When can I retire?

MX5huggy

qwertywerty said:

kempiejon said

I'm working on £16760 UFPLS, £12570 + 25% tax free. 

Ok thanks, this only works in drawdown, there is no tax free cash with an annuity, right? Unless one takes 25% lump sum?

It’s unusual not to take the tax free cash when taking an annuity. 

I would be dropping the maximum pension contributions this year and any subsequent years you keep working, live off your cash.

penners324

qwertywerty said:

"As a previous poster said why more in ISA's than pension....."

Previous house sale proceeds and inheritance simply went from savings to ISAs rather than a pension. Getting 20% tax relief when you end up paying 20% income tax doesn't seem too much to be bothered about, is pension saving that much better than ISA?

Yes. It definitely is

enthusiasticsaver

I have mixed opinions about pensions rather than ISAs.  We have both to subsidise DB pensions and I am more in favour of ISAs for the tax free status.  I would say you could afford to retire now.  If you have £100k in cash I would use that to cover the first few years and access the DC pension (after 55)and ISAs  to cover you until your partner collects their state pension. You will only need £10k from investments and pensions after you reach state pension age. As you have over £1 million I think you should be fine even allowing for the fact your partner has nothing. 

NoMore

Tax free status of ISA is a misnomer, its only the gains that are tax free, you've still paid tax on contribution, a lot of people ignore/miss this fact and hear that Pensions are taxed on withdrawal so automatically assume ISA is better because its 'tax free'. In reality there are very few situations where ISA is more tax efficient than Pension, if we are talking about for after pension access age.

At the end of the day, they are both just tax wrappers with different advantages/disadvantages and you should look at them for your situation and work out with is most tax efficient for you. You shouldn't just hear ISA are 'tax free' and assume therefore are the best. 

Roger175

NoMore said:

Tax free status of ISA is a misnomer, its only the gains that are tax free, you've still paid tax on contribution, a lot of people ignore/miss this fact and hear that Pensions are taxed on withdrawal so automatically assume ISA is better because its 'tax free'. In reality there are very few situations where ISA is more tax efficient than Pension, if we are talking about for after pension access age.

At the end of the day, they are both just tax wrappers with different advantages/disadvantages and you should look at them for your situation and work out with is most tax efficient for you. You shouldn't just hear ISA are 'tax free' and assume therefore are the best. 

Totally agree. The only good thing about ISAs is the ability to draw them at any age, compared to minimum 55 (57) for pensions. 

In the worst case, pensions are 6.25% more efficient and can be many many times more. I stated above that I intend to draw down my DC pot to maximise the £12,570 tax allowance, but almost the entire value of my pension was funded by making lump sum contributions each year to mop up what I would otherwise have paid higher rate tax. Therefore every £100 in my pension, effectively only cost me £60, so everything I can draw out tax free over the next 7 years before I start drawing SP, represents a 66.6% gain (before any investment gain). 

warrenb

People here are being incredibly cautious with their withdrawal rates. 1.2m with an income of 30k is any time from 55 onward territory.

Albermarle

qwertywerty said:

kempiejon said

I'm working on £16760 UFPLS, £12570 + 25% tax free. 

Ok thanks, this only works in drawdown, there is no tax free cash with an annuity, right? Unless one takes 25% lump sum?

The 25% lump sum is tax free, so it is the same % tax free that you can take in drawdown, then the other 75% is potentially taxable. whether it is in drawdown or an annuity.

Albermarle

Roger175 said:

NoMore said:

Tax free status of ISA is a misnomer, its only the gains that are tax free, you've still paid tax on contribution, a lot of people ignore/miss this fact and hear that Pensions are taxed on withdrawal so automatically assume ISA is better because its 'tax free'. In reality there are very few situations where ISA is more tax efficient than Pension, if we are talking about for after pension access age.

At the end of the day, they are both just tax wrappers with different advantages/disadvantages and you should look at them for your situation and work out with is most tax efficient for you. You shouldn't just hear ISA are 'tax free' and assume therefore are the best. 

Totally agree. The only good thing about ISAs is the ability to draw them at any age, compared to minimum 55 (57) for pensions. 

In the worst case, pensions are 6.25% more efficient and can be many many times more. I stated above that I intend to draw down my DC pot to maximise the £12,570 tax allowance, but almost the entire value of my pension was funded by making lump sum contributions each year to mop up what I would otherwise have paid higher rate tax. Therefore every £100 in my pension, effectively only cost me £60, so everything I can draw out tax free over the next 7 years before I start drawing SP, represents a 66.6% gain (before any investment gain). 

I am a pensions fan, but ISA's do have more going for them than just the ability to withdraw at any age .
1) You can add up to £20K pa to them without having to earn that much.
2) They are simpler to operate than a pension, and easier to withdraw money.
3) Rules around pensions are more complicated than ISA's
4) If you have to pay 40% tax on the pension income, the benefit is reduced and becomes negative if you only got 20% tax relief on the way in. 

Baldytyke88

Albermarle said:

4) If you have to pay 40% tax on the pension income, the benefit is reduced and becomes negative if you only got 20% tax relief on the way in. 

I don't ever expect to pay 40% tax, but why would people amass a pension of a million pounds and more if it's a negative?

NoMore

Baldytyke88 said:

Albermarle said:

4) If you have to pay 40% tax on the pension income, the benefit is reduced and becomes negative if you only got 20% tax relief on the way in. 

I don't ever expect to pay 40% tax, but why would people amass a pension of a million pounds and more if it's a negative?

He’s saying that if you manage to accumulate a large pension by basic tax relief contributions only but then are withdrawing and paying higher rate tax then you would have been better using isa to accumulate tax efficiency wise. Which I agree with but that’s an unusual situation and wouldn’t happen to very many and knowing in advance that this is going to happen would be required as well. 

All other tax differences with contribution/withdrawal result in pension being better ie as long as you contribute at a lower or same rate as you withdraw at the pension is more tax efficient.