Which way to tackle drawdown, turning 55, during first tax year ?

Sea_Shell

Basically, by this time next year, I'll have turned 55.

My plan is to crystallise my pension pot, take my 25% TFLS* and then move into DD

So, my dilemma is how best to do DD during the 26/27 tax year, to maximise my PA (12570) and not pay emergency tax, up front, if it can be avoided.

As I see it, I think I have 4 options, some of which mean that I miss out on some tax free drawings.

1.  Do nothing, and only start DD in April 27 @  £1047 pm, 'losing' the PA for 26/27
2.  Start DD in December 26 @ £1047 pm, so only using £4188 of PA, let it run
3.  Start DD in December 26, but at £3140 for 4 months, before reverting to (1)
4.  Wait until March 27 and take a lump sum of £12,570, then start DD as per (1)

Tax on savings interest doesn't come into it, as I should be well within the starter rate band,

(This is not my only pension, so I realise that this particular pot will run dry in about 4 years, by which time I will have transferred in another pot from elsewhere)

Any other variations that I've missed?


Thanks




*That's not the bit that I'm querying, as I shall be reinvesting this immediately in ISAs, as under £20k

Dazed_and_C0nfused

Sea_Shell said:

Basically, by this time next year, I'll have turned 55.

My plan is to crystallise my pension pot, take my 25% TFLS* and then move into DD

So, my dilemma is how best to do DD during the 26/27 tax year, to maximise my PA (12570) and not pay emergency tax, up front, if it can be avoided.

As I see it, I think I have 4 options, some of which mean that I miss out on some tax free drawings.

1.  Do nothing, and only start DD in April 27 @  £1047 pm, 'losing' the PA for 26/27
2.  Start DD in December 26 @ £1047 pm, so only using £4188 of PA, let it run
3.  Start DD in December 26, but at £3140 for 4 months, before reverting to (1)
4.  Wait until March 27 and take a lump sum of £12,570, then start DD as per (1)

Tax on savings interest doesn't come into it, as I should be well within the starter rate band,

(This is not my only pension, so I realise that this particular pot will run dry in about 4 years, by which time I will have transferred in another pot from elsewhere)

Any other variations that I've missed?

Thanks

*That's not the bit that I'm querying, as I shall be reinvesting this immediately in ISAs, as under £20k

Taxable interest will be a factor, at least in the short term.

Do you,
A. Expect to have no other earnings or pension income in 2026/27 prior to starting this drawdown?
B. Expect HMRC to be aware of taxable interest (as they will have received actual interest details for 2025/26 by December 2026)?

Sea_Shell

I will have approx £4000 of "taxable" interest in the current and future* few tax years, so within the starter rate.

No other income from anywhere.


*Unless we move more to ISAs this tax year, we have about £30k 'room' between us, or change the car! 😉

Sea_Shell

Now you mention it, my tax code is already reduced because of this interest.

Will that mean they deduct tax either way, and have to reclaim?

Dazed_and_C0nfused

Sea_Shell said:

I will have approx £4000 of "taxable" interest in the current and future* few tax years, so within the starter rate.

No other income from anywhere.


*Unless we move more to ISAs this tax year, we have about £30k 'room' between us, or change the car! 😉

Assuming your preference is take some taxable pension income in 2026/27 then you could consider this.

Take £1047 as the first taxable payment.  The emergency tax code (1257L) should be used so no tax will be deducted.

That will prompt HMRC to calculate a code however that is likely to include a deduction for interest as they will think your expected pension income will be just ~£4k (to 5 April 2027).

Once that code has been issued log into your Personal Tax Account and update your expected pension income for 2026/27 to £12,570.  That means there are no spare allowances so the interest will be removed from the code and you will be 🤞 back on the emergency code but on a cumulative basis.

Take additional taxable income in the remaining 3-4 months of the tax year.  Ideally not exceeding the tax code allowances available at that time i.e. for tax month 10 it would be £10,482.

All the above assumes Marriage Allowance isn't a factor.

Sea_Shell

My preference is to not take any taxable income 😉

I've ignored MA, as this IS currently in place, but will removed before the end of this tax year.  So will be dealing with "standard" allowances from April 2026.

FoxyLoxy007

Seems reasonable advice from all….

I turn 55 in January, just lost my job so retiring early. Have 1 million in my SIPP so the plan is to take the TFLS of £250K and using mine and the wife’s allowance we will stick 100K onto premium bonds - got to have some fun in life, and then 40K into 2 Stocks and Shares ISAs. Then giving a few thousand to the kids, leaving me with around 30K in cash. I’ll then start drawdown, take £100 to get a proper tax code (no other income) then take 12K tax free before April. 

So, live off the 42K for a year and leave the other 750K invested in the Vanguard 80 fund.

I’ll also have the 1 million premium bond win to look forward to 😂😂

Thoughts?

Dazed_and_C0nfused

Sea_Shell said:

My preference is to not take any taxable income 😉

I've ignored MA, as this IS currently in place, but will removed before the end of this tax year.  So will be dealing with "standard" allowances from April 2026.

You've lost me, your original post was all about  taking taxable income out of your SIPP.

If you are only taking non taxable income HMRC won't care*, or even know about it

* assuming you don't exceed the tax free lump sum limit of ~£268k

Sea_Shell

Dazed_and_C0nfused said:

Sea_Shell said:

My preference is to not take any taxable income 😉

I've ignored MA, as this IS currently in place, but will removed before the end of this tax year.  So will be dealing with "standard" allowances from April 2026.

You've lost me, your original post was all about  taking taxable income out of your SIPP.

If you are only taking non taxable income HMRC won't care*, or even know about it

* assuming you don't exceed the tax free lump sum limit of ~£268k

Sorry, I'm probably using the wrong terminology.

I guess it's all POTENTIALLY taxable income, whilst remaining within ones allowances so no tax is actually payable.

Sea_Shell

FoxyLoxy007 said:

Seems reasonable advice from all….

I turn 55 in January, just lost my job so retiring early. Have 1 million in my SIPP so the plan is to take the TFLS of £250K and using mine and the wife’s allowance we will stick 100K onto premium bonds - got to have some fun in life, and then 40K into 2 Stocks and Shares ISAs. Then giving a few thousand to the kids, leaving me with around 30K in cash. I’ll then start drawdown, take £100 to get a proper tax code (no other income) then take 12K tax free before April. 

So, live off the 42K for a year and leave the other 750K invested in the Vanguard 80 fund.

I’ll also have the 1 million premium bond win to look forward to 😂😂

Thoughts?

Your own thread?

FoxyLoxy007

Sea_Shell said:

FoxyLoxy007 said:

Seems reasonable advice from all….

I turn 55 in January, just lost my job so retiring early. Have 1 million in my SIPP so the plan is to take the TFLS of £250K and using mine and the wife’s allowance we will stick 100K onto premium bonds - got to have some fun in life, and then 40K into 2 Stocks and Shares ISAs. Then giving a few thousand to the kids, leaving me with around 30K in cash. I’ll then start drawdown, take £100 to get a proper tax code (no other income) then take 12K tax free before April. 

So, live off the 42K for a year and leave the other 750K invested in the Vanguard 80 fund.

I’ll also have the 1 million premium bond win to look forward to 😂😂

Thoughts?

Your own thread?

Apologies, yes. I’ll repost….