Pension Drawdown in the new Tax Year

Hal17

I know I am over thinking this, but not sure what to do in the current market?

I an in my early 70's and normally drawdown a sum from my DC pension to take me just below the 40% tax bracket at the start of a new tax year.

Currently have a full state pension and a small fixed DB pension. The drawdown would be 5% of my current DC fund. The growth this current tax year is 14.5% which includes a drop of 3.4% this month. The is a cautious fund so very happy with the returns.

I do not need the drawdown for living expenses at the moment, but use it to gift surplus income to family for future school fees, which they put into fixed cash ISA's.

I appreciate that generally, taking profit (withdrawing taxable income) from your pension during a stock market downturn is not recommended unless absolutely necessary.

My thought process is that this drawdown is coming from pension growth, so no need to worry about taking it sooner rather than later. The market may continue to go down, so not sure whether to just do what I normally do or wait to see how the market reacts.

El_Torro

One option would be to draw it down and put it into a Stocks & Shares ISA. That way you save on the 40% tax and you can withdraw from the ISA whenever you like. If you do this it doesn't really matter that markets are down, since you are investing straight away anyway.

dunstonh

I appreciate that generally, taking profit (withdrawing taxable income) from your pension during a stock market downturn is not recommended unless absolutely necessary.

It's not normally an issue if you are following a drawdown strategy. (e.g. bucketing, yield or similar - as you draw from the cash/money markets bucket). It's only an issue if you haven't structured a portfolio to follow the strategy. And it sounds like you haven't by sticking to a single fund.

The growth this current tax year is 14.5% which includes a drop of 3.4% this month. The is a cautious fund so very happy with the returns.

Remember that the tax year return will appear better because of Trump's Liberation day losses. The tax year occured after much of Spring 2025's losses. So, started from a lower place.

I do not need the drawdown for living expenses at the moment, but use it to gift surplus income to family for future school fees, which they put into fixed cash ISAs.

It's a shame that they are putting it into cash ISAs (unless they are spending it a few years later) as there is a risk that you are letting the tax tail wag the dog and ending up with a worse outcome. i.e. it may reduce IHT but it is also reducing the returns. Over the years, the lost returns could become greater than the tax saved.

In your documented gift record, what have you stated as your gift frequency? If it's documented as once per tax year, that gives you much more time to decide when to do things than saying every April.

Hal17

Thank you both for the replies, much appreciated. Dunstonh, as always your breakdown is very helpful. It certainly helped to clarify my thoughts.

I believe I have a drawdown strategy, the DC pension is about 50% of available assets, not including my property. I did not take into account the previous Spring losses that you mentioned, I will look at my numbers again.

Your point about the gift frequency is really valid, there is certainly no need for me to take the drawdown in April, jus t something I have done over the last 5 years. Thank you again, food for thought.

dunstonh

I believe I have a drawdown strategy, the DC pension is about 50% of available assets, not including my property. I did not take into account the previous Spring losses that you mentioned, I will look at my numbers again.

There is the drawdown strategy, and then there is the investment strategy to accompany it. Whilst there is nothing wrong with having a single multi‑asset fund, it does put you at more risk during negative periods (especially major negative periods that linger on). Over the long term, a single, total‑return portfolio with no buckets or segments typically gives the highest expected outcome because growth exceeds loss over time. However, there is a minority of cases where that is not the case, and when it is not, the impact can be harder.

Bucket strategies deliberately give up some expected return in exchange for behavioural and sequence‑of‑returns protection, which can be valuable where withdrawals are a high proportion of the pot.

That is less of an issue for you, as you are not financially reliant on the money, but it is still relevant to how much ultimately reaches your beneficiaries.

If the beneficiaries were investing it in broadly the same way as you, then apart from some days or weeks out of the market, it would not make much difference over the long term. If they pay it into a pension, they can, in effect, get the tax you have paid on the withdrawal added back via pension tax relief (although you obviously cannot control what they do once you have gifted it).

Your point about the gift frequency is really valid, there is certainly no need for me to take the drawdown in April, jus t something I have done over the last 5 years. Thank you again, food for thought.

Just make sure your records record your regular intention as “once per tax year” rather than a fixed calendar date, and that will be fine. Once per tax year” is a perfectly reasonable pattern to document, but it is the habitual pattern and intention  that matters, not the specific interval

Hal17

Hello dunstonh, thank you so much for your time and expertise, that has been extremely helpful to me today.

I just found the very first reply you sent me back in 2015, so over 10 years providing help to some of the various post I have raised. It is very much appreciated. 😎

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81937100#Comment_81937100

No expertise from me 😀, but an opinion that the current mild drop in values, following a very good run in the markets, is not dramatic enough for considering any significant change in drawdown planning.