Paying £2880 into pension when retired

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  • striker44
    striker44 Posts: 37 Forumite
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    hi,

    i have a personal pension in draw down - dont make any withdrawals - my income is state pension + small monthly employer pension - well within 12,500 tax threshold - can i pay the 2880 into my pp and will they add the 720 - then after 5/4/18 can i draw it all out tax free within my 12500 allowance?

    Many thanks in anticipation of your expert help with this
  • striker44
    striker44 Posts: 37 Forumite
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    hi,

    i have a personal pension in draw down - dont make any withdrawals - my income is state pension + small monthly employer pension - well within 12,500 tax threshold - can i pay the 2880 into my pp and will they add the 720 - then after 5/4/18 can i draw it all out tax free within my 12500 allowance?

    Many thanks in anticipation of your expert help with this
  • bigadaj
    bigadaj Posts: 11,531 Forumite
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    Yes, that should be fine.

    You just need to be careful with the provider you use and their charges for doing this.
  • cloud_dog
    cloud_dog Posts: 6,044 Forumite
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    striker44 wrote: »
    hi,

    i have a personal pension in draw down - dont make any withdrawals - my income is state pension + small monthly employer pension - well within 12,500 tax threshold - can i pay the 2880 into my pp and will they add the 720 - then after 5/4/18 can i draw it all out tax free within my 12500 allowance?

    Many thanks in anticipation of your expert help with this
    Assuming you have the unused allowance for this FY (17/18), then you can do it this FY. Depending on your provider it can take up to 6 weeks to add the £720.

    The only difference is that you would likely be taxed on this years withdrawal (if you were to do it) and you would have to claim the tax back form Mr Tax Man.

    But it would be an extra £720 so, probably well worth the little extra effort.
    Personal Responsibility - Sad but True :D

    Sometimes.... I am like a dog with a bone
  • zagfles
    zagfles Posts: 20,323 Forumite
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    striker44 wrote: »
    hi,

    i have a personal pension in draw down - dont make any withdrawals - my income is state pension + small monthly employer pension - well within 12,500 tax threshold - can i pay the 2880 into my pp and will they add the 720 - then after 5/4/18 can i draw it all out tax free within my 12500 allowance?

    Many thanks in anticipation of your expert help with this
    Only if you're under 75
  • striker44
    striker44 Posts: 37 Forumite
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    many thanks for your quick and very helpful replies - yes 68 - so will do this this tax year as suggested then each year until 75

    Dave
  • where_are_we
    where_are_we Posts: 1,000 Forumite
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    The £12,500 "tax threshold" or personal allowance has only been promised by the tax year 2020 - 2021. The personal allowance for 2018 - 2019 will be announced shortly in the autumn statement and there presumably will be an increase from the present £11,500 allowance for 2017 - 2018. You will pay no tax if the sum of your state pension, employer pension and what you draw out of your pp in any tax year is less than your personal allowance for that tax year. Remember that 25% (£900) of any additional contributions (£3600) you make to your pp can be taken tax free. Depending on your circumstances you may want to maximise your tax free income each year by taking an amount that takes you almost up to your personal allowance.
  • tempus_fugit
    tempus_fugit Posts: 1,189 Forumite
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    Hi, I've been reading through this thread again to reinforce my understanding of how the drawdown works, but I am still a little confused, apologies if I am raking over old ground.

    My query relates to the drawdown and taxation. I am retired with no taxable income so I have the full personal allowance to play with. I put £2,880 into an HL SIPP in July and have just received the tax relief top-up. I understand that I need to leave £1,000 in it for now to be on the safe side, and wish to withdraw £2,600 in one go but I'm not sure what, if any, tax will be deducted. Would it be:

    1) £900 tax free and £1,700 at 20% as they assume that I am a basic rate taxpayer; or

    2) £900 tax free, £1,700 taxed and then they assume that I will be taking £2,600 every month until the end of the tax year, ie £15,600 so I will also be taxed on that amount less the personal allowance (even though there would never be enough money in the account to pay that out) and then claim it back from HMRC?

    I guess the way to find out is to ask for the illustration and it will explain the ramifications of what I decide to do?
    Retired at age 56 after having "light bulb moment" due to reading MSE and its forums. Have been converted to the "budget to zero" concept and use YNAB for all monthly budgeting and long term goals.
  • Dazed_and_confused
    Dazed_and_confused Posts: 6,458 Forumite
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    Neither.

    If you are taking a TFLS this is ignored for tax purposes so you are taking taxable income of £1700 then the emergency tax code is normally used on your first payment and that would mean tax of about £148 would be deducted.

    This can be claimed back from HMRC in the circumstances you describe and a tax code should be issued to your pension provider for use on any further taxable income withdrawls.

    But are you sure you want to take TFLS in full on day one? I think you can take £2600 and split that 25% tax free (£650) and 75% taxable (£1950) which might give you more options longer term and although you'd pay a fraction more tax at the point of withdrawal (£50 more) that would all be repayable based on your op.
  • tempus_fugit
    tempus_fugit Posts: 1,189 Forumite
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    Thanks for the info D&C, that is very clear and helpful. From what you say splitting the withdrawal between TFLS and taxable seems the sensible way to go, and I hadn't thought of that. Thanks very much. :)
    Retired at age 56 after having "light bulb moment" due to reading MSE and its forums. Have been converted to the "budget to zero" concept and use YNAB for all monthly budgeting and long term goals.
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