April 2015

Francesca7777

Hello, I'm just trying to get updated on the proposed changes in the law whereby at 55 you can take your entire pension in cash, come April 2015. Has this change been 'enacted' yet, or is it still at discussion stages? I'd be grateful if anyone can update me, thanks!

Your_Hero

It will happen by April 2015. But I hope you realise that you may be hit by a big tax bill? 25% will be tax-free, but the 75% will be taxed as earned income (so could be 20%, 40%, or 45%, or a combination). Just because you can take it, doesn't mean it's right for you to.

Francesca7777

Yes I know about the tax bill, but it will be 20% for me, and as the total amount is around £40K I will be taxed 20% of around £30K, which will be around £6K. Not too awful. Not earning otherwise at the moment so none of it will be taxed at the higher rate fortunately. Is this quite definite? Like has it actually been passed, or is it still being 'deliberated'? Thanks!

zagfles

No it's not been passed yet. I would have thought it's very unlikely not to though - a govt which promises something as popular as this then backtracks in election year is going to suffer the consequences at the ballot box!

atush

If you aren't working it would be best to take the 25% year 1, plus the amt of your personal allowance (around 10K). This would leave 20K in the pension to be removed over the next 2 years, hey presto no tax paid!

Or take it out all in year 2, with only 10K being taxed so tax paid down to 2K.

dunstonh

Francesca7777 wrote: »

Yes I know about the tax bill, but it will be 20% for me, and as the total amount is around £40K I will be taxed 20% of around £30K, which will be around £6K. Not too awful. Not earning otherwise at the moment so none of it will be taxed at the higher rate fortunately. Is this quite definite? Like has it actually been passed, or is it still being 'deliberated'? Thanks!

If you are on benefits, then taking the pension would lose means tested benefits. The 75% residual fund is treated as income. So, you would have to declare earnings of £30k or so in that year.

Why do you need £30k in one year? Why not take it as you need it?

Francesca7777

dunstonh wrote: »

If you are on benefits, then taking the pension would lose means tested benefits. The 75% residual fund is treated as income. So, you would have to declare earnings of £30k or so in that year.

Why do you need £30k in one year? Why not take it as you need it?

It wouldn't affect my benefits as I would be using it to buy a place to live straight away. I need it asap as I have to sell my current flat, I can't afford it anymore, and buy something with the equity/sale profit + the pension. I couldn't do it with just the equity, it wouldn't be enough. I will never get another mortgage again, given my age and poor health and imperfect credit file. So I am taking it when I need it - I desperately need it now and even having to wait until next April is going to be touch and go! I should be selling up now but if I did I'd have to go into rented until the pension and that would just add to all the expenses involved (moving twice, paying rent), let alone the difficulty of renting for someone with my circumstances. I wish I was in a position to even follow atush's advice but as I said, waiting til April will be extremely difficult, let alone waiting two years. It's all a bit of a pain! As it stands even with the pension and equity I'm going to have to move to somewhere far less, erm, 'pleasant', than where I live now.

PensionTech

If you're already over 55 and really need the money now, you could potentially just enter capped drawdown this year to claim your 25% now and also take a certain amount from your pension - which, if you're not earning, will probably remain untaxed as the amount you'll be allowed to take won't exceed your personal allowance. Then, come April 2015, you should be able to take the rest, as I imagine capped drawdown arrangements will simply become flexible drawdown arrangements - allowing you to take as much as you want. Spreads your income over two tax years and gets you some of the money earlier, if you are truly truly desperate. Remember though that drawdown charges tend to be quite high at the moment, and it may well be that charges for cashing out your pension will be better in April 2015, as demand and therefore competition for drawdown will increase.

I'm not saying this is necessarily a good idea as I don't generally advocate people raiding their pensions to pay debts etc. - but it's your decision and this is an option potentially open to you.

Speak to TPAS or the Money Advice service for some help.

dunstonh

It wouldn't affect my benefits as I would be using it to buy a place to live straight away.

I'm afraid it would. The £30k is not a capital lump sum. It is £30k income in the year it is taken. So, you would need to declare you income in that year as £30k plus any other income you get. The fact you spent it almost immediately is irrelevant.

So, any means tested benefits would be removed for 12 months due to your income being so high.

Francesca7777

@PensionTech - It's not for debts, it's for buying a place to live. And my pension company doesn't do draw-downs.

@ dunstonh - Actually I got my figures wrong before. Total pension £40K, 25% tax-free lump sum takes us down to £30K, tax allowance takes us down to £20K, 20% tax on £20K is £4K. And the DWP told me that as long as I use the early pension funds AND house sale profit to buy a property within 6 months of receiving it, it will not be seen as income that I have to declare (there's a savings max of £16K otherwise).

dunstonh

Francesca7777 wrote: »

@PensionTech - It's not for debts, it's for buying a place to live. And my pension company doesn't do draw-downs.

@ dunstonh - Actually I got my figures wrong before. Total pension £40K, 25% tax-free lump sum takes us down to £30K, tax allowance takes us down to £20K, 20% tax on £20K is £4K. And the DWP told me that as long as I use the early pension funds AND house sale profit to buy a property within 6 months of receiving it, it will not be seen as income that I have to declare (there's a savings max of £16K otherwise).

The DWP is wrong. It is 30k income. It is possible they are mistakingly thinking is a pension lump sum. That can correctly be used for property in 6 months. it is also not added to income.

You can use this income lump sum to buy a property too but for the purposes of that tax year, you will have to declare an income in excess of £30k. It is recorded under your NI number so cant be hidden. So, any benefits that are payable based on you being a low earner would be taken away for that year.