Looking to retire next year (62)

DE_612183

I'm looking to retire next year - I currently have a DB pension playing out - about £11k PA - so that will take up most of my personal allowance.

I also have a Civil Service pension, but rather than take that 5 years early ( and take the hit of only getting 0.76 of it's value I'm going to leave it where it is.

Instead I'm going to take £25k each year out of my DC pension pot.

My assumption is the the £25k gives me a £6250 TFLS and then the balance £18,750 is subject to tax.

However there will be a bit of personal allowance left over ( £1750 )

Will what happen be that the £18750 will be all taxed @ 20% - and if so how do I get the £350 ( 20% of £1750 that should not be subject to tax back ? ) - does it get sorted by self assessment? Do I have to wait till the end of the tax year?

Thanks for any advice / help.

OldScientist

My understanding, which may be incomplete (we've started drawdown on one pot, but total income for my OH is below the personal allowance), is that if you drawdown monthly then an emergency tax code will be issued for the first month, but subsequently the tax code will be adjusted to take the correct amount of tax (HMRC will know about your DB pension) over the rest of the year.

molerat

How are you intending to draw it - one big lump or spread ?  The first draw will be taxed at 1257LM1 so £1048 tax free and the rest taxed accordingly.  HMRC will then allocate a code according to your other income.  You may then need to update your estimated incomes in your tax account for the codes to be adjusted accordingly so the correct tax is taken over the year, it usually takes you being pro-active with your tax account to get it working smoothly and taking a final draw in March usually ensures the correct tax is taken.

Albermarle

My assumption is the the £25k gives me a £6250 TFLS and then the balance £18,750 is subject to tax.

There would be nothing to stop you taking more of the £25K as tax free ( and less taxable) .
Of course doing it this way would mean tax free part of the pension would reduce quicker/over less years.

DE_612183

molerat said:

How are you intending to draw it - one big lump or spread ?  The first draw will be taxed at 1257LM1 so £1048 tax free and the rest taxed accordingly.  HMRC will then allocate a code according to your other income.  You may then need to update your estimated incomes in your tax account for the codes to be adjusted accordingly so the correct tax is taken over the year, it usually takes you being pro-active with your tax account to get it working smoothly and taking a final draw in March usually ensures the correct tax is taken.

Probably one  lump sum 

DE_612183

Albermarle said:

My assumption is the the £25k gives me a £6250 TFLS and then the balance £18,750 is subject to tax.

There would be nothing to stop you taking more of the £25K as tax free ( and less taxable) .
Of course doing it this way would mean tax free part of the pension would reduce quicker/over less years.

Thanks - I didn't realise that - however I'm not sure what benefit that would give me?

molerat

DE_612183 said:

molerat said:

How are you intending to draw it - one big lump or spread ?  The first draw will be taxed at 1257LM1 so £1048 tax free and the rest taxed accordingly.  HMRC will then allocate a code according to your other income.  You may then need to update your estimated incomes in your tax account for the codes to be adjusted accordingly so the correct tax is taken over the year, it usually takes you being pro-active with your tax account to get it working smoothly and taking a final draw in March usually ensures the correct tax is taken.

Probably one  lump sum 

In which case you would most likely have to reclaim the tax.  Even when a code is issued unless you take it all in March there will likely be tax to reclaim each year.

Albermarle

DE_612183 said:

Albermarle said:

My assumption is the the £25k gives me a £6250 TFLS and then the balance £18,750 is subject to tax.

There would be nothing to stop you taking more of the £25K as tax free ( and less taxable) .
Of course doing it this way would mean tax free part of the pension would reduce quicker/over less years.

Thanks - I didn't realise that - however I'm not sure what benefit that would give me?

To be fair as you have not named your DC provider, you may not have full flexibility on how you withdraw from it.
However a modern pension will for example let you take the 25% tax free in tranches, without taking any taxable income at all. Or take more tax free and less taxable as originally mentioned
It might not benefit you personally at all, but for others it can mean for example-
Where taxable income would push you into the 40% tax bracket.
Taking any taxable income triggers the MPAA.
It is advised to make sure to take all the tax free before age 75, if you are planning to pass some of the pension on as a legacy.
Everybody's situation is a bit different .

DE_612183

Albermarle said:

DE_612183 said:

Albermarle said:

My assumption is the the £25k gives me a £6250 TFLS and then the balance £18,750 is subject to tax.

There would be nothing to stop you taking more of the £25K as tax free ( and less taxable) .
Of course doing it this way would mean tax free part of the pension would reduce quicker/over less years.

Thanks - I didn't realise that - however I'm not sure what benefit that would give me?

To be fair as you have not named your DC provider, you may not have full flexibility on how you withdraw from it.
However a modern pension will for example let you take the 25% tax free in tranches, without taking any taxable income at all. Or take more tax free and less taxable as originally mentioned
It might not benefit you personally at all, but for others it can mean for example-
Where taxable income would push you into the 40% tax bracket.
Taking any taxable income triggers the MPAA.
It is advised to make sure to take all the tax free before age 75, if you are planning to pass some of the pension on as a legacy.
Everybody's situation is a bit different .

My DC is Nest - which I think is fairly rigid, but I'm happy to move to another provider if the method of taking the money is easier and more flexible.