To drawdown on DC or not- if it means High Rate Tax band.

fizio

A question for folks in a similar-ish position to me (and yes its a nice problem to have). 

• 5 years to state pension 
• DB pension edging towards High Rate Tax threshold 
• A good chunk in a DC drawdown pension
• Inheritance not a big issue

The question is about drawing down on the DC or not - especially if there is nothing particular that the money is needed for. The options I am looking at are :

• Withdraw at HRT and stick in an ISA
• Withdraw at HRT and splash out / giveaway
• Leave alone and see what future govt may do - though state pension will mean HRT anyway
• Something else random

I know the answer is ‘it depends’ and ‘there is no right answer’ so am more interested in peoples views and what others may have done or are doing. 

Brie

Take a portion of the DB as a tax free lump and possibly do similar with the DC and then just let the rest sit until it's needed.

DRS1

What is the something else random that you had in mind?

Perhaps have the DC pension trustees invest the DC pension money in a racehorse and enter it in the Grand National? Or have them buy some Art to hang on your walls? I suspect neither of those would be allowed.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82061460#Comment_82061460

I got the impression that the OP was already receiving their DB pension, but it is not 100% clear.

hugheskevi

You might want to consider the position around death before 75, inheritance, and tax. It might be desirable to have DC pension sitting there as a tax-efficient hedge against early death, eg, if there is a spouse who would inherit it all tax-free. So rather than start drawing down the amount subject to higher-rate tax now, do that at age 75 instead perhaps.

Using ISA allowance may be desirable though, so depending on the sums involved, drawing enough to use £20,000 in an ISA each year might be sensible if the ISA allowance would otherwise be lost - that optimises for the scenario you live beyond 75, whilst having some funds in the DC caters to death before age 75.

Personally, I plan to commence a DB pension at 55 (protected minimum pension age) and draw taxable income from my DC pension up to higher rate tax. When State Pension comes into payment, if not before, I will be a higher rate taxpayer from DB and State Pension alone, and I will cease DC withdrawals. During this period I will use a flexible ISA to ensure that I keep adding £20,000 to my flexible allowance each year (and also that of my wife) by moving funds from an offset mortgage savings account into our ISAs just before the end of the tax year and back again at the start. Hence I will always be able to put large sums into an ISA if I wish at no notice, and my wife will have a similarly large flexible ISA allowance to move inherited DC pension into should that scenario materialise.

The DC pension will stay where it is, with my wife inheriting it tax-free if I die before age 75. I will resume withdrawals at age 75, drawing up to the Personal Allowance taper threshold each year and putting it into my ISA.

fizio

https://forums.moneysavingexpert.com/discussion/comment/82061460#Comment_82061460

100% tax free already taken and spent on a rental property.

fizio

https://forums.moneysavingexpert.com/discussion/comment/82061481#Comment_82061481

I am open to 'sensible' random ideas but nothing specific in mind..

fizio

hugheskevi,

I hadn't looked into age 75 side of things but the 'looking after the spouse' is a valid point - though I have made other arrangements to ensure this covered as well. Given the growth in the stock markets the DC will be fine even if I take out the 'isa 20k' every year from the growth so I am likely to do that plus spend on house/holiday/car in some years. I have taken out a decent chunk once in last 4 years that was all HRT and the pot has increased to above the amount before I did it so will probably do that again this year.

Qyburn

If you're currently below HR tax threshold but expect to exceed it in the future, I'd definitely draw as much as possible from the DC while still keeping below HRT. Draw it out now at Basic Rate, tuck it away somewhere to spend later.

SarahB16

https://forums.moneysavingexpert.com/discussion/comment/82061628#Comment_82061628

+1 That is exactly what I would do too.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82061561#Comment_82061561

I took £95K tax free cash from my DC pensions last year, which has also now been replenished by investment growth.

However I am not that confident that this will always happen in future …..