Pension draw down strategy over 6-7 years whilst still working

Buritonian

Hi, we want to take out circa £230k from our pension pot by 2032 as efficiently as possible. So we're focused on making the most of the 25% tax free bit and also being as sensible as possible with navigating the 60% trap (since I'm working still and earning circa £85k).

I'd like to leave using the 25% as late as possible so its works best/does most for us. But in taking this view, I would not be drawing anything each year and therefore drawing out a big sum in that 2032 FY.

So striking a balance and making sure were play this right to ensure the pot is maximized (what with my employer matching what I put in up to 10% and also that I have a draw down strategy thaty is tax efficient.

Anyone have advice or been through similar?

Who might I go to for paid advice on this sort of strategic planning.

I'll be 55yrs old on July 2027 - so will need to decide about 25% withdrawal by March 2028 or wait.

NoMore

You would trigger the MPAA limiting your pension contributions to 10k per year as soon as you take taxable income from your pension.

I think that would possibly severely limit your plans.

Also I have asked to move this to the Pensions forum

Buritonian

Thank you. I will carry on working and making pension contributions thereafter, though less aggressively, so perhaps the £10k MPAA limit isn't a problem thereafter. After all, during a standard 4% sacrifice year, matched by my employer, it amounts to about £7k total pension contribution p.a. - Still, it is something I'd missed and something to reflect on for sure. It does mean I will need to sit tight until 2032 and take what I need in one go, as otherwise the limit would, as you say, hamper my plan.

I do wonder if the 25% is worth taking out sooner (by March 2028) due to the impact it could have on my mortgage interest/remaining term, rather than letting it grow.

Is paying an IFA likely to help me figure out a better path forward or is what I'm navigating too simple to justify their fees?

Albermarle

I think the obvious question is, why when still working with a good salary, are you planning to take so much out of your retirement pot for the future?

Buritonian

I don't have faith in my ability to earn my level of income long term, so I am addressing our priorities while my income allows me to.

In my mind, I can choose to invest or not, and adjust what i invest to suit my situation, ranging from withdrawing funds from our investments, to maximizing what i put into them. This sounds very attractive when I'm 60+

We are in our forever home. We bought it to see out our days here. We love it. We want it in the bag so to speak. Life can throw what it likes at us but we don't want to leave this place.

DRS1

So are you proposing to take money out of the pension to pay off your mortgage?

Are you afraid that if your earnings drop you will no longer be able to afford the mortgage?

Buritonian

https://forums.moneysavingexpert.com/discussion/comment/81928546#Comment_81928546

yes and yes that is a big part of it - that and perhaps worry that i won't be seen as having good credit later in life and it becoming "messy" - combined with a fear that my affordability would be terrible if rates go high in later years. Lastly I have been made redundant 3 times in my career so at my age this stuff is worrying.

I tried not to mention mortgage to isolate the type of reply i got to pension strategies

Cobbler_tone

The obvious thing for me is if you trigger MPAA and restrict your ability to pay beyond £10k total contributions on a salary of £85k, what is the net impact of paying a high level of 40% tax? From the information you have provided you will also miss out on 'free' employer contributions, as their 10% in isolation is £8,500. As a minimum I would continue to contribute 10%. Does 20% total contributions open up the possibility to funnelling more towards your mortgage, as that sounds like a motivating factor? Especially whilst there are favourable NI breaks for a couple more years. You haven't said what your total pot is though. Sounds as though you are going to be liable to higher tax bills at some point. From the limited information I'd be sitting tight for now, or looking at your contributions and net income to clear more of your mortgage. I'm sure you'll be fine either way but a hasty misstep now could prove costly in the longer term.

QrizB

Hi, we want to take out circa £230k from our pension pot by 2032 as efficiently as possible. So we're focused on making the most of the 25% tax free bit

How big is your pension pot today? How much are you contributing annually? Are you likely to run up against the £268k tax-free limit?

What income do you need for retirement and what age are you aiming to retire at?

Lastly I have been made redundant 3 times in my career so at my age this stuff is worrying.

Once you get to 55 / 57, your pension is accessible so redundancy could be a good reason to start drawing on it. Until that happens, though, you're probably better to live on your income and save your pension for retirement.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/81929165#Comment_81929165

Sorry if I distracted from the main point of the thread. Paying off a mortgage is a perfectly valid reason for drawing on a pension but I think you would usually just use the TFLS not the taxable pension income. As people have pointed out drawing the taxable pension income while you are still working could be a very bad idea.

I suppose one thing to think about with the mortgage is what the interest rate is and will it be increasing at all - eg a fixed rate coming to an end. Otherwise I would personally leave it alone or try to overpay out of salary rather than pension income.

I am not sure how the employer match works but I would agree with the comment up above that you should be contributing at least enough to max out the matching employer contribution. If the cap is 10% for both employee and employer contributions together then you should be thinking about increasing your contributions because 10% in your 50s is not very high as a contribution rate.