Pension question

[Joe Buck]

Has anyone any experience of drawing down from a pension pot. If you draw down £13000 a year and that’s your only income,would you pay tax or is 25% tax free and the remainder below the tax threshold.

[Barry_Chuckle]

Assuming you are aged 55 or over.........

you are able to withdraw 25% TAX FREE
The remainder will be classed as earned income for the tax year you take it out. If you take out £11,500 (current tax year) or less no tax will be payable as you have a personal allowance.

[Joe Buck]

Assuming you are aged 55 or over.........

you are able to withdraw 25% TAX FREE
The remainder will be classed as earned income for the tax year you take it out. If you take out £11,500 (current tax year) or less no tax will be payable as you have a personal allowance.

Thanks for that. I hoped it would be as you’ve said

[levraiclaret]

Has anyone any experience of drawing down from a pension pot. If you draw down £13000 a year and that’s your only income,would you pay tax or is 25% tax free and the remainder below the tax threshold.

Yes I have.

You can draw 25% of your pension pot as a cash free lump sum. The income that you then draw will be subject to tax but you will have your annual tax allowance of circa £11k to set against your annual income.

Hope this helps.

[clarethomer]

if you draw £13000 from your pension, £3250 will be tax free and the remaining will count as income.

if you have no other income - then the rest will fall within your personal allowance.

some pension providers will require you to seek advice.

You may also suffer with a surprise tax charge though so please be ready for this... HMRC may think this withdrawal is a regular withdrawal so you may need to complete a form to recover the tax if they do - which could take a little time to get back.

https://www.telegraph.co.uk/pensions-re ... thdrawals/" onclick="window.open(this.href);return false;

I would recommend that you seek professional advice to make sure you are drawing the income from the best place if you have other assets and savings .

[karatekid]

Is there a preferential time of the tax year to draw the 25% or does it not matter? Also , do you have to draw it in your 55th year or can you draw it anytime after until your retirement date?

[barba]

As above the emergency tax is one to consider but it will depend on how you draw the income. If its regular then PAYE should sort itself out. If as a lump sum then you will need to complete a P50Z, P53Z or P55 depending on your circumstances to reclaim the back.

You'll also be impacted by the money purchase annual allowance once you draw an income

[clarethomer]

Is there a preferential time of the tax year to draw the 25% or does it not matter? Also , do you have to draw it in your 55th year or can you draw it anytime after until your retirement date?

You cannot withdraw a pension before your 55th birthday at present - this will align to 10 years before state retirement age - so increase to 58 and will then move in line with that but that isn't due in until 2028 from memory. There are certain rules you need to consider when you get to 75 but you are free to time the withdrawls as you wish between these times.

You get the 25% of any lump sum withdrawal so you could possibly time them to your advantage if these payments were going to take you into a higher tax band that you currently are - you would do this by making the withdrawals just before and just after the tax year.

Again - the pension has a lot of other benefits which may mean that you are better leaving your pension if you have other assets/investments/savings in place. I would seek advice as getting this wrong can be very costly and not reversed.

[barba]

Is there a preferential time of the tax year to draw the 25% or does it not matter? Also , do you have to draw it in your 55th year or can you draw it anytime after until your retirement date?

Most allow from 55 onwards. There are a couple of considerations at age 75 but these depend on the rules of the scheme.

I recommend phasing quite a bit where you take a bit of tax free and taxable each year and leave rest invested.

The longer you can leave the better in my opinion, but depends on personal circumstances.

Unless people have other assets or guaranteed income I wont advise to draw lump sum just because they can and want to buy caravan, holiday, new car etc. Usually because they will run out of money

[IanMcL]

Keep your pension.

[levraiclaret]

You can draw between the age of 55 and 75 and get the lump sum 25% tax free allowance, but you should ensure that your state pension and the pension (after taking the cash free lump sum) is sufficient for your future needs

[Masham Ale]

I believe this is correct but I am not a financial advisor.
As previously said, you can take £11,500 as a kind of salary without paying income tax. You can add to this each year using the 25% tax free part. If for example your fund was £100k, you would have a £25k tax free portion.
So you could take in year 1, £11,500 'salary' tax free and also add to that some of your tax free portion, say £2k.
So you will have £13,500 tax free
and a fund balance of £86,500
25% of that is now £21,625

If your fund say grows at 5% then:
fund balance = £90,825
25% = £22,706
So in year 2 you could again draw £11,500 + £2,000 tax free again
leaving:
£77,325
25%=£19,331

another 5% growth:
£81,191
25%=£20,298

etc...
So I think unless you need a lump sum on day one, it might be preferable not to take the 25% tax free part in one go as your tax free part will grow (assuming the fund grows), but also use this to boost your tax free annual income.
This obviously assumes you have no other taxable income.

[Joe Buck]

I believe this is correct but I am not a financial advisor.
As previously said, you can take £11,500 as a kind of salary without paying income tax. You can add to this each year using the 25% tax free part. If for example your fund was £100k, you would have a £25k tax free portion.
So you could take in year 1, £11,500 'salary' tax free and also add to that some of your tax free portion, say £2k.
So you will have £13,500 tax free
and a fund balance of £86,500
25% of that is now £21,625

If your fund say grows at 5% then:
fund balance = £90,825
25% = £22,706
So in year 2 you could again draw £11,500 + £2,000 tax free again
leaving:
£77,325
25%=£19,331

another 5% growth:
£81,191
25%=£20,298

etc...
So I think unless you need a lump sum on day one, it might be preferable not to take the 25% tax free part in one go as your tax free part will grow (assuming the fund grows), but also use this to boost your tax free annual income.
This obviously assumes you have no other taxable income.

That’s almost what I was planning. I’ll take professional advice obviously but it only has to last 5 years then other pensions kick in

[Spike]

Thanks for that. I hoped it would be as you’ve said

Provided you haven't already taken your 25% tax free allowance as a lump sum

[Spike]

tax free allowance £11850