Retirement

[Matt Hopkins]

What do you recommend hoping my pension pot grows to 400k by 67

Not a recommendation but the mechanics would be-
Put approx £17k pa into drawdown, assuming your tax allowance is £12570, this would give the equivalent of £1400/month tax free, then top up the rest from cash or wherever.
Doing this for 7 years would get nigh on £90k out of your pension without paying any tax which would be taxable after 67,assuming you have full SP

 

[Darlo1973]

Remember HR aren’t there for you

They are there to protect the company
Be very careful what you tell them

I've always wondered who people in HR use for HR as they can get just as screwed as the rest of us.

 

[Matt Hopkins]

I've always wondered who people in HR use for HR as they can get just as screwed as the rest of us.

Fk them says I

 

[JAZZMANB]

That is really interesting, thanks for posting that. It is a bit along the lines of what I have been thinking.

Once I hit 57, that gets into the 'interesting' zone. I can claim my company defined benefit pension, but with a 3-4% penalty for every year I go early. That puts retiring at 57 as receiving I think it was 63% of the annual income.

So for each extra year I work, I gain a larger pension from the contribution and a larger pension because of fewer penalties. The interesting bit is savings and investments designed to carry me over until the state pension.

This is hypothetical for easy numbers, but say if someone could save £10k per year of work and at 57 had £100k saved to see them through to 67, retiring at 57 would see them have £10k per year to spend. But when you put it in a table:

Savings	Years to cover	Age	Per year
£100,000.00​	10​	57	£10,000.00​
£110,000.00​	9​	58	£12,222.22​
£120,000.00​	8​	59	£15,000.00​
£130,000.00​	7​	60	£18,571.43​
£140,000.00​	6​	61	£23,333.33​
£150,000.00​	5​	62	£30,000.00​
£160,000.00​	4​	63	£40,000.00​
£170,000.00​	3​	64	£56,666.67​
£180,000.00​	2​	65	£90,000.00​
£190,000.00​	1​	66	£190,000.00​
£200,000.00​	0​	67​	£200,000.00​

But the key decision is, what do I actually need? I can see how it becomes a trap. Look at the difference in just spreading out savings between 58 (my target) and 62. For just 4 more years, that along with the pension boost, is quite a sizeable bit of money. Everyone wants more money and to feel more comfortable.

Reminds me of the 80s when lads would work every weekend extra
" it's two days work for a weeks money "
So !?! . ..
I've never thought like that . Peak of your life working 7 days . Money can't buy life's experiences.
Just been for a walk with the lads along the front for a coffee this morning .
Made a Sandwich back home, messed around in garage . Lucky if I spend a tenner today. Class . Stress free head ,no drama

I've always wondered who people in HR use for HR as they can get just as screwed as the rest of us.

That would suggest someone in the company is more savvy on employment law than HR which I doubt . Hr consultants are often used for smaller set ups as a help line for stuff as and when needed .

 

[Swindon On Tour]

59 now so year to go worked since I was 16 to be honest dont spend as much now no mortgage etc

Promise you will be counting down the weeks like a prisoner serving a sentence.

Same with me worked since 16. Paying Mortgage off is the game changer.
All you need now is to take up fishing, stop supporting that Sunderland shite and follow the mighty Swindon.
On the other hand take up stamp collecting as it’s far more risky and will offer some excitement.

 

[Crook]

Not a recommendation but the mechanics would be-
Put approx £17k pa into drawdown, assuming your tax allowance is £12570, this would give the equivalent of £1400/month tax free, then top up the rest from cash or wherever.
Doing this for 7 years would get nigh on £90k out of your pension without paying any tax which would be taxable after 67,assuming you have full SP

I know you've explained it before Matt, but can you talk me through the £17k vs Personal Allowance £12k5 tax free.

I promise to write it down for future reference this time

 

[Darlo1973]

I know you've explained it before Matt, but can you talk me through the £17k vs Personal Allowance £12k5 tax free.

I promise to write it down for future reference this time

It took me a while to get my head around it but you can take out £16,760 tax free under current rules

This strategy relies on taking the money as an UFPLS (Uncrystallised Funds Pension Lump Sum) or "staged payments," where every pound you withdraw is split into tax-free and taxable portions:

• 25% Tax-Free Portion (£4,190): This is your statutory tax-free entitlement and does not count toward your income tax limits.
• 75% Taxable Portion (£12,570): This part is treated as taxable income. However, because it matches the standard Personal Allowance of £12,570 exactly, no tax is actually due.

 

[Matt Hopkins]

I know you've explained it before Matt, but can you talk me through the £17k vs Personal Allowance £12k5 tax free.

I promise to write it down for future reference this time

no bother
Again the mechanics of it is sort of explained in @Darlo1973 post. However I used flexi access drawdown.
So you crystallise £16760 of your pot 25% is tax free so you get £4190 paid into your current account, you then have payments set up to get £1047/month which over 12months is £12570 which is most people's tax allowance so if that's your ONLY income then no tax is due.

Just to confuse you more
If you wanted to you could crystallise any amount you like if you wanted a larger lump sum and if you then just take £1047/month, and it's your ONLY income then no tax will be due.

Bear in mind if you do UFPLS you will probably get taxed too much and will need to claim it back and if you set up monthly UFPLS it will be a manual transaction so you'll have to do one every month. HTH

 

[Darlo1973]

no bother
Again the mechanics of it is sort of explained in @Darlo1973 post. However I used flexi access drawdown.
So you crystallise £16760 of your pot 25% is tax free so you get £4190 paid into your current account, you then have payments set up to get £1047/month which over 12months is £12570 which is most people's tax allowance so if that's your ONLY income then no tax is due.

Just to confuse you more
If you wanted to you could crystallise any amount you like if you wanted a larger lump sum and if you then just take £1047/month, and it's your ONLY income then no tax will be due.

Bear in mind if you do UFPLS you will probably get taxed too much and will need to claim it back and if you set up monthly UFPLS it will be a manual transaction so you'll have to do one every month. HTH

Thanks. I'd got my head around the tax free bit but I haven't quite got to grips with UFPLS vs flexible drawdown.

 

[JAZZMANB]

I know you've explained it before Matt, but can you talk me through the £17k vs Personal Allowance £12k5 tax free.

I promise to write it down for future reference this time

The key to Darlos example is getting by on those numbers means no tax paid . Bits of cash lumps or Isa' s etc can be brought in for rainy days if needed to keep it tax free . Even if you had a big wad of cash ,drawing this amount from a pot tax free is still an option because once 67 kicks in you'll pay tax from that pot . You could use cash drawn for fresh Isa's or other tax free savings options.
I'm by noway an expert mind you

 

[im not roland rat]

It took me a while to get my head around it but you can take out £16,760 tax free under current rules

This strategy relies on taking the money as an UFPLS (Uncrystallised Funds Pension Lump Sum) or "staged payments," where every pound you withdraw is split into tax-free and taxable portions:

• 25% Tax-Free Portion (£4,190): This is your statutory tax-free entitlement and does not count toward your income tax limits.
• 75% Taxable Portion (£12,570): This part is treated as taxable income. However, because it matches the standard Personal Allowance of £12,570 exactly, no tax is actually due.

Does this mean the following … based on current rules… I’ve kept the numbers simple… I dont have a million quid in a pension btw



At 57 I have £1m in my pension pot. That allows me to take £250k tax free lump sum or I can spread that £250k out as a tax free draw down over 10 years at a rate of £25k per year (£250k/10yrs).

I can also take out up to my personal allowance of £12,500 a year.

So each year I can take from my pension £37500 before I start paying any tax between 57-67 years of age.

Plus take money from ISA’s to top up further should I wish too.



Then once I get state pension I pay tax on anything I draw down from my pension as I’ll be over the personal allowance of £12500.

 

[Darlo1973]

Does this mean the following … based on current rules… I’ve kept the numbers simple… I dont have a million quid in a pension btw



At 57 I have £1m in my pension pot. That allows me to take £250k tax free lump sum or I can spread that £250k out as a tax free draw down over 10 years at a rate of £25k per year (£250k/10yrs).

I can also take out up to my personal allowance of £12,500 a year.

So each year I can take from my pension £37500 before I start paying any tax between 57-67 years of age.

Plus take money from ISA’s to top up further should I wish too.



Then once I get state pension I pay tax on anything I draw down from my pension as I’ll be over the personal allowance of £12500.

Err.. that looks like an IFA exam question. I will leave it to others who better understand the differences between UFPLS and flexible drawdown

It's certainly worth considering the advantages and disadvantages of taking the 25% lump sum. What will you do with it? If it's just going to stick in a savings account then you will be paying tax on the interest and from next year you will only be able to put £12k a year into an ISA.

My thinking is that once you can get to a £40-50k a year tax free from savings and investments then what is the point in working?

 

[Fletch]

no bother
Again the mechanics of it is sort of explained in @Darlo1973 post. However I used flexi access drawdown.
So you crystallise £16760 of your pot 25% is tax free so you get £4190 paid into your current account, you then have payments set up to get £1047/month which over 12months is £12570 which is most people's tax allowance so if that's your ONLY income then no tax is due.

Just to confuse you more
If you wanted to you could crystallise any amount you like if you wanted a larger lump sum and if you then just take £1047/month, and it's your ONLY income then no tax will be due.

Bear in mind if you do UFPLS you will probably get taxed too much and will need to claim it back and if you set up monthly UFPLS it will be a manual transaction so you'll have to do one every month. HTH

You can still get 5k or summit similar (6?) tax free interest IF you happen to have high savings

 

[im not roland rat]

Err.. that looks like an IFA exam question. I will leave it to others who better understand the differences between UFPLS and flexible drawdown

It's certainly worth considering the advantages and disadvantages of taking the 25% lump sum. What will you do with it? If it's just going to stick in a savings account then you will be paying tax on the interest and from next year you will only be able to put £12k a year into an ISA.

My thinking is that once you can get to a £40-50k a year tax free from savings and investments then what is the point in working?

Ah sorry pal for some reason i thought you perhaps were an IFA
The lump sum conundrum was what i was thinking about. Whats the point of taking a huge lump sum if its not to clear a debt or pay for a few one off items. If its just to live off you will end up paying tax on interest or is loses its value over time just sitting in a bank account. In my mind id be better off drawing it down as and when i needed it plus the added benefit of its still working for me whilst in my pension and making more money.

 

[Barista]

You can still get 5k or summit similar (6?) tax free interest IF you happen to have high savings

Yes, my understanding is that if your taxable income is £12570 or less then you get an additional tax free interest allowance of £5k in addition to the £1k for basic rate taxpayers. This £5k allowance goes down by £1 for every additional £ of income that you have above £12570 and up to £17570.

Does this mean the following … based on current rules… I’ve kept the numbers simple… I dont have a million quid in a pension btw



At 57 I have £1m in my pension pot. That allows me to take £250k tax free lump sum or I can spread that £250k out as a tax free draw down over 10 years at a rate of £25k per year (£250k/10yrs).

I can also take out up to my personal allowance of £12,500 a year.

So each year I can take from my pension £37500 before I start paying any tax between 57-67 years of age.

Plus take money from ISA’s to top up further should I wish too.



Then once I get state pension I pay tax on anything I draw down from my pension as I’ll be over the personal allowance of £12500.

Yes, that plan would work and optimises income tax avoidance. I’m doing similar at the moment. I am also taking enough tax free cash each year to reinvest it in my ISA up to the £20k allowance.

 

[Darlo1973]

Yes, that plan would work and optimises income tax avoidance. I’m doing similar at the moment. I am also taking enough tax free cash each year to reinvest it in my ISA up to the £20k allowance.

Amazing how we all try to become tax avoidance (not evasion!) experts as we approach retirement.

 

[DaveH]

Amazing how we all try to become tax avoidance (not evasion!) experts as we approach retirement.

I like to think of it as not overpaying tax.

It is something I had not considered until some of the chat on this thread (why I think this is a great thread). One option I was considering is to retire but live off savings, holding back my DB pension for a few years, to reduce the penalties. But someone pointed out that I would pay no tax while living off savings and be hit with a bigger annual tax bill claiming later.

It looks like one of the key decisions is how to spread your money so you withdraw at least up to your personal allowance each year after you stop working.

 

[Ned Land]

I like to think of it as not overpaying tax.

It is something I had not considered until some of the chat on this thread (why I think this is a great thread). One option I was considering is to retire but live off savings, holding back my DB pension for a few years, to reduce the penalties. But someone pointed out that I would pay no tax while living off savings and be hit with a bigger annual tax bill claiming later.

It looks like one of the key decisions is how to spread your money so you withdraw at least up to your personal allowance each year after you stop working.

I have a few scenarios on a spreadsheet, e.g.

** assume mortgage paid off **

1. Retire at 55, take reduced DB pension, deplete SIPP and ISA over 12 years until state pension.

2. As above but aged 57.

3. As above but defer DB until 60+ and live off SIPP and ISA until 60.

4. Retire at 60. Take DB and remnants of SIPP, spend ISA if necessary.

Even though I’d be considerably richer (spoke with a brummie accent) the later that I take the DB pension, scenario 2 has the smoothest income stream (approx 2k per month after tax).

If I wait too long then I’ll have more income at 67+ but I’d rather enjoy myself before then.

 

[Slatz63]

I have a few scenarios on a spreadsheet, e.g.

** assume mortgage paid off **

1. Retire at 55, take reduced DB pension, deplete SIPP and ISA over 12 years until state pension.

2. As above but aged 57.

3. As above but defer DB until 60+ and live off SIPP and ISA until 60.

4. Retire at 60. Take DB and remnants of SIPP, spend ISA if necessary.

Even though I’d be considerably richer (spoke with a brummie accent) the later that I take the DB pension, scenario 2 has the smoothest income stream (approx 2k per month after tax).

If I wait too long then I’ll have more income at 67+ but I’d rather enjoy myself before then.

If you are still enjoying work go with 3.

If work becomes a ball ache, you can drop back to 2 or 1.

 

[Ned Land]

If you are still enjoying work go with 3.

If work becomes a ball ache, you can drop back to 2 or 1.

I don’t enjoy work and I’m applying for voluntary redundancy.