Critique my retirement plan

^opm^

Hi,

First post on here so be gentle.

I am coming up 55 in a few months, with a partner coming up 50 in six months. My figures are as such, 

£350,000  split fairly equally over 5 different companies but all DC pensions.

£580,000 in stocks/shares ISA’s

Then approx £20,000 in bank 

Partner only works P/T and has no pension or savings as such.

We lead a fairly simple life, old cars, no mortgage or loans and only real luxury so to speak is foreign holidays, but they still tend to be a lower end of hotel/ star rating etc.

We think we can do our lifestyle on approx £30,000 a year.

I’m thinking whilst my pensions are currently split 5 ways it would be best for administration purposes, especially in later life, to combine them into one. Then till my pension age of 67/68 take the maximum I can via drawdown for them years ( so be my tax allowance, £11500 ish plus can I take is it another £5000 tax free allowance?), then take the rest from my ISA so I should then have £30,000 tax free per year.

Then once I hit pension age my state pension basically takes all your tax allowance so then for ease of administration as you get older buy an annuity with what’s left of pensions.

Then just a mixture old state pensions/ annuity/ ISA money to see us both through till death.

Does that sound like a decent plan as we don’t have kids so basically money just has to see us both out.

Thanks for reading.

Sarahspangles

I’d check both State Pension Forecasts if you haven’t already.

Remember that in retirement your partner has a personal allowance so contributions she makes now that she could draw down before State Pension age will get 20% added by HMRC and she can withdraw up to £16,760 a year (in today’s money) tax free i.e. 25% tax free and £12,570 at 0%. Her contributions now may attract less tax than yours over the period before you’re both in receipt of state pension. 

MeteredOut

"can I take is it another £5000 tax free allowance?"

Assuming this is referring to the Savings Starter Rate, this is only for any tax you would otherwise have paid on interest income, not any drawdown from your pension.

This is addition to the initial £1000 tax free savings allowance, but decreases as your income rises towards £18570.

^opm^

Sarahspangles said:

I’d check both State Pension Forecasts if you haven’t already.

Remember that in retirement your partner has a personal allowance so contributions she makes now that she could draw down before State Pension age will get 20% added by HMRC and she can withdraw up to £16,760 a year (in today’s money) tax free i.e. 25% tax free and £12,570 at 0%. Her contributions now may attract less tax than yours over the period before you’re both in receipt of state pension. 

According to my pension forecast I have reached max pension of £221, my partner is about 5 years short as she did not quite a few years ago earn enough to qualify for that year ( seems wrong that someone who is on benefits qualifies but someone who works but doesn’t earn much doesn’t, a case of where working doesn’t pay! ). So she is approx £20-25 a week down at current time.

as I say she has a small private pension but not much in it so apart from when she does get her state pension I don’t count on any money from her to keep us both, be all my money.

^opm^

MeteredOut said:

"can I take is it another £5000 tax free allowance?"

Assuming this is referring to the Savings Starter Rate, this is only for any tax you would otherwise have paid on interest income, not any drawdown from your pension.

This is addition to the initial £1000 tax free savings allowance, but decreases as your income rises towards £18570.

Not sure if I am referring to that or is it another 25% I can take tax free somewhere, sure I read that you can get approx £16500 tax free a year out of a pension

^opm^

Also we may live together as a couple but our finances are totally separate.

MeteredOut

^opm^ said:

MeteredOut said:

"can I take is it another £5000 tax free allowance?"

Assuming this is referring to the Savings Starter Rate, this is only for any tax you would otherwise have paid on interest income, not any drawdown from your pension.

This is addition to the initial £1000 tax free savings allowance, but decreases as your income rises towards £18570.

Not sure if I am referring to that or is it another 25% I can take tax free somewhere, sure I read that you can get approx £16500 tax free a year out of a pension

Ah, yes, with a DC pension, you can typically take 25% tax free up front, and then draw down the rest as income which might be taxable, or take individual withdrawals where 25% is tax free and the rest is income that might be taxable. You're referring to the latter.

So, you can withdraw £16,760, 75% of it uses up your personal tax free allowance of £12,570 (this is assuming you're on the standard tax code and have no other taxable income), with the other 25% your tax free portion of your pension .

See https://forums.moneysavingexpert.com/discussion/comment/80846611/#Comment_80846611

^opm^

So basically I can take £16,760 a year from my pension pots, top up to £30,000 from my ISA this runs down my pension pots as much as possible without incurring any tax, then once state pension age, which will basically use up your tax free allowance , draw a very small pension in form of annuity and pay tax on this part but the majority of my living costs will then come from my ISA money and still be tax free.

Sarahspangles

^opm^ said:

as I say she has a small private pension but not much in it so apart from when she does get her state pension I don’t count on any money from her to keep us both, be all my money.

There have been a few posts recently where one partner has realised they’re paying 20% or 40% tax while the other can’t use any/some of their personal allowance. Married couples can save a few hundred by transferring a small part of their allowance, but if they’d distributed the pension savings differently, the saving by using the second 12,570 personal allowance is £2,514 per year.

It would be the difference between supporting her now so she can increase comtributions to supporting her later and paying more tax. That’s assuming she’s not planning to work to 68, you implied you were retiring earlier.

^opm^

Sarahspangles said:

^opm^ said:

as I say she has a small private pension but not much in it so apart from when she does get her state pension I don’t count on any money from her to keep us both, be all my money.

There have been a few posts recently where one partner has realised they’re paying 20% or 40% tax while the other can’t use any/some of their personal allowance. Married couples can save a few hundred by transferring a small part of their allowance, but if they’d distributed the pension savings differently, the saving by using the second 12,570 personal allowance is £2,514 per year.

It would be the difference between supporting her now so she can increase comtributions to supporting her later and paying more tax. That’s assuming she’s not planning to work to 68, you implied you were retiring earlier.

Lost me a bit tbh, she is part time and earns approx £1000 over the tax allowance so pays very little tax at mo. I salary sacrifice a good chunk of my wages so I only pay 20% tax ( I would still be paying 20% tax regardless though).

MeteredOut

^opm^ said:

So basically I can take £16,760 a year from my pension pots, top up to £30,000 from my ISA this runs down my pension pots as much as possible without incurring any tax, then once state pension age, which will basically use up your tax free allowance , draw a very small pension in form of annuity and pay tax on this part but the majority of my living costs will then come from my ISA money and still be tax free.

Yes, but a comment on the bit in bold.

An annuity is a specific product where you give away a pot of money in exchange for a guaranteed (taxable) income for the rest of your life (or the latter of two lives if you want to include a partner) at either a flat rate or increasing over term. You might be able to use your pension pot in drawdown to buy this.

Alternatively, you keep your pension in drawdown and each withdrawal continues to be 25% tax free, 75% taxed (assuming your state pension is effectively using up your tax free allowance).