Small lump sums from drawdown

MikMikandThriceMik

QrizB said:

MikMikandThriceMik said:

Child Maintenance 12% of income before tax. (no overnight stays).

Does thie ever end? Eg. when the child reaches adulthood? How long is that?

20 if in a non advanced education course.

£18200 / year pension is wanted.

After tax, I assume (noting that you hope not to pay tax for the first 5 years).
There is no tax if I have worked it out correctly.

I am taking the 25% tax free amount (Minus the lump sum from the DB pension last August),

Why specifically minus the DB lump sum? Are they not two separate schemes? If so, your DC 25% TFLS is independent of the DB PCLS.

£213k DC would normally mean £52500 TFLS, £157500 crystallised & taxable.

I withdraw £10000 per month from the 75% and £8200 per year from savings until the £43000 is mostly spent(5 years).

If you have no other taxable income, it would usually be better (you'd pay less tax overall) to take £12570 from the pension and £5630 from savings. If your £43k is really £52.5k, you could take £5630 every year until your state pension is paid and still have some left.

I will recalculate on the above. Thank you.

MikMikandThriceMik said:

Just taking £18200 as drawdown. No tax free:

If you took £18200 as UFPLS each year, 25% of it (£4550) would be tax-free. The remaining £13650 would be taxable, but you'd only pay tax on £1080 of it. That's £216 in tax.

£4550 tax free until I have reached the £52500. 11.5 years.

Looks like I have more calculating to do.
Minefield it certainly is.
Thank you.

Answers above.

MikMikandThriceMik

xylophone said:

At the moment, your Personal Allowance is given against your salary which means that  you are taxed on your income over £12,570.

Your modest DB pension is all taxed at basic rate, (20%).

You have brought your old  local government deferred pension into payment and taken the maximum lump sum available.

It seems very unlikely that this was so high as to affect your entitlement to a full 25% tax free lump sum from `LifeSight if you chose to go that route?

Just over £10K

https://www.ftadviser.com/pensions/2023/03/15/budget-2023-chancellor-caps-pension-tax-free-lump-sum/

If you chose to take only the full PCLS from LifeSight as soon as you  you retire, would your only income then be your very small Local Government pension and interest from savings?

Savings in cash isa- no tax.

Yes, along with whatever pension I draw from lifesight.

How would this affect your Child Maintenance liability?

Not sure if you asking about the above or the below. If above - £100 /month pension = £12 CM.

If below, it would take a lot of money in an account at a high interest rate to earn £17000 in savings interest per year.

A person whose only  income was eg a gross pension of  £1500 a year could  earn over £17,000 in savings interest and pay no tax.

https://www.gov.uk/apply-tax-free-interest-on-savings

The lump sum and small pension could cover your living expenses for up to three years at which time you could access the remainder of the DC pension as required?

At that point your pension company would be given a tax code - presumably you would choose to have the whole of your PA against the DC pension.

Had you considered taking the advice and support offered by LifeSight? 

I have pension call beginning Match.i want to try to figure out what I want to ask.  Maybe I will contact lifesight partner after that.

Where my calculations correct above?

Thank again for all your help.

xylophone

At the moment then, you have  all your savings within an ISA?

With regard to the lump sum, you could take the full tax free 25% Pension Commencement Lump Sum from LifeSight when you retire from the job and no pension income  from LifeSight at that stage.

If you did this, then you would have your ISA savings, your tax free £52,500 and your DB pension. The £100 a month you currently receive is net of basic rate tax - if you stop work at the beginning of the next tax year with this pension as your only non savings income, presumably  you would pay no tax.

You would then pay a modest amount of child maintenance calculated just on the DB pension? The rest would be yours to spend as required.

Presumably you would put another £20,000 into an ISA  and the balance (£32,500) into an interest bearing account - you would draw from  this account to cover your living expenses for as long as possible - perhaps you could stretch it to cover a couple of years?

 You are receiving annual increases on the DB pension which will help a little.

You would then need to consider whether you would cover your needs for the next couple of years from savings or whether you would start to draw an income from LifeSight, attempting to draw down only as much as would keep you free of tax.

Once state pension became available, you could adjust your drawings from LifeSight accordingly.

Or you could draw the full PCLS  and then take  only as much from LifeSight as would keep you free of tax - that would be your Personal Allowance less the gross DB income. Presumably though, this would mean that you would be liable for a higher amount in child support?

Or you might choose not to take the PCLS but  to go the UFPLS route but this could be seen as more onerous in terms of having to reclaim tax. 

https://techzone.abrdn.com/public/pensions/Technical-Guide-Pensions-UFPLS

I should think that your best bet would be to take advantage of the free support and advice offered by LifeSight to work out the most efficient way of accessing the pension.

MikMikandThriceMik

As I said, I am trying to figure out some questins before I ask for any other support.

Have a look here: It is sheets I did up, calculating the difference between drawdown lump sum and no lump sum. I would appreciate any replies where I have got my calculations wrong.
D3 is what I expect when I retire in a few months.

https://docs.google.com/spreadsheets/d/1yTwyBSfcDR1m_vKKkj7r_5jquzKjPL7cAekScoB7Njs/edit?usp=sharing

What I was vaguely thinking at the start of this post, was there a sweet spot where the percentage of lump sum would maximize Length of Pension, and/or Number of years where I can pull from the lump sum to top up my private pension before the SP kicks in, and I think adjusting the percentage in this sheet does exactly that. 
A 19% Lump sum gives me the minimum 5 years tax free initially, and also gives > 17years in pension.
A 22.68% Lump sum is even better I think. 6 years tax free and > 17 years in pension.
A 25% Lump sum seems to be worse.

Here's another sheets which includes ChildMaintenance, which I have to pay for another 5 years, but it shows that I can reduce the income from pension, incirease the Lump sum to max 25%, keeping the same monthly pension that I want, and pay even less CM, giving me more money for the fist 5 years. Of course I am conigzant of the fact I am taking money away from my boy and his mother by doing so, so I will have to think long and hard about this aspect of it also. A pension income of 7350 and the full 25% lump sum seems to be in order.

https://docs.google.com/spreadsheets/d/1sE49yTNOSVpBik5uZ8ie886TIyItE-_rYNNJIHIG3Sk/edit?usp=sharing

My calculations could be out the window though

Thanks.

Itsme01x

Just a thought.  Would it not be a good thing to find out how much your child needs before stopping any child maintenace just because you have reduced your 'income' and then use that as part of the calculation and your own spend?

You can still be as tax efficent as possible, and still put away a sum to the side for the child (might not be offical cm). Your child does need feeding and clothing.

Apologies if this was always your thought process.  Just not clear from the above.

MikMikandThriceMik

I have updated my google sheets with myself retiring end of April so I get one month's salary in the new tax year.

https://docs.google.com/spreadsheets/d/1sE49yTNOSVpBik5uZ8ie886TIyItE-_rYNNJIHIG3Sk/edit?usp=sharing

I know this is quite personal to me, but if anyone else has to retire early, has to use part or all of their taxfree lump sum to increase their pension so that their pension lasts more years, already has other savings to fall back on so the lump sum is not used as savings, has committments like CM, and perhaps other things I have no thought of here, I think this would be useful for many other people. 

No drawdown calculator that I have used on the internet gives the option of using the lump sum as part of the pension taken to eke out the years that the pension will last.

The IFA I talked to didn't want to look at my sheet, I wonder why?

MeteredOut

MikMikandThriceMik said:

The IFA I talked to didn't want to look at my sheet, I wonder why?

Too many different sized fonts and colours?