Living off pension drawdown

Barney

I'm thinking of finishing work on 4 years when I'm 60...where did that go..!!!
Anyways trying to think of the best way to sort this out .

According to my pension advisor it won't pay a lot out so looking at finishing and using that drawdown to take money out yearly until retirement when I can get state pension 

From what I understand you can get £12000
Tax free a year ? Or there about probably wouldn't need that though because I would  be pottering about doing lessons and stuff..

I don't have any mortgage or loans to pay ...does anybody know off this is the right way to go ...or is there something more beneficial I could do ...like buy a 57 les paul..

boogieman

Can’t offer much advice beyond don’t forget you’ll have to pay tax on anything over £11.8k (currently).

Have a look at the Gov pension site for an estimate of what you’ll get in state pension and when you’re eligible for it, it might not be as much as you think. 

Nitefly

Mmm be careful here. 

Your tax-free allowance is (this year) £12500. 

You can take the first 25% of your pension fund pot tax-free.

BUT everything you draw down after that 25% is taxable, because you didn't pay tax on the money you paid into the pension.  In theory you could therefore draw down £12500 every year tax-free, until the pot runs out.

All your income over £12500 will be taxable at 20%.

If you stop working, will you keep on paying National Insurance?  This will have a bearing on how much your state pension will be when/if you reach the age to claim it. 

If I were you I'd take a good look at the government pension website: https://www.gov.uk/browse/working/state-pension

It will let you see what your state pension age is, how many years contributions you need to make, and how much your state pension will be, when you're able to claim it.

RandallFlagg

I'm spending some time thinking and planning retirement income at present.

Don't forget your remaining pension pot stays invested and will grow (potentially) as well. Check the historical pension growth rates and you should be able to forecast an annual growth of around 7% on average, 2018 was a poor year for mine but growth has been healthy most other years. It's a guess obviously but you need to factor something in.

I have a spreadsheet that shows this growth and also shows a drawdown amount that increases 2% a year to keep up with inflation and takes off 20% tax after the 25% tax free every year. Run this as a model and and you can adjust the amount you withdraw each year as required to see how long it will last, reducing once the state pension kicks in. Currently my drawdown would run out around the age of 86 if I started drawing down at 57, but this doesn't allow for extra pension contributions I hope to make in the last few years.

Things I need to add as the charges for the drawdown scheme I end up with and the national insurance contributions, do they need to keep being paid if you stop work before state pension age? I need to check into that.

Barney

RandallFlagg said:

I'm spending some time thinking and planning retirement income at present.

Don't forget your remaining pension pot stays invested and will grow (potentially) as well. Check the historical pension growth rates and you should be able to forecast an annual growth of around 7% on average, 2018 was a poor year for mine but growth has been healthy most other years. It's a guess obviously but you need to factor something in.

I have a spreadsheet that shows this growth and also shows a drawdown amount that increases 2% a year to keep up with inflation and takes off 20% tax after the 25% tax free every year. Run this as a model and and you can adjust the amount you withdraw each year as required to see how long it will last, reducing once the state pension kicks in. Currently my drawdown would run out around the age of 86 if I started drawing down at 57, but this doesn't allow for extra pension contributions I hope to make in the last few years.

Things I need to add as the charges for the drawdown scheme I end up with and the national insurance contributions, do they need to keep being paid if you stop work before state pension age? I need to check into that.

I think I will have to sort something out like that ....I probably wouldn't retire fully but anything I did do would be musical ..lessons ECT but probs would need to draw pension ..so that could probably vary each year 

One of the reasons I am doing it this way is I have heard of a few people that have paid into a pension all thier lives when they come to pension age don't get as much as say somebody who hasn't made any provision at all...and get payments through different benefits I would presume ...iff I was going to be good pension this dosnt really matter but for smaller pension pots it seems you are just saving up so the goverment dosnt have to ..iff that makes sense ...and after about 40 years so far paying tax winds me up ...

It's all very confusing and the more I look the the more confusing it seems about the best way to go

Barney

Nitefly said:

Mmm be careful here. 

Your tax-free allowance is (this year) £12500. 

You can take the first 25% of your pension fund pot tax-free.

BUT everything you draw down after that 25% is taxable, because you didn't pay tax on the money you paid into the pension.  In theory you could therefore draw down £12500 every year tax-free, until the pot runs out.

All your income over £12500 will be taxable at 20%.

If you stop working, will you keep on paying National Insurance?  This will have a bearing on how much your state pension will be when/if you reach the age to claim it. 

If I were you I'd take a good look at the government pension website: https://www.gov.uk/browse/working/state-pension

It will let you see what your state pension age is, how many years contributions you need to make, and how much your state pension will be, when you're able to claim it.

Good point ...I forgot about national insurance ..but would be going part time just doing music so would have to pay anyways I think ...just thinking about the pension as top up because it's unlikely I would make enough to live off on lessons and stuff...I might subsidise that with very small electrical jobs though 

breezytele

Assuming that you’re not expecting an early demise,
I’d avoid taking any pension money in advance, if at all possible.

  The State pension is a welcome payback from your own contributions over your working life.

But it’s not exactly generous, and it’s onset will be delayed.
Check the website as others have said
 

EricTheWeary

You can check your NI contributions on the Gov website. As best as I understand it you’ll need 35 qualifying years.

I think about mine a lot, although it’s Local Govt Pension Scheme so doesn’t work quite the same way( or I’ve not understood it in the same way). The temptation at the moment is to take it from the minimum age (55) which will give me a very basic fixed income then look for part time/ temporary jobs to top it up - my assumption that pushing trolleys around Asda will be less stressful than social work although maybe that’s a wrong assumption! 

FastEddie

Give The Pensions Advisory Service a call. 
They have a helpline for ad hoc questions but you can have a free Pensions Wise call.

I've just finished a contract working for them. I'm a Wealth Manager by trade. It's a great service and gives you around 1 hour of guidance around all the options.

A couple of pointers, money has to last a long time as we are living longer. Invest in low charge funds, 0.3% Annual Management fee, spread monies across different countries in trackers, Vanguard are a great fund manager for this. 
Don't allow a financial adviser to take a regular fee, 0.5% to 1% they will want, they are typically NOT fund managers and only tell you the very basics on investment funds.

Musicwolf

breezytele said:

Assuming that you’re not expecting an early demise,
I’d avoid taking any pension money in advance, if at all possible.

Of course pension advice is a complex subject and depends upon individual circumstances, however........

Breezytele's advice is a good default position and you should think long and hard before doing something different.

Speaking for myself I have agreed with my employer that I will retire at the end of this year (I'll be 56) but I don't plan to take my first company pension before 57 and I will not be drawing out a lump sum (in fact I'll be paying quite a lot in by way of additional contributions this year).  I've very carefully planned out how much I'll need each year until State pension kicks in at 67 considering also inflation and anticipated growth on funds based on performance over the last 10 years.  I've had to consider things like buying a car (company car for last 23 years), son's University costs (if he goes), any major work around the home in the next 10 years over and above usual annual costs etc and I also want to leave myself with a decent savings pot at 67.

I've been saving hard for this retirement since about the age of 40.  The choice was basically - go now or work beyond 60 and put in a bid for Gilmour's black Strat, the numbers are of that magnitude.  The way I looked at it - did I want to own more guitars or have more time to play the ones that I already own?

boogieman

EricTheWeary said:

You can check your NI contributions on the Gov website. As best as I understand it you’ll need 35 qualifying years.

I think about mine a lot, although it’s Local Govt Pension Scheme so doesn’t work quite the same way( or I’ve not understood it in the same way). The temptation at the moment is to take it from the minimum age (55) which will give me a very basic fixed income then look for part time/ temporary jobs to top it up - my assumption that pushing trolleys around Asda will be less stressful than social work although maybe that’s a wrong assumption! 

I assume you’ve already looked into it, but it’s worth mentioning that you may get hit with a pension reduction if you take it before you’re 60. My company knocked off 5% per annum for every year. 

The NI thing is odd. Yes, you need 35 years of contributions to qualify for the full state pension but they will then knock a sum off for every year you don’t contribute any NI payments. For instance I gave up work at 58 and will have 8 years of non-contributing years according to the Gov site: so despite 42 years worth of NI payments I still wont get a full pension. I lose even more because my company opted me out of full NI payments. In some respects people who have never worked will benefit more, because they get the full pension no matter what. 

Jalapeno

Musicwolf said:

 I've had to consider things like buying a car (company car for last 23 years),

Insurance could be a big wallop too as you haven't been paying your own with a Company Car - get a claim history for the company car scheme going back as long as you can - it does make a difference.

I'm genuinely torn, annuities are crap compared to their cost, but also scared about running out of cash and being dependent on Benefits - right when the Baby Boomer generation is at it's retirement peak.

Nitefly

Jalapeno said:

Musicwolf said:

 I've had to consider things like buying a car (company car for last 23 years),

Insurance could be a big wallop too as you haven't been paying your own with a Company Car - get a claim history for the company car scheme going back as long as you can - it does make a difference.

I'm genuinely torn, annuities are crap compared to their cost, but also scared about running out of cash and being dependent on Benefits - right when the Baby Boomer generation is at it's retirement peak.

Dead right about annuities - thank goodness you don't HAVE to buy one these days, unlike up to 2015!  Although I retired in December 2014, I postponed any pension decisions until April 2015, when the annuity rules changed.

Following advice from a trusted IFA, I took my 25% tax-free lump sum (this went on some major house improvements, etc.) and the rest has been put into a draw-down fund which has been growing quite nicely.

Between Our Maud and myself, we manage on our state pensions and her Electricity Industry pension for annual income, and only use the draw-down for out-of-the-ordinary expenses, such as our trip to New Zealand for our daughter's wedding.

So far, so good...

Musicwolf

Jalapeno said:

Musicwolf said:

 I've had to consider things like buying a car (company car for last 23 years),

Insurance could be a big wallop too as you haven't been paying your own with a Company Car - get a claim history for the company car scheme going back as long as you can - it does make a difference.

The numbers weren't actually as bad as I'd feared (maybe I was being too pessimistic) but these are all things that need to be considered.  Of course there are also positives to consider, for example.  It costs me around £5 per day just to travel to and from the office.

In the end the biggest single factor in allowing me to retire early in the first place was that I have lived well within my means for many years.   We've still lived a good lifestyle, nice house, holidays, my wife was able to finish work when our son was born and has never gone back, but we've saved rather than spent so, when I retire, I won't feel the drop in income so quite much.  If you want to retire on a good income / retire early then you need to start saving early.  The money doesn't appear by magic.  Whatever you are going to live off once you stop working has to be saved (whether that's via a pension  fund or pound coins in a tin) whilst you are earning.

57Deluxe

That Ba$tard Hammond revoked the previously only one good thing Osbourne did for Pensions in allowing you to take all your money out in one lump.

As I only have £20k in mine, it meant I could have had some useful money for a project, but now I am forced to have to receive and annuity of only £700  - a YEAR ! Oh and of course pay Tax on it...

EricTheWeary

boogieman said:

EricTheWeary said:

You can check your NI contributions on the Gov website. As best as I understand it you’ll need 35 qualifying years.

I think about mine a lot, although it’s Local Govt Pension Scheme so doesn’t work quite the same way( or I’ve not understood it in the same way). The temptation at the moment is to take it from the minimum age (55) which will give me a very basic fixed income then look for part time/ temporary jobs to top it up - my assumption that pushing trolleys around Asda will be less stressful than social work although maybe that’s a wrong assumption! 

I assume you’ve already looked into it, but it’s worth mentioning that you may get hit with a pension reduction if you take it before you’re 60. My company knocked off 5% per annum for every year. 

The NI thing is odd. Yes, you need 35 years of contributions to qualify for the full state pension but they will then knock a sum off for every year you don’t contribute any NI payments. For instance I gave up work at 58 and will have 8 years of non-contributing years according to the Gov site: so despite 42 years worth of NI payments I still wont get a full pension. I lose even more because my company opted me out of full NI payments. In some respects people who have never worked will benefit more, because they get the full pension no matter what. 

We had an 85 year rule which meant no penalties if you met that ( if years in service plus age equalled 85 ). So for years I'd worked on the basis I could draw a reasonable pension at 56 years of age which is when I'd meet that. However, that's scrapped now so I just get penalties instead. But if I hung on to 60 it's only about another £3k per year in pension ( plus whatever I contribute in the meantime).
There are various options and in pure financial terms carrying on where I am until 67 obviously comes out tops but I want to find a way to be at work less or not at all. MrsTheWeary takes her NHS pension next year and it effectively pays her what she earns ( part time) now so that seems like a no brainer and we'd like to do some stuff.
With joint pensions and lump sums in the bank we should be fine but it's how many repairs on the house, bailing out the kids, getting the car fixed,etc, before we start running out of money. Making the decision to take my pension is fairly final even if I work on top. 

Sorry, none of this helps Barney other than acknowledging it's bloody complicated! 

RandallFlagg

Nitefly said:

Following advice from a trusted IFA, I took my 25% tax-free lump sum (this went on some major house improvements, etc.) and the rest has been put into a draw-down fund which has been growing quite nicely.

Between Our Maud and myself, we manage on our state pensions and her Electricity Industry pension for annual income, and only use the draw-down for out-of-the-ordinary expenses, such as our trip to New Zealand for our daughter's wedding.

So far, so good...

Sounds great!

Strat_a_tat_tat

57Deluxe said:

That Ba$tard Hammond revoked the previously only one good thing Osbourne did for Pensions in allowing you to take all your money out in one lump.

As I only have £20k in mine, it meant I could have had some useful money for a project, but now I am forced to have to receive and annuity of only £700  - a YEAR ! Oh and of course pay Tax on it...

Not sure I understand. What did Hammond do?
I think you can still take all your money out in one lump... but obviously, you have to pay tax on anything over 25% of the pension fund value. Also, the compulsion to buy an annuity was removed some time ago.

Jalapeno

Gordon Brown fucked the private pension industry right royally, meaning DC pension funds' could no longer make big profits, and hence deliver decent pensions. GB wanted as many people to rely on state pensions as he could muster to create a dependent electorate. We're all living with that now ...

The lump sum whilst fair, did mean that there were some horror stories of people's life savings being trashed.

Strat_a_tat_tat

Jalapeno said:

Gordon Brown fucked the private pension industry right royally, meaning DC pension funds' could no longer make big profits, and hence deliver decent pensions. GB wanted as many people to rely on state pensions as he could muster to create a dependent electorate. We're all living with that now ...

The lump sum whilst fair, did mean that there were some horror stories of people's life savings being trashed.

I guess you're referring to removal of tax relief on dividends inside pension funds (???). Yes, that has had a massive impact on private pensions... and, because pensions are tricky for people to understand, it meant the govt was able to take cash from savers without those savers understanding what was going on.

Jalapeno

Strat_a_tat_tat said:

Jalapeno said:

Gordon Brown fucked the private pension industry right royally, meaning DC pension funds' could no longer make big profits, and hence deliver decent pensions. GB wanted as many people to rely on state pensions as he could muster to create a dependent electorate. We're all living with that now ...

The lump sum whilst fair, did mean that there were some horror stories of people's life savings being trashed.

I guess you're referring to removal of tax relief on dividends inside pension funds (???). Yes, that has had a massive impact on private pensions... and, because pensions are tricky for people to understand, it meant the govt was able to take cash from savers without those savers understanding what was going on.

Spot. On.