Clueless & Naive

ralphy1967

Could be a long post this so bear with me please. 

A bit about myself. I am 57 in Oct, I have 85k in my pension, I am looking to retire early at the age of 61yrs young using the pension calculator I will have around 128k and I am hoping my savings will be around 110k. Which are currently in isa's. 

Currently I am paying in 10% of my wage and pension provider is putting in their maximum of 11%. Obviously I can add to that but my pension provider has reached their maximum. 

My first question is it better to contribute more to my pension or is better to stick with what I am doing which is putting away £250 pm and once my isa 12 month plan is finished open a new one with my 3k and transferring my current isa into it?

Also here comes the naive question, if I have say 130k in my pension could I receive my 25% of that tax free and then receive what is left over which will be taxed all in one go. If that is allowed is it a daft idea to do so for tax reasons.

Another question is it best once I retire to eat away into my isa savings or leave that alone and use my pension. 

These questions are probably simple enough for you to answer but hard for me to work out or find the answer to. 

Cheers in advance 

Brie

Do you get any extra from your employer for putting more ££ into your pension?  You should get extra due to the tax situation.  So in those ways the pension may be better than the isa.  There are those however who claim it's good to have a separate pot so that you have more flexibility.

And if you want to withdraw the full £130k pension in one go - 75% is going to be taxed at a high rate.  Why give the money away so easily.  If you take it in smaller chunks more can go in your pocket rather than HMRC's.

Marcon

ralphy1967 said:

Could be a long post this so bear with me please. 

A bit about myself. I am 57 in Oct, I have 85k in my pension, I am looking to retire early at the age of 61yrs young using the pension calculator I will have around 128k and I am hoping my savings will be around 110k. Which are currently in isa's. 

Currently I am paying in 10% of my wage and pension provider is putting in their maximum of 11%. Obviously I can add to that but my pension provider has reached their maximum. 

If you're hoping to retire at 61, will your projected pension and ISA savings be enough to live on while you wait for your state pension to kick in? Will you be able live on just your state pension when you've burned through your savings?

Have you checked your state pension forecast to check you'll get the maximum state pension available to you?

ralphy1967 said:

My first question is it better to contribute more to my pension or is better to stick with what I am doing which is putting away £250 pm and once my isa 12 month plan is finished open a new one with my 3k and transferring my current isa into it?

You'll get tax relief on your pension contributions whereas ISA contributions get no similar relief.

Why would you transfer your current ISA into a new one? If your current ISA isn't great, why not move it now?

ralphy1967 said:

Also here comes the naive question, if I have say 130k in my pension could I receive my 25% of that tax free and then receive what is left over which will be taxed all in one go. If that is allowed is it a daft idea to do so for tax reasons.

Yes, it's a daft idea. The 75% will be added to any other taxable income in the tax year and you'll pay tax at a higher than basic rate. Why would you want to do that anyway? You'll be taking it out of a tax sheltered environment when you could leave it there to grow.

ralphy1967 said:

Another question is it best once I retire to eat away into my isa savings or leave that alone and use my pension. 

Anyone you want to leave your undrawn pension to...? What other taxable income would you have - your ISA pays out tax free, your pension is potentially taxable if you have income over the personal allowance.

Brie said:

Do you get any extra from your employer for putting more ££ into your pension?  You should get extra due to the tax situation.  

OP has already confirmed their employer [provider] is at max  - not sure how your second sentence relates to the first and I suspect OP is probably also confused!

ralphy1967 said:

Currently I am paying in 10% of my wage and pension provider is putting in their maximum of 11%. Obviously I can add to that but my pension provider has reached their maximum. 

squirrelpie

Marcon said:

ralphy1967 said:

My first question is it better to contribute more to my pension or is better to stick with what I am doing which is putting away £250 pm and once my isa 12 month plan is finished open a new one with my 3k and transferring my current isa into it?

Why would you transfer your current ISA into a new one? If your current ISA isn't great, why not move it now?

If the ISA is a 12 month fixed cash ISA it makes perfect sense to me. But who knows.

Marcon

squirrelpie said:

Marcon said:

ralphy1967 said:

My first question is it better to contribute more to my pension or is better to stick with what I am doing which is putting away £250 pm and once my isa 12 month plan is finished open a new one with my 3k and transferring my current isa into it?

Why would you transfer your current ISA into a new one? If your current ISA isn't great, why not move it now?

If the ISA is a 12 month fixed cash ISA it makes perfect sense to me. But who knows.

Indeed - and it's because I don't know that I'm asking the question!

af1963

How much do you think you'll need to spend per year ?

For the withdrawals, assuming you have no other income, it makes sense for the period before your state pension starts to take out enough from the pension to use your annual tax free allowance of about £12.5k.  If you haven't already taken your tax free cash up front, you can also take out just over £4K as a tax free sum along with each payment. That would give you around £17k.

While you're still working ... getting more into your pension, to benefit from the tax relief, is usually a good idea.  It's often worth paying more in pension contributions, even if it means using up some ISA savings for day to day spending.  Especially so if your employer uses salary sacrifice, since that lets you save National Insurance as well.  But even if they don't, adding to a pension will benefit from the income tax relief; and since you're 57, you can access it when you need it.   

penners324

I would minimise, even withdraw money from the ISAs and put it in your pension. The tax advantages alone make this worthwhile.

You can do this upto your salary level

ralphy1967

Hi thanks for all your info and questions. 

The main reason I want to retire early is my job is quite physical and 61 I think I've worked it out correctly is the earliest I can retire financially.

 I have no mortgage as I've paid that off, I have no car, so the minimal of 15k a year is doable. My bills are only 9k pa so I am confident to live off my savings which are in a fixed isa (at the moment but that will change before I retire). 

Annual salary is 28k, so I am not a massive earner so I'm not use to the lavish lifestyle. One holiday a year is good for us 

 Savings I have around 110k so that should be surfice until 67, that's when my state pension kicks in, which will be the maximum as I've worked all my life. 

As for my pension, I still haven't decided how I will approach that but I will definitely not withdraw the taxed pot of money in one go.

Cheers 

Albermarle

As for my pension, I still haven't decided how I will approach that but I will definitely not withdraw the taxed pot of money in one go.

Depending on the provider there could be various options. For example some people take the tax free part in stages, sometimes in combination with taking some taxable income at the same time.

Older pensions can be less flexible in what options they offer, but it is easy nowadays to transfer to a more modern pension.

A chat with Pensionwise could be a good idea.

Help with taking your pension | MoneyHelper

xylophone

Have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

Qyburn

ralphy1967 said:

As for my pension, I still haven't decided how I will approach that but I will definitely not withdraw the taxed pot of money in one go. 

Do you have any special need for a lump sum once you retire? If not the there's no point taking all the tax free in one go either. You don't lose it if not taken straightaway. You can take it later, or in small chunks, still tax free.