Flexi draw down question if I may.

Gordon_T_2

Male 64 with full state pension entitlement due August 2025. No earnings this year or next at all due to finishing self employment June 2022. Living quite happily off the wife's salary. Have also both got about £300k in Isa`s and full allocation of premium bonds to live on.

Ive £106k in a Zurich pension plan that doesn't do draw down.I will move it to Vanguard Flexi Draw down to do that. If that's done, I can then pull my 25% tax free lump sum out and £12570 per year for the next 2 years. This will keep me out of the tax bracket for paying tax on earnings for the next 2 years. The rest of whats left in the fund will be invested and I will pull a couple of grand a year out of it to top up the state pension of £10600 to £12570. This will keep me out of paying tax on the draw down side of it. Any money that's needed can be took from savings until the wife takes her pension in 3 years time. is this idea possible? Our outgoings are well less than £800 per month. Thanks for looking. G.

Dazed_and_C0nfused

It usually makes sense to utilise your Personal Allowance whenever possible.

Have you considered the £16,760 UFPLS route rather than taking all 25% TFLS upfront?

And are you contributing £2,880 this year and next (at least) to get the free £720?

Albermarle

It is possible and generally a good plan.

Some things to think about.
1) To take £12570 taxable income from a pension, you only need to take a smaller amount of tax free cash at the same time, known as a UFPLS payment. 25% tax free and 25% taxable. There is no need to take out the full 25% tax free from the pot in one go.
2) You seem to have an imbalance between cash savings/PB's and investments ( in the pension) . In the long term investments usually grow more than the interest you get from cash savings. 
3) Outgoings of £800 per month is very low for a couple. Does this include one off items, like replacing cars/household items or going on holiday? 

QrizB

Gordon_T_2 said:

Living quite happily off the wife's salary. Have also both got about £300k in Isa`s and full allocation of premium bonds to live on.

Any money that's needed can be took from savings until the wife takes her pension in 3 years time.

Assuming you're not planning to spend £100k a year for the next three years, you could be better off using some of your ISA money to max out your wife's pension contributions.
If wife pays 100% (gross) of earned income into her pension, and assuming she's a basic rate taxpayer now and will continue to be one in retirement, she'll gain at least 6.25% just from the tax break.

Gordon_T_2

Some comments I think Ive missed out on saying; 

I wont be working for the next 2 years so no income will be generated.

I want the 25% TFLS and the £12570 this year and £12570 next year out of the plan. (This will be invested in topping up our Isa`s).

I want to take as much as I can out of the fund without the tax element and not being a taxpayer at the moment. The thought of having a couple of non income years could possibly be a good way of getting the cash out of the pension plan tax free. Is this possible? if not why? Is there an alternative way?

The wife is in an NHS DB scheme and her pension entitlements cant be added to.

I'm looking at cutting out the chance of having to pay tax on my state pension when the time comes. We have a very good income from other tax free investments to keep us afloat during our retirement.

Albermarle

Gordon_T_2 said:

Some comments I think Ive missed out on saying; 

I wont be working for the next 2 years so no income will be generated.

I want the 25% TFLS and the £12570 this year and £12570 next year out of the plan. (This will be invested in topping up our Isa`s). That was fully understood and reflected in the posts above

I want to take as much as I can out of the fund without the tax element and not being a taxpayer at the moment. The thought of having a couple of non income years could possibly be a good way of getting the cash out of the pension plan tax free. Is this possible? if not why? Is there an alternative way?

The wife is in an NHS DB scheme and her pension entitlements cant be added to.

I'm looking at cutting out the chance of having to pay tax on my state pension when the time comes. We have a very good income from other tax free investments to keep us afloat during our retirement.

You have a choice.
You can take 25% of the current pension pot tax free ( about £26K) and then £12570 in taxable income for the next two years
Or you can take a UFPLS payment in each of those years, which will be £12570 in taxable income and £4190 in tax free cash, so £16,760 in total . This has the advantage of leaving some tax free cash for later, and it remains invested in the pension in the meantime. 

User1783

Hi. I'm in a similar situation. It sounds like it's all fine but just to be clear the below example is perfectly valid?

£160,000 pension pot
Year 1 - Crystalise 50% (£80,000). Take 25% (£20,000) of crystalised pot tax free and drawdown £12,570.
Year 2 - Crystalise remaining 50%. Take 25% (£20,000) of newly crystalised pot tax free and drawdown £12,570.
Year 3 (and beyond) - Drawdown £12,570 until the pension is depleted.

After ~10 years all the money has been taken out of the penion and no income tax has been paid (assuming no other income during those years).

Albermarle

User1783 said:

Hi. I'm in a similar situation. It sounds like it's all fine but just to be clear the below example is perfectly valid?

£160,000 pension pot
Year 1 - Crystalise 50% (£80,000). Take 25% (£20,000) of crystalised pot tax free and drawdown £12,570.
Year 2 - Crystalise remaining 50%. Take 25% (£20,000) of newly crystalised pot tax free and drawdown £12,570.
Year 3 (and beyond) - Drawdown £12,570 until the pension is depleted.

After ~10 years all the money has been taken out of the penion and no income tax has been paid (assuming no other income during those years).

Looks fine, although if you wanted to you could stagger taking the tax free cash over more years.
You will also have to check with your pension provider if they were OK with this method. Older pensions can be  restrictive, and may need you to take all the tax free cash before taking taxable income.

LHW99

I wont be working for the next 2 years so no income will be generated.

But you can still add £2880 to a SIPP each year until you are 75, and get the £720 back from HMRC, equivalent to 6.25% as said above

User1783

Albermarle said:

Looks fine, although if you wanted to you could stagger taking the tax free cash over more years.
You will also have to check with your pension provider if they were OK with this method. Older pensions can be  restrictive, and may need you to take all the tax free cash before taking taxable income.

As always the devil is in the detail and I'll need to check that final point with my pension provider. Many thanks.

RoysV

User1783 said:

Hi. I'm in a similar situation. It sounds like it's all fine but just to be clear the below example is perfectly valid?

£160,000 pension pot
Year 1 - Crystalise 50% (£80,000). Take 25% (£20,000) of crystalised pot tax free and drawdown £12,570.
Year 2 - Crystalise remaining 50%. Take 25% (£20,000) of newly crystalised pot tax free and drawdown £12,570.
Year 3 (and beyond) - Drawdown £12,570 until the pension is depleted.

After ~10 years all the money has been taken out of the penion and no income tax has been paid (assuming no other income during those years).

As @Albermarle suggests you could just crystallise £16760/ year and take the 25% tax free cash and income of £12570. Unless of course you have a plan for the "big lump" that's what I'm planning on doing. Well after I've checked that my SIPP platform allow it. As I've found out the more I think I know the less I actually do!