Withdrawal Planning
Most of our clients head into retirement with at least a General Investment Account (GIA), Individual Savings Account (ISA) and Pension. That is also the order in which they spend them. A GIA is the least tax efficient as it is liable to income tax, capital gains tax and inheritance tax. So, the obvious thing to do is to spend this account first and not touch the other two. A GIA should be a combination of all the funds you acquire over a working lifetime, that you didn’t manage to squeeze into the other two accounts.
We often find prospective clients have drawn income from ISA and Pensions before a GIA. One of the hardest mindsets to change in retirement is that you are no longer relying on the concept of income (which has probably been your default for the last 3-4 decades) but instead you need get used to the concept of spending capital. Spending tax inefficient capital is the best way to fund retirement and a GIA can also act as a feeder account to automatically top-up your ISA and pension.
Once the GIA is exhausted you can start drawing capital from your ISA, which is broadly free from income tax and free from capital gains but still liable to inheritance tax.
Your pension is currently exempt from all three taxes and so (in most cases) should be drawn last.
Many clients have other holdings such as property, but property is a poor asset for retirement because it produces income. So generally, we see clients selling their second properties when the GIA runs out so that it can be topped up and the property capital spent.
The aim is to die only owning a main residence (we all need something to keep the rain off) and a pension fund if you haven’t been able to spend it before. This means less and less of the three main taxes as you move towards the end of the retirement journey.
Order of withdrawal planning is available to Altor clients in our Core and Discounted Services.
Nothing on this website or its links constitutes a personal recommendation; the information contained is designed to be informative but not to be relied upon as individual circumstances could affect the relevance of this guidance.