Leave in drawdown or move (slowly) to ISA

NickPoole

Question for hive mind.

Sometime next year 2026/27 will fully retire (especially if redundancy package offered) and will take what I can get tax free (put £20K into ISA if still exists) and move chunk of AVC to drawdown.

Question - in following years would it be better to leave the crystallised cash in drawdown to potentially grow there or start to take it (keeping under 40% tax threshold*) and move into ISA(s)?

What are the pros and cons? 

*As I am in receipt of pensions no way to avoid standard rate tax!

DT2001

Personally I would move slowly to ISAs. My reasoning being that if funds were needed they are more accessible and it reduces the size of your estate by the tax paid. The latter point is particularly relevant if you near the £2m mark as the RNRB reduces above that figure. 

If you have taken the whole 25% tax free element I can not think of a disadvantage at present. 

dunstonh

Question - in following years would it be better to leave the crystallised cash in drawdown to potentially grow there or start to take it (keeping under 40% tax threshold*) and move into ISA(s)?

That question needs fleshing out.

a)  "would it be better to leave the crystallised cash in drawdown" - do you mean it would be in cash within the pension?  if not, what would it be in?
b)  "or start to take it (keeping under 40% tax threshold*) and move into ISA(s)?" - what type of ISAs
c) what justification are you using to think that it may be suitable?
d) how old are you?

NickPoole

dunstonh said:

Question - in following years would it be better to leave the crystallised cash in drawdown to potentially grow there or start to take it (keeping under 40% tax threshold*) and move into ISA(s)?

That question needs fleshing out.

a)  "would it be better to leave the crystallised cash in drawdown" - do you mean it would be in cash within the pension?  if not, what would it be in?
b)  "or start to take it (keeping under 40% tax threshold*) and move into ISA(s)?" - what type of ISAs
c) what justification are you using to think that it may be suitable?
d) how old are you?

All good questions.

a) drawdown is in L&G's multi asset fund
b) I have a couple of Cash ISAs -- could consider a stocks and shares one (might have to if rules change)
c) ISAs are tax free and easily accessible, and won't be taxed when I access them so can take bigger chunks if required)
d) 67 next March

Albermarle

DT2001 said:

Personally I would move slowly to ISAs. My reasoning being that if funds were needed they are more accessible and it reduces the size of your estate by the tax paid. The latter point is particularly relevant if you near the £2m mark as the RNRB reduces above that figure. 

If you have taken the whole 25% tax free element I can not think of a disadvantage at present. 

There is nearly always a potential downside to every upside.

In this case it is if you die before 75, the beneficiary of your pension can take it all tax free. So money previously taken out paying 20% tax, could have been taken without tax.
If you die after 75 OR if the rule gets changed at some point, then the downside disappears.

michaels

I am planning on taking up to the 40% threshold with excess going to ISA to avoid risk of exceeding 40% once state pension becomes payable especially with thresholds being frozen.

In the short term if you have not yet triggered MPAA then taking taxable pension income will do so which would limit your ability to cycle any redundancy lump sum through your pension to save tax.

NickPoole

michaels said:

In the short term if you have not yet triggered MPAA then taking taxable pension income will do so which would limit your ability to cycle any redundancy lump sum through your pension to save tax.

That's true - need to make sure I have every bit of tax free cash salted away safely before dipping into drawdown. There's a possibility I might get £30K redundancy but putting into a pension might well push me miles over £60K limit even allowing for using previous years. If my salary is about £52K is that limit I can put into AVC or does redundancy payment count as salary pushing it up to £60K?

NickPoole

(Just checked the £30k tax free part of redundancy doesn't count as relevant income)