Can i take all my private pension over 5 years

[Worndownbylife]

I planned on retiring at 62(I am 56 now). All my figures are in place and look good at 62. But I have recently discovered an old pension pot I had completely forgotten about (private pension). The pot is £85,000. My question is this...can I take the £85,000 pot and retire 5 years earlier at 57 (example £85,000/5 = £17,000 per year for 5 years). So I could retire at 57 and the pot (and some savings) would take me to 62?? Obviously, I will seek the help of a financial adviser, but I am just testing the waters at this stage.

Is it a defined benefit or a defined contribution pension?

It depends on the type of pension and also worth bearing in mind some of what you take will be taxable income.

If it's a DC pension and you take all of the £85,000 in one go you will pay around £13k in tax. Alternatively, you could drawdown £17k a year for 5 years and pay around £900 tax per year.

Yes, I did this and retired at 58!
I had four private pensions, I took two as drawdown pensions and two as annuities.
I received my state pension at 67, when one of my drawdown pensions finished.
Best decision I have ever made 👍

Sorry, forgot to mention it's a defined contribution. I understand 25% would be tax-free (£17,000) so year 1 would be no tax. But years 2,3,4,5 would be taxable above my personal allowance.

There are various options to optimise tax, it's really really worth making an appointment with Pensionwise www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

It's a free government backed service and they are very knowledgeable. It opened my eyes to a few options and I thought I was pretty well informed beforehand

There are also various calculators online such as Which www.which.co.uk/money/pensions-and-retirement/pensions-and-retirement-calculators/income-drawdown-calculator-apGro3m61agC

Just watch out for anyone wanting to sell you a product or charge you a fee - you likely won't need either

Cross posted with your update. You can earn £12,500 each year tax free so it might be worth doing an uncrystallised drawdown - hard to explain in a few words but effectively you would draw down x amount of pension (in your example) £17,000 of which 25% would be tax free = £4,250 and the remaining £12,750 is taxable of which £12,500 is your tax free allowance so you would only pay tax on £250, increasing your net income!

If I haven't explained that well, the Pensionwise service I linked in previous post explains it brilliantly

Thank you very much, everyone. Definitely some food for thought here. I will seek the help of a professional on this, but I am now a bit more clued-up. So thanks again

Wow what a find OP! I hope this works out for you!

This is what I'm planning to do . If you withdraw less than the tax threshold £12.5K can you then claim tax back if they tax you ? I think there is a loophole that lets you do it .

@Fruitynutcase
To be honest it's 10 years ago and I can't remember what happened regarding tax!

Might be also worth considering whether if you retire at 56 what the impact on your state pension might be.

Basically you need 35 years worth of contributing years in your NI record to get a full state pension (I'm simplifying quite a bit), so retiring 6 years early might reduce it quite substantially, depending on how many years you currently have.

You can check where you are currently re the state pension, details here
Check your State Pension forecast - GOV.UK (www.gov.uk)

Thanks for the advice. I have already checked this out, and I hit 35 years in April 2022.

Hitting 35 years isn't your goal, that's a misleading headline. Everyone in your / our age group has a personalised forecast which is key to check on gov.uk. I've done more than 35 years but have not yet earned a full SP due to membership of a DB scheme in the 90s.

Your plan sounds like it's definitely worth more exploration and could be feasible. A couple of things to add - you can take the tax free amount in one go or each withdrawal could be 25% tax free - that option might work better for you. Secondly the key is does £15-20kpa cover your expenditure?

Hi Chewbacca and thanks for the reply. I have checked my pension forecast and I qualify for a full state pension at 67. I like the idea of withdrawing from my pension with each amount being 25% tax-free. My plan is to draw £17,000 from my pension over 5 years (emptying the pot completely.) But I am in a good position financially and due to the better interest rates I have locked a large amount of cash away for the next 5 years @ between 4.5% and 5% which will generate £15750 per year, so my total income will be £32750 for the next 5 years starting Jan 1st 2024. That takes me to my 62nd birthday when my workplace pension starts and my 5-year savings bonds kick out. I have worked out that I can have roughly the same every year (£32-34,000) until I reach 94 (if I make it that far) then my savings will run out, and I will have just my state pension and my workplace pension. But at 94 that would be enough I think.

I’m planning on doing the same. I had one DB pension starting at 60 and another I’ll get at 67 but have a DC pot that I plan to draw down over the 7 years.

Rishi will be very cross at all you over 50s retiring early instead of getting a job with Deliveroo!

Good luck with your retirement, Bestiswest. On the first day of my retirement (January 2nd 2024) I plan on getting up early and going to site outside my local coffee shop and wave to all the poor souls on their way to work.

I’m 6 months in, it’s lovely!

Rishi will manage just fine without me. I know I will undoubtedly manage fine without him!!

It's marvelous, no more Sunday night blues, no more early rainy mornings!
The joy I used to feel on Monday mornings when I retired - lasted a long time ..... 😂