Age 57: ISA bridge or pension top-up for early retirement?

mrklaw · 11 June at 11:19AM

From what you’ve described I would double down on other advice given here.

- contribute more from salary into pension for these next few years. Draw from your ISAs to replace salary lost becuase you’re prioritiseing pension. Effectively thats shifting money from ISA→pension indirectly and efficiently (workplace will handle tax relief etc).

(if you aren’t salary sacrifice make sure to claim the additional 20% relief from HMRC)

62-67 don’t automatically use your ISA/savings for income - you have a personal allowance of 12570 you should absolutely leverage. You can take taxable income from pension but it won’t be taxed if its inside that allowance. 16760 per year is doable tax free (75% sits in your personal allowance, 25% is tax free). That already covers your basics. Then top up from savings/ISA for any discretionary. If you’re conservative you can move the money needed for that in your pension to a money market fund to make sure its stable for when you need it.

At SPA the state pension will eat your personal allowance. at that point you can balance where you take money from. I’d probably still bias towards pension to keep your ISAs for any larger expenses that might pop up. You mention maybe 20-24k so you’d get 12500 from state pension tax free, then another £13500 from pension would be £11500 net giving you 24k net total. £2k a year tax effectively 8% tax rate. thats reasonable and keeps your ISAs intact

Albermarle · 12 June at 3:18PM

(if you aren’t salary sacrifice make sure to claim the additional 20% relief from HMRC)

OP - Just to clarify this comment.

There are three ways that an employer can take your pension contributions from your salary.

Salary sacrifice- where your salary is reduced, and the employer pays your contribution direct to the provider ( as well as theirs)
Net Pay - Pension contributions are taken from your salary before tax is applied
Relief at Source- contributions come out after tax has been applied.

For the first two, no further tax relief is available, as no tax was paid on the contributions. For the third one the provider adds basic rate tax relief. As a higher rate taxpayer you need to inform HMRC of your gross pension contributions ( including the basic rate tax relief) and they will take these into account, and you should get a rebate of the higher rate tax relief, depending on your exact tax position. It will come direct to you.

For a personal pension or lump sum payments to a workplace pension, they will always be 'Relief at source' type.

Something to watch out for is if contributions to your workplace pension are via 1 or 2 , you need to check that they can accept lumps sums and that they will add the basic rate relief.

MarlowMallard · 12 June at 6:48PM

https://forums.moneysavingexpert.com/discussion/comment/82025166#Comment_82025166

I think when annuities were compulsory, the funds moved to long-dated gilts rather than cash near retirement. The reason being that if interest rates drop, annuity rates also drop but long-dated gilts go up, and vice versa, so this cancels out some of the interest-rate risk.