allowance will be. While there isn't a big gap in them now, that might not always be the case. 

The state pension isn't a great deal to live on, and you may need your DC pension to top it up after state retirement age. Spending it now doesn't leave it for later...  

P933alilli

Nebulous2 said:

Collyflower1 said:

Thanks, my DC pension is only 39k at this moment in time. i always intended to take 25% tax free lump sum and then withdraw below my personal allowance each year to avoid tax  . But if i was at state pension age now the personal allowance would leave only £1970 after deducting from the state pension as explained above. Then to avoid any tax it would take another 11 years to deplete. So i don't know why I'm continuing with my dc pension. I may as well take it now and make use of my personal allowance each year and stick what i can in a S&S isa or even cash isa! I guess if the dc pension did really well that it would be worthwhile but i'm only contributing £3600 per year. Unless i'm missing some other way?
  

It's not all about saving tax. However if you aren't using your personal allowance now, and you think you will in retirement, then you could pay in £2880 each year and take £3600 out. You could also take some of the accrued money out without paying tax if you are under your tax allowance. 

You don't know what the state pension will be later, nor what the personal allowance will be. While there isn't a big gap in them now, that might not always be the case. 

The state pension isn't a great deal to live on, and you may need your DC pension to top it up after state retirement age. Spending it now doesn't leave it for later...  

Thanks for the replies, my pension is probably about 20% of what i have saved in a mix of one s&s isa, three fixed rate cash bonds, one current account and an easy access account. The pension is a Royal London with profits started in 1994. I neglected it for years and paused contributions for three years in 2012. But when the pension options changed in 2015(?) i started contributing again.My contributions were always £40 per month, like i say i didnt pay enough attention to it. Then this january i started putting in the maximum i'm now allowed through not working of £240 per month. It has been doing ok these last few years with the value going up between 8-12% most years before inflation but understandably not as well this last year. The projection is possibly £56000 by 2026. Maybe i could do better elsewhere but no idea how to get an independent advisor and would i get one with such a small pot? Does it being with profits mean its lower risk and therefore better to hold it in my situation? Is the calculation above the ufpls method? Thanks again!