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Retirement

Horatio Pugwash said:
There seem to be a lot of people on this thread who know a damned site more about pensions than me.

What would you more knowledgeable chaps suggest for me to do to start the ball rolling for my grandson? He's only a toddler but if I can get the ball rolling early it has to be a good thing.

If that's allowed that is
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Lifetime ISA. LISA.

It's so good they are bound to cancel it.
 

Matt Hopkins said:
As @moanjam has said.
If you are retiring before SP age you should always make use of your tax allowance.
So you would put £16760 into drawdown, out of that amount you'd get 25% tax free which is £4190.
That then leaves £12570 which is what most people personal allowance is so then that can be paid @ £1047.50 /month without attracting any tax.
Also bear in mind if you wanted a bigger tax free lumper one year you could put say £40k into drawdown get the £10k tax free lump sum then still just draw £1047.50/month and not pay any tax
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Sorry but can you explain the last paragraph 😁. I get the 10k bit being 25% of the 40k and the 1047.50 keeping it under the PA tax threshold with a total of 22570.00. What would happen with the rest. Again am probs missing the obvious but i'm gonna be in this position soon and appreciate the 'free' 😁 advice
 
Flip said:
Is that as a pension so I would get tax breaks on any money invested?
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I have this in my stocks and shares ISA but you could invest in this fund if you had a SIPP with say Hargreaves Landsdown.
They will automatically add tax relief to whatever you pay in at the lower rate.
Tax relief at the higher rate has to be claimed back via self assessment I believe.
 
JOEJA said:
Sorry but can you explain the last paragraph 😁. I get the 10k bit being 25% of the 40k and the 1047.50 keeping it under the PA tax threshold with a total of 22570.00. What would happen with the rest. Again am probs missing the obvious but i'm gonna be in this position soon and appreciate the 'free' 😁 advice
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The rest of the money just sits in your drawdown account waiting for you to decide when to take it
 
JOEJA said:
A dont think i understand the drawdown. So when you took the rest it would be taxed though, if you took it in the same tax year?
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Yes if you took the rest in the same year. It can sit there indefinitely though invested in whatever you want. It's just split from your main pension account. You can taken another £12570 tax free next year from it and so on.
 
One thing I don’t understand about drawdown:-

Say I have £300k and put £75k into the lump sum pot. The other £225k grows to £325k, do I get 25% of the other £100k tax free?
 
Shack said:
Yes if you took the rest in the same year. It can sit there indefinitely though invested in whatever you want. It's just split from your main pension account. You can taken another £12570 tax free next year from it and so on.
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Ah right. Cheers I didnt realise you can take a part of your overall pension pot and stick it in a drawdown, i thought it was the whole lot once you access your pension account.
 
Fletch said:
Wouldn’t like to be relying on an inheritance in order to retire , I guess many do though
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Aye I’ve not factored any into my plan as knowing mam she will outlive me - 76 now and in better health than me.
Town End Farmer Giles said:
I assumed it is something known i.e. second parent has died and just waiting on house sale.

I haven't assumed anything in my own calculations, me mam could end up in a care home, so not relying on a penny
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Brother and I own half mams house as dads share passed to us , if the other half goes in care then so be it really as long as she’s happy and looked after
 
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Select coaches said:
One thing I don’t understand about drawdown:-

Say I have £300k and put £75k into the lump sum pot. The other £225k grows to £325k, do I get 25% of the other £100k tax free?
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I’m no expert but I think it works like this.
You have have a pension pot which is invested. To access this you would move an amount into your drawdown pot and once in there you can take 25% of that tax free.
The rest stays invested and hopefully grows.
so in theory you will have more money to transfer to your drawdown pot in the future and hence more tax free cash.
If you want to take all your tax free cash as a one off lump sum then all your pension needs to be moved into the drawdown pot so you would loose any tax free benefit on growth.

Apologies in advance if I have got that wrong.
 
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Select coaches said:
One thing I don’t understand about drawdown:-

Say I have £300k and put £75k into the lump sum pot. The other £225k grows to £325k, do I get 25% of the other £100k tax free?
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No, the tax free amount is 25% of the amount when transferred into the drawdown/crystallised pot. Any growth of the balance of that pot is a bonus but doesn't gain from extra tax free money (from what I can see). This makes it prudent to only transfer what you really need into that pot so the uncrystallised pot can grow and benefit when taking your 25% tax free.
 
Select coaches said:
One thing I don’t understand about drawdown:-

Say I have £300k and put £75k into the lump sum pot. The other £225k grows to £325k, do I get 25% of the other £100k tax free?
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lets just say you have £300k in pre retirement pot and you put £100k into drawdown, you will immediately get 25% tax free, so £25k paid into your bank. The other £75k is now sitting in your drawdown pot waiting for you to decide how to take it.
You now have £200k in your pre retirement pot, let's just say you leave that for a year and it grows to £400k (unlikely but it's easier for the maths) you could now potentially take 25% tax free which would give you £100k tax free.
Doing it this way is how you can end up with more than 25% tax free, based on your original pot 👍
 
Chances are a 300k pot is gonna be all tax free , if say you decide to drawdown 4% a year - you can have 12.5k pa tax free income
 
JOEJA said:
Sorry but can you explain the last paragraph 😁. I get the 10k bit being 25% of the 40k and the 1047.50 keeping it under the PA tax threshold with a total of 22570.00. What would happen with the rest. Again am probs missing the obvious but i'm gonna be in this position soon and appreciate the 'free' 😁 advice
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Ya drawdown pot is split into crystallised and un crystallised funds
Ie money in the pot and money in the pot ringfenced that you need to pay tax on.

So if you take 10000 from ya pot over the year you have 30k in ya pot crystallised (25% of 40k is tax free)that you have to pay tax on. However remember that 12.5k of that 30k can be allocated to your tax allowance next year and taken tax free so your crystallised amount will stand at £17.5k next year plus any crystallised amount from the following year.

I’m probs not explaining it right but that’s how it works.
 
BILLY BUS PASS said:
Ya pension pot is split into crystallised and un crystallised funds when you start drawdown
Ie money in the pot and money in the pot ringfenced that you need to pay tax on.

So if you take 10000 from ya pot over the year you have 30k in ya pot crystallised (25% of 40k is tax free)that you have to pay tax on. However remember that 12.5k of that 30k can be allocated to your tax allowance next year and taken tax free so your crystallised amount will stand at £17.5k next year plus any crystallised amount from the following year.

I’m probs not explaining it right but that’s how it works.
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I would've said it like this 👍
 
Fletch said:
Chances are a 300k pot is gonna be all tax free , if say you decide to drawdown 4% a year - you can have 12.5k pa tax free income
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Matt Hopkins said:
Eh? You'll only take £12570 tax free until the SP kicks in 👍
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I suppose its how you view it.
If you assume that any tax liability comes out of the state pension bit when that kicks in then I suppose you could say that you are taking the total £300K tax free.
Take your point though - would be like just having a state pension of £10K/annum
 
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