Fine tuning pension options to avoid HRT

Moonwolf

My plan has always been to have around £36,000- 39,000 a year after tax in today’s money.

Given that, and that a chunk of my income was monthly drawdown with 25% tax free I thought I was well under higher rate tax and didn’t pay it a lot of attention.

However, I have decided to take an annuity with half my DC pot, in addition taking my NHS 2015 pension early. I have other DB pensions. This is a change from earlier plans brought on because I realised I could get a higher annuity than I thought and I was worrying much more about potential market crashes than I did in the accumulation phase.

In total I have £16,800 in CPI linked pension, £5,250 in CPI linked capped at 5% and will have an annuity of £7950 which will grow by 3%. (slight rounding). The CPI ones go up im April, the annuity on the anniversary.

I am 60 and I already qualify for full state pension at 67, “You can’t improve your pension anymore”.

This means I have a before tax income of £30k a year now and will have £42k a year in guaranteed pension income, plus what I drawdown.

I was planning to carry on drawing down £6,000 a year from the £200,000 remaining in my DC scheme and I have enough in cash savings and TFLS to mimic the state pension income until it kicks in.

This gives me a solid guaranteed income, enough to not worry about volatility or someone badly damaging the world economy with tariffs or wars. However it leaves flexibility and something for my spouse should I be the first to go, they are 15 years older than me.

I have realised that with the current freeze on personal allowances, by the time I get my state pension, I should still be below the HRT threshold with my regular income but adding in the drawdown I might be over.

1. The logical workaround is to overdraw from the DC pot between now and my state pension starting and put the excess in a stocks and shares ISA. I can the take cash from that instead of drawdown, once SP kicks in. Can anyone see an issue with that.
2. Does anyone have any gotchas around fine tuning withdrawals to stay just under higher rate tax? For example, I can see that an unexpected Nationwide fare share might need an extra charity donation to stop me going from £1000 of interest to £500.

Of course if inflation ticks back up or wage inflation is particularly high and the state pension goes up a lot, I could go over HRT with my core pensions, but that would be something I would have to live with now I have taken this direction.

El_Torro

What you suggest makes sense, take what you can out of your pension at 20% tax before your state pension kicks in.

Remember that you can still pay £3,600 gross into your pension every year. Might be useful if you want to stay in the 20% tax bracket. Not that making a charitable donation to achieve the same goal isn't a good thing.

bjorn_toby_wilde

I’m withdrawing up to the HRT band and paying into S&S ISAs just as you suggest, to make use of the 20% band before I reach SPA. Can’t see any downside to doing that personally.

I don’t mind paying HRT on withdrawals after I reach SPA but I’ll take out as much as I can at 20% before I get there.

Linton

I used the TFLS and long term savings to build up a large S&S ISA income portfolio generating 6% tax free income. WIthout this I would be well into the 40% tax band.

Moonwolf

https://forums.moneysavingexpert.com/discussion/comment/81902520#Comment_81902520

Yes, I am already paying £240 a month back in to the pension and don’t expect to change that.