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  • FIRST POST
    • shaun1952
    • By shaun1952 13th Feb 18, 3:05 PM
    • 28Posts
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    shaun1952
    Thinking of taking my pension in a lump sum
    • #1
    • 13th Feb 18, 3:05 PM
    Thinking of taking my pension in a lump sum 13th Feb 18 at 3:05 PM
    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
Page 1
    • Silvertabby
    • By Silvertabby 13th Feb 18, 3:40 PM
    • 2,291 Posts
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    Silvertabby
    • #2
    • 13th Feb 18, 3:40 PM
    • #2
    • 13th Feb 18, 3:40 PM
    Are these DB or DC schemes?
    • shaun1952
    • By shaun1952 13th Feb 18, 5:31 PM
    • 28 Posts
    • 4 Thanks
    shaun1952
    • #3
    • 13th Feb 18, 5:31 PM
    • #3
    • 13th Feb 18, 5:31 PM
    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
    • By shaun1952 13th Feb 18, 5:42 PM
    • 28 Posts
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    shaun1952
    • #4
    • 13th Feb 18, 5:42 PM
    • #4
    • 13th Feb 18, 5:42 PM
    One is a stakeholder pension the £15000 , the other is a Group personal pension fro STL .
    Last edited by shaun1952; 13-02-2018 at 5:47 PM. Reason: spelling mistake
    • shaun1952
    • By shaun1952 13th Feb 18, 6:22 PM
    • 28 Posts
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    shaun1952
    • #5
    • 13th Feb 18, 6:22 PM
    • #5
    • 13th Feb 18, 6:22 PM
    Are these DB or DC schemes?
    Originally posted by Silvertabby
    think they are both DC schemes
    • xylophone
    • By xylophone 13th Feb 18, 6:25 PM
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    xylophone
    • #6
    • 13th Feb 18, 6:25 PM
    • #6
    • 13th Feb 18, 6:25 PM
    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
    • By kidmugsy 13th Feb 18, 6:53 PM
    • 10,199 Posts
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    kidmugsy
    • #7
    • 13th Feb 18, 6:53 PM
    • #7
    • 13th Feb 18, 6:53 PM
    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?
    Last edited by kidmugsy; 13-02-2018 at 6:57 PM.
    Free the dunston one next time too.
    • ermine
    • By ermine 13th Feb 18, 7:02 PM
    • 644 Posts
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    ermine
    • #8
    • 13th Feb 18, 7:02 PM
    • #8
    • 13th Feb 18, 7:02 PM
    What is the best way to do this to avoid too much tax
    Originally posted by shaun1952
    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
    • By shaun1952 13th Feb 18, 8:53 PM
    • 28 Posts
    • 4 Thanks
    shaun1952
    • #9
    • 13th Feb 18, 8:53 PM
    • #9
    • 13th Feb 18, 8:53 PM
    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
    • By shaun1952 13th Feb 18, 8:58 PM
    • 28 Posts
    • 4 Thanks
    shaun1952
    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?
    Originally posted by kidmugsy
    Thinking of this , may look at say a 5 year drawn down , thanks
    • xylophone
    • By xylophone 13th Feb 18, 9:21 PM
    • 24,548 Posts
    • 14,397 Thanks
    xylophone
    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.
    • coyrls
    • By coyrls 13th Feb 18, 9:59 PM
    • 944 Posts
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    coyrls
    I am a bit concerned with what may happen to them if BREXIT goes and upsets the stock markets
    Originally posted by shaun1952
    Why? Are all your investments in the UK? I will take a wild guess and say that it is almost certainly going to be something else other than Brexit that will upset the stock markets; perhaps it's already happening.
    • ermine
    • By ermine 13th Feb 18, 10:06 PM
    • 644 Posts
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    ermine
    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 .
    Originally posted by shaun1952
    Over the medium term that's a compounding loss of 1% p.a.

    The obvious answer to BREXIT is, err, don't hold UK mid and small cap stocks, although there's a good argument to be made that most of the hazard of Brexit is already in the price. And yes, valuations are high despite the minor wobblies of late. FWIW Brexit has lifted the nominal value my stock market holdings by about 20%, basically by making the £ 20% smaller, I am internationally diversified. I'm no wealthier in real terms, but it's better than if I'd held it in GBP cash. Cash in GBP is not a safe haven against British collective economic foolery. You're taking that hit in inflation and may take more...

    And yes, the stock market has been on a tear for the last few years, which makes valuations less attractive. I look at Brexit as a way of making myself feel less bad about the plunge that will no doubt happen in the next five years or so

    Take a read of Monevator on passive investing and why. If you've only just retired you could have a possible retirement of 30 years ahead of you. There's now't wrong with keeping your next five years worth of pension in cash, but there's a lot wrong with keeping a stash of three decades' worth in cash.

    The trick to stock market wobblies is to move in slowly over years and move out over years, which integrates some of the volatility over time.

    have some STL shares that have nose dived this last few months.
    Diversify! Nobody should hold a significant percentage of their equity holdings in one company share. Although it doesn't apply to you now, in particular you should get out of shares in your employer ASAP - I took Sharesave because, well, it's rude not to, but got the hell out of those shares as soon as I could. Because if there's one thing worse than taking a hit on shares in the market, it's your employer taking a hit at the same time and losing your job.
    Last edited by ermine; 13-02-2018 at 10:13 PM.
    • shaun1952
    • By shaun1952 13th Feb 18, 10:57 PM
    • 28 Posts
    • 4 Thanks
    shaun1952
    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.
    Originally posted by xylophone
    So I could transfer both the pensions.. £45,000 into a SIPP, would I be liable for any tax on this , I am at my limit for this year ? .Sorry I am trying to learn as I go .. would the Government add anything to the £45.000 or would I be taxed on this amount before it was placed into the SIPP ...Many thanks for all the help .
    • kidmugsy
    • By kidmugsy 13th Feb 18, 11:30 PM
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    kidmugsy
    OP, consider suspending (aka "deferring") your State Pension, so that you can drawdown your other pensions across roughly five years without any income tax to pay, just using your Personal Allowance against income tax.

    Then when you restart your State Pension, it will have increased by 5.2% for each year of suspension, so by about 25% in all, plus inflation-linked rises in the meantime. If you are in good health this is a decent idea if you really want to pay no tax at all on the other two pensions. The extra State Pension is index-linked so you will have inflation-protection built in.
    Free the dunston one next time too.
    • shaun1952
    • By shaun1952 14th Feb 18, 8:33 AM
    • 28 Posts
    • 4 Thanks
    shaun1952
    By the way if I sold my shares would I be liable to pay tax on these , they were company shares in their shares scheme .. may be a better way of getting some savings into my account .
    • Bimbly
    • By Bimbly 14th Feb 18, 8:40 AM
    • 38 Posts
    • 34 Thanks
    Bimbly
    So I could transfer both the pensions.. £45,000 into a SIPP, would I be liable for any tax on this , I am at my limit for this year ? .
    Originally posted by shaun1952
    If you transfer this money to a SIPP, you are not actually taking it out, but maintaining it in a pension wrapper so you will not pay tax on it. Until you take it out.

    So you could, as described above, take a tax free lump sum of 25%, then take out more in each tax year until it is gone. Any extra you will take out will be subject to tax. You can have about £45,000 in income before you pay 40% tax. Anything up to that (45k-13k=£32k) will be taxed at 20%. With the money you have, you could probably do this across two tax years. If the transfer happened quickly, this could be March this year and then April (it might not happen that quickly).

    With SIPP funds, I would imagine you just want to hold in cash. As you'll be taking it out so quickly with little time to worry about charges/inflation.
    • shaun1952
    • By shaun1952 14th Feb 18, 8:43 AM
    • 28 Posts
    • 4 Thanks
    shaun1952
    OP, consider suspending (aka "deferring") your State Pension, so that you can drawdown your other pensions across roughly five years without any income tax to pay, just using your Personal Allowance against income tax.

    Then when you restart your State Pension, it will have increased by 5.2% for each year of suspension, so by about 25% in all, plus inflation-linked rises in the meantime. If you are in good health this is a decent idea if you really want to pay no tax at all on the other two pensions. The extra State Pension is index-linked so you will have inflation-protection built in.
    Originally posted by kidmugsy
    This looks interesting but I want savings I can actually see in a savings account , I worked out roughly if I cash in these pensions plus my shares plus my wives pension pot from the same company I /we will have £80,000 plus in my savings account, then I intend to draw off that carefully over the next 10 + years or so , with interest (around2%) this should last me until I'm around 80 ..I am still alive by then ! ..hopefully we are , I don't think I will need so much money per year to live on ...if I live way behind that then its a bonus but it may be in a nursing home and them having all my house and savings anyway ..
    • ermine
    • By ermine 14th Feb 18, 9:47 AM
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    • 949 Thanks
    ermine
    By the way if I sold my shares would I be liable to pay tax on these , they were company shares in their shares scheme .. may be a better way of getting some savings into my account .
    Originally posted by shaun1952
    Only if you made more than ~£11k Capital Gains. That is the amount you sell it for minus the amount you spent on buying the shares, not the total amount you would realise if you sell the shares now. There are specific terms for transferring sharesave or ESIP into an ISA which let you transfer up to 20k totally tax-free into an ISA but only within 90 days which probably doesn't apply to you?

    The proceeds of the shares is not income and doesn't add to your income tax burden for the year, because you bought the shares from taxable income.
    • ermine
    • By ermine 14th Feb 18, 9:53 AM
    • 644 Posts
    • 949 Thanks
    ermine
    So I could transfer both the pensions.. £45,000 into a SIPP, would I be liable for any tax on this , I am at my limit for this year ? .Sorry I am trying to learn as I go .. would the Government add anything to the £45.000 or would I be taxed on this amount before it was placed into the SIPP ...Many thanks for all the help .
    Originally posted by shaun1952
    You would not be liable for any tax on transferring thepension to the SIPP, provided it is a pension to SIPP transfer, because you are transferring money from one tax-sheltered account to another. Do not under any circumstances draw the money out and pay it into another SIPP, there would be hell to pay of HRT.

    The Government won't add anything to the £45k, because they already added it to the funds you saved into the original pensions, and double-dipping would be considered cheeky, which is fair enough
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