Dc Pension Drawdown

[Dagman]

Hi folks, in a previous question i asked about my old db pension (which i started taking at 55). This time its my dc pension. If i were to take 25% tax free then drawdown the remainder at about £2000 a year, add it to my already running db pension. Then if leaving my job soon the combined total would be £6800 a year with no other income. Do i get taxed in any way on the drawdown aspect? I will only be 57 and get no state pension yet etc, only my db and dc pensions. I have trawled the gov tax pages but it isn't very clear, would be great if anyone can clarify this for me, thanks all.



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[Hymie]

The current personal tax allowance is £12,500 p.a. – so with income below this amount you will pay no income tax. Therefore it would make sense to draw down your dc pension pot as soon as possible, paying no tax – therefore you should be looking to draw down about £7,700 p.a. from your dc pension.

Quite how you will manage to live on an income £6,800 for the next 10 years would be more of a concern to me.

[Dagman]

Thanks Hymie, I have some savings, a bit of a stretch for them and a few odd jobs here and there, but will hopefully work out until state pension time.

[Hymie]

If you were to take £12,500p.a. from your pensions, then any additional income would be taxable – therefore you should give careful consideration to how much you would expect to earn from odd jobs per annum, and reduced your pension draw down commensurately. Otherwise expect to pay basic rate tax on your earnings.

[TonyV]

Dagman I would take some independent advice. I took my company pension @ 55, but offer was to good not to take as company pension scheme was trying offload their liabilities.
The pension company that I used got a better offer than company was offering.
I cannot advertise the company here but take some independent advice.
Ask your company for a pension statement 1st any adviser will need to see it.
As previously advised make sure you will have enough money to live on. You really need to do a quick household balance sheet i.e. outgoings Vs income.

[Hymie]

One other observation on your financial situation, besides any savings - come State pension age you will be living on an £8,800 full State pension (if you have the qualifying years) plus the £4,800 from your db pension – not a lot of money.

[Dagman]

You're right Tonyv, it is my intention to use another pension provider as the company pension is actually pushing for poor annuity plans. I already have a great adviser who sorted my db pension out and have plans to see them again.

[TonyV]

OK Dagman go with what your advisers advice is then. All the best.

[TonyV]

Dagman just make sure all the calcs are right with yourself. Was strange for me at the time my chosen pension provider didn't charge me any fees, but I guess they are earning interest from my "pension pot"
You also need to consider whether you take a lower monthly sum with some inflation added % each year to your monthly payments.
Anyway enjoy your retirement while you are young enough to.

[Dagman]

My previous 25% tax free from my db was invested through my adviser and is doing well, all going to plan, with that, the dc and savings I can provide myself with about 1400 a month if I'm careful. The invested stuff is ahead of inflation so should keep me going. Odd jobs I do will be a bonus on top. When i see my adviser hopefully in the next few weeks, I'll revisit this thread and let you know what's going on. May be useful to others too. Thanks for all your suggestions!

[TonyV]

Okedoke Dagman its always useful to get some feedback.
TIA

[Hymie]

Having paid into a db pension, it is almost certain that it was contracted out of the State scheme, so the years paying into the db scheme won’t count towards your required 35 years to achieve a full State pension.

See this link to money saving expert on the subject of State pensions for more info.

https://www.moneysavingexpert.com/savings/state-pensions/

You can buy up to 10 years of contributions to make up your State pension, which can work out as a very good investment with payback in as short as 3 years. I suggest you talk about this option with your financial advisor.

[TonyV]

Hymie I may be out of date but if you are PAYE the national insurance payments pay for your state pension, as well as as NHS. Company pensions are totally different.
You either opt in or out with additional voluntary payments, thats how mine worked.

[Hymie]

If you read the money saving expert article on contracted out db schemes – it is clear that these years don’t count towards the full State pension.

Many, many people who paid into a db scheme will be surprised that instead of getting a £8,800 State pension, it will be closer to £6,000.

[TonyV]

Hymie and if they dont have enough money state will top it up.

[Hymie]

This is true, but they will have the income from the db pension scheme which will make them ineligible for any top up.

[TonyV]

ok hymie

[Hymie]

When db pension schemes were the norm, conventional wisdom was that better returns would be had by contracting out of the State scheme.

With the government having moved the goal posts, any db pension scheme would now be better off contracted in, unless a particular individual would also manage to achieve 35 qualifying years in the State scheme.