Thinking of taking my pension in a lump sum

shaun1952
shaun1952 Posts: 28 Forumite
in Pensions, annuities & retirement planning
Hi
What would be the costs in terms of tax if i was to take all of my pension pots now i have retired. ? I have 2 old works pensions , one has £15,000 , the other £30,000 .
I would like to take these and then put the total into a savings account or Bonds .
I am concerned that i may pay 40% tax if this total is added to my pensions i get now (total of £13,000 per year , including my OAP ) .
What is the best way to do this to avoid too much tax .

Thanks Shaun
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Comments

  • Silvertabby
    Silvertabby Posts: 9,011 Forumite
    First Anniversary Name Dropper Photogenic First Post
    Are these DB or DC schemes?
  • shaun1952
    shaun1952 Posts: 28 Forumite
    Sorry i don't know what they are .. i have had these the last few years of my work years.
    Can you please explain the difference .
  • shaun1952
    shaun1952 Posts: 28 Forumite
    edited 13 February 2018 at 6:47PM
    One is a stakeholder pension the £15000 , the other is a Group personal pension fro STL .
  • shaun1952
    shaun1952 Posts: 28 Forumite
    Silvertabby wrote: »
    Are these DB or DC schemes?
    think they are both DC schemes
  • xylophone
    xylophone Posts: 44,335 Forumite
    Name Dropper First Anniversary First Post
    It would seem that these are both DC schemes.

    You could book an appointment with Pensionwise to discuss your options.

    https://www.pensionwise.gov.uk/en?gclid=EAIaIQobChMI_-Dnorqj2QIVLbftCh1KzAgvEAAYASAAEgLC-vD_BwE

    You would be able to take a tax free 25% lump sum from each of the pensions - the balance would be taxed as income in the tax year of receipt.

    https://www.litrg.org.uk/tax-guides/pensioners-and-tax/what-tax-position-when-i-take-money-my-pension-flexibly

    You might encash the smaller pension in one tax year and the larger in another so as to stay within the 20% band.

    You would need to check the amount of tax actually deducted by the pension provider because it might not be correct in your situation.

    You are aware that interest rates on deposit accounts are currently below (often well below) the rate of inflation?
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
    First Anniversary Name Dropper First Post Combo Breaker
    edited 13 February 2018 at 7:57PM
    How big is your State Retirement Pension? Is it the new-style pension? (if your birth year is 1952, and you are male, I suppose it would be.) Are you prepared to drawdown those two pensions over the course of a few years so as to minimise the tax you pay? Are you in good health?
    Free the dunston one next time too.
  • ermine
    ermine Posts: 757 Forumite
    Photogenic First Anniversary First Post
    shaun1952 wrote: »
    What is the best way to do this to avoid too much tax

    To spread it out over enough years to draw it out such that your total taxable income is less than the higher-rate threshold, roughly 45k.

    Thus a max of £32k p.a.
    total into a savings account or Bonds
    That sounds like a really terrible idea, though I suppose it depends on what the pension is invested in. Sure, you'll save on tax. And lose to inflation, which is a different sort of taxation ;)

    Consider the value of an ISA, and learn the difference between saving and investing, because that's important unless you have less than about ten years to live.
  • shaun1952
    shaun1952 Posts: 28 Forumite
    yes i retired in August 2017 my state pension is the £159 . Think the best option will be to cash in the £15000 in April for the new tax year then the other rate year after .
    I am a bit concerned with what may happen to them if BREXIT goes and upsets the stock markets . I have some STL shares that have nose dived this last few months.
    The savings market is no good i know but 2% is better than non .
    :)
  • shaun1952
    shaun1952 Posts: 28 Forumite
    kidmugsy wrote: »
    How big is your State Retirement Pension? Is it the new-style pension? (if your birth year is 1952, and you are male, I suppose it would be.) Are you prepared to drawdown those two pensions over the course of a few years so as to minimise the tax you pay? Are you in good health?
    Thinking of this , may look at say a 5 year drawn down , thanks
  • xylophone
    xylophone Posts: 44,335 Forumite
    Name Dropper First Anniversary First Post
    I suppose that you could consider transferring both pensions to a SIPP in this tax year, taking the 25% PCLS from the combined funds and moving the approx £11500 into (if eligible) a Nationwide Flexdirect account, a TSB plus account and a couple of Tesco current accounts if you can drum up the required 3 DDs for each.

    https://www.google.co.uk/search?q=SIPP+HL&oq=SIPP+HL&aqs=chrome..69i57j0l5.5760j0j8&sourceid=chrome&ie=UTF-8

    You could then draw down as much from the SIPP over the next couple of years as kept you within 20% tax band in each year.
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