Drawing pension without income tax.

OliverLacon

My wife has two smallish pensions. One is with Aviva and has a transfer value of £20000 and an AJ Bell SSIP with £7000. She is 65 and has effectively retired. Her state pension is due in July 2027. The Aviva pension only allows full withdrawal or transfer to another scheme.

I've worked out that if she transfers the the Aviva funds to the SSIP, she will be able to withdraw all the funds over the period between now and July 2027 without paying any tax. If she draws down the money in stages, it will not exceed her annual income tax allowance each year. So no income tax payable.

Is this the best way to access the money - I think it is as she avoids paying 20% income tax on the total £27000?

My next question is what to do with the proceeds. She does not need to spend the money any time soon. She has used up her ISA allowance this year and next year the plan would be to move a maturing savings bond into an ISA - so next years allowance is likely used up as well. So apart from ISA, where else could the money be placed so that in increases in value and avoids paying too much tax on any increase? 

eskbanker

Drawing down the funds in such a way as to be completely covered by her annual personal tax allowance is indeed the most tax-efficient way of proceeding, assuming she has no other taxable income.

In terms of what to do with the proceeds, the usual guidance on the savings board applies, i.e. focus on maximising net return rather than minimising tax, as they'll often be different.

SVaz

She can take £16750 per year,  of which she can have 25% tax free and £12570 taxable,  which will also be tax free assuming she has the full personal allowance.

If she transfers the marriage allowance to you then she will have £11300 available plus the tax free portion.   So a little over £15000 in all. 

My Wife is doing exactly the same,  getting everything out of her Sipp tax free over the next 6 years.

SVaz

She should have the starter savings allowance so she can get £5k in interest without tax too,  so just go for the best paying fixed rate savings. 

OliverLacon

SVaz said:

She can take £16750 per year,  of which she can have 25% tax free and £12570 taxable,  which will also be tax free assuming she has the full personal allowance.

If she transfers the marriage allowance to you then she will have £11300 available plus the tax free portion.   So a little over £15000 in all. 

My Wife is doing exactly the same,  getting everything out of her Sipp tax free over the next 6 years.

Thanks for pointing out the marriage allowance. I'd forgotten that bit. She does indeed transfer that to me - so I'll need to revisit how much she needs to draw down each year based on the reduced allowance..

af1963

SVaz said:

She should have the starter savings allowance so she can get £5k in interest without tax too,  so just go for the best paying fixed rate savings. 

By the time you transfer from Aviva and then make the first withdrawal, it will probably be after the budget, so you can take account of any changes to the tax regime before committing to a fix.