Hoping to retire early !!! Only by 2 years .

wort

Hi I have a pension which is the workplace one, I put money in and my work does. I currently earn 12,000 ish a year,and manage fine. I’m due to retire for state pension at 67. I’m currently 62, and have around 24,000 in my pot. Could I take my workplace pension at 65 and withdraw 12,000 the first year and then again the second year? 
Would I pay tax on it, as I have no other income if I retire? Or do I only get the 25% tax free ? 

Sorry if I’m not making sense, I am a total beginner and struggle to make sense of it all.

QrizB

Your plan for retirement is to live on £12000 a year. Are you expecting this to be met by the state pension from age 67?

If so, have you checked your state pension forecast? You don't want to get to 67 and find you're only entitled to eg. half of that.

https://www.gov.uk/check-state-pension

wort said:

Could I take my workplace pension at 65 and withdraw 12,000 the first year and then again the second year? 

Your workplace pension is a standard Defined Contribution scheme, that gives you a pot of money?

If so, then yes, you can do this if the pension scheme allows UFPLS withdrawals. Otherwise you'll be able to transfer it to a different pension scheme that does allow UFPLS.

wort said:

Would I pay tax on it, as I have no other income if I retire? Or do I only get the 25% tax free ?

If you take £12000 you'll get £3000 tax-free.

The remaining £9000 is potentially taxable as income. If you have no other taxable income that year, it will be covered by your £12570 personal allowance and you won't pay any tax on it.

Your pension provider will however take tax from it, which will eventually be repaid (or you can claim it back, which might get it back to you quicker).

wort

Thank you , Yes I will get full state pension, I had checked thanks. I’ve always worked and have full NI contributions. It is a Dc pension. I will need to check UFPLS though. That cut through a lot of the jargon. Many thanks.

Linton

wort said:

Hi I have a pension which is the workplace one, I put money in and my work does. I currently earn 12,000 ish a year,and manage fine. I’m due to retire for state pension at 67. I’m currently 62, and have around 24,000 in my pot. Could I take my workplace pension at 65 and withdraw 12,000 the first year and then again the second year? 
Would I pay tax on it, as I have no other income if I retire? Or do I only get the 25% tax free ? 

Sorry if I’m not making sense, I am a total beginner and struggle to make sense of it all.

I assume you are proposing to stop work at 65 and live for the first 2 years on the money saved in your pension.  There may be difficulties in withdrawing money from a workplace pension whilst contributions are still being made. Some workplace pension schemes wont allow it.

Legally you could withdraw £12K/year for 2 years.  The only restriction is that you cannot take a taxable sum and then later take the corresponding 25% tax free sum. So you could withdraw the full 25%=£6K tax free plus £6K taxable  in the first year followed by £12K taxable in the second year.  Or you could take £3K tax free and £9K taxable in both years. If you have no other income in the tax year all taxable withdrawals would be covered by your tax allowance.

The only difficulty is that again your workplace pension may not support drawing down the money in this way.  You should check.  In this case the answer is to open a modern personal pension and then ask the new pension provider to transfer-in your workplace pension.  This could take some time.

Marcon

wort said:

Hi I have a pension which is the workplace one, I put money in and my work does. I currently earn 12,000 ish a year,and manage fine. I’m due to retire for state pension at 67. I’m currently 62, and have around 24,000 in my pot. Could I take my workplace pension at 65 and withdraw 12,000 the first year and then again the second year? 
Would I pay tax on it, as I have no other income if I retire? Or do I only get the 25% tax free ? 

Sorry if I’m not making sense, I am a total beginner and struggle to make sense of it all.

If you have no other income in the tax year when you reach 65, you could withdraw £16,760 without paying tax, assuming the personal allowance is still £12,570. £4,190 is a quarter of £16,760 and tax free, and the balance of £12,570 is covered by your personal allowance. Pay it into an ISA and you can then take out cash as you need it, tax free (again, assuming the rules of ISAs haven't changed by then). Take out the balance of your pension the next year (again, all tax free on current assumptions) and pay that into your ISA to draw on tax free in future. years.

dnpark38

87 now but at 59 decided to get quotes and checks , like you being advised to do in comments, to retire at 60 rather than 65.
I found the short fall would be met if I worked for 25 hours at a low wage job until my state pension started at 65.
I went to work at my local supermarket for 25 hours flexible to suit my life style.  Of no Sunday working, work one Saturday per month and other hours Mon to Friday. (Do not think today one could do an arrangement like that.)

Best thing I ever, you go for it.

af1963

Taking income from your 65th birthday to your 67th birthday is likely to fall into *three* tax years, not two, unless you were born on April 6th.

In the tax year (April 6th to April 5th) in which you turn 65, you may already have used up some (or all) of your tax allowance with your work earnings. You won't need a full £12k from the pension to get you to the end of that tax year, so before the next April 5th you'd want to only withdraw as much as you can take without the total going over the allowance.  ( The danger is that if you took out a full £12k on your birthday, adding that to the money you've already earned could take you into paying some tax)
 
The following tax year is simpler as you'll only have the money you take from the pension.  Might even be worth withdrawing more during that year, and sticking it in an ISA, to make sure you get it out tax free  ( you could take £16760 out:  25% tax free, and the remaining £12570 covered by your tax allowance.  Spend your £12k and keep the rest for next year ... 

The next tax year contains your 67th birthday.  You will then receive your taxable state pension, so you'll need to allow for that when planning your withdrawals earlier in the year, again aiming to keep the total taxable income below the allowance.

QrizB

Marcon said:

wort said:

Hi I have a pension which is the workplace one, I put money in and my work does. I currently earn 12,000 ish a year,and manage fine. I’m due to retire for state pension at 67. I’m currently 62, and have around 24,000 in my pot. Could I take my workplace pension at 65 and withdraw 12,000 the first year and then again the second year? 
Would I pay tax on it, as I have no other income if I retire? Or do I only get the 25% tax free ? 

Sorry if I’m not making sense, I am a total beginner and struggle to make sense of it all.

If you have no other income in the tax year when you reach 65, you could withdraw £16,760 without paying tax ...

And if you do take £16760, while only needing £12000, you could pay £2880 of the surplus back into a pension and receive £720 in tax relief.

wort

Thank you all so much, I will sit down and check through my pension, your advice is much appreciated.

enthusiasticsaver

wort said:

Hi I have a pension which is the workplace one, I put money in and my work does. I currently earn 12,000 ish a year,and manage fine. I’m due to retire for state pension at 67. I’m currently 62, and have around 24,000 in my pot. Could I take my workplace pension at 65 and withdraw 12,000 the first year and then again the second year? 
Would I pay tax on it, as I have no other income if I retire? Or do I only get the 25% tax free ? 

Sorry if I’m not making sense, I am a total beginner and struggle to make sense of it all.

I had this approach and retired 8 years early.  I had 2 DB pensions totalling about £8k and I topped it up by £6k from my SIPP each year and of course 25% of that was tax free. Each month it shows as two separate withdrawals.  One with no tax and one which is liable to tax.  Any additional money I needed I took from my stocks and shares ISA.  Consequently I paid little to no tax over those 8 years.  I get my state pension next year though so that will push me into paying more tax. 

As others have said 25% of that £12000 will be tax free so you could take more if needed.