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New pension rules

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I have a small private pension, which is currently worth around 42K. Hopefully, it'll be worth more by the time I have access to it.

I'm 50 and and currently undecided whether to withdraw money from it under the new rules when I reach 55.

As I understand it, i can withdraw 25% of it as a tax free lump sum and then pay tax on the balance if I decided to withdraw everything.

Would it be possible to withdraw 25% each tax year as a tax free lump sum until the pot is exhausted ?

Any advice would be appreciated.:beer:
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Comments

  • Your_Hero
    Your_Hero Posts: 883 Forumite
    Hyperian wrote: »
    I have a small private pension, which is currently worth around 42K. Hopefully, it'll be worth more by the time I have access to it.

    I'm 50 and and currently undecided whether to withdraw money from it under the new rules when I reach 55.

    As I understand it, i can withdraw 25% of it as a tax free lump sum and then pay tax on the balance if I decided to withdraw everything.

    Would it be possible to withdraw 25% each tax year as a tax free lump sum until the pot is exhausted ?

    Any advice would be appreciated.:beer:
    Theoretically possible - this is known as phased drawdown. In practice, this is not financially viable for you, due to your pot size relative to the cost to arrange this, nor viable for majority of providers.
    Stephen Covey once said that "when you teach once, you learn twice". That is the primary reason for my participation on the forums as an IFA.

    Although I strive to provide accurate information in my posts, there may be the odd time when I fail. Yes I know it's hard to believe but even Your Hero can make mistakes. Apologies in advance.
  • dunstonh
    dunstonh Posts: 119,742 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    I'm 50 and and currently undecided whether to withdraw money from it under the new rules when I reach 55.

    What is it about the new rules that make you think drawing it all at 55 is a good idea?
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • gadgetmind
    gadgetmind Posts: 11,130 Forumite
    Part of the Furniture 10,000 Posts Combo Breaker
    Hyperian wrote: »
    Would it be possible to withdraw 25% each tax year as a tax free lump sum until the pot is exhausted ?

    No, but if you have retired at age 55, you can draw around £10k each year and not pay tax as you'll be within your personal allowance.

    If you won't have retired at age 55, why on earth are you wanting to start drawing down your pension?

    It's sat there in a tax protected environment, invested in whatever assets you want from a very large range, protected from creditors, and outside your estate for IHT purposes.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • Your_Hero
    Your_Hero Posts: 883 Forumite
    dunstonh wrote: »
    What is it about the new rules that make you think drawing it all at 55 is a good idea?


    I was thinking the same thing. All of a sudden everyone wants to retire at 55 or draw it all out.
    Stephen Covey once said that "when you teach once, you learn twice". That is the primary reason for my participation on the forums as an IFA.

    Although I strive to provide accurate information in my posts, there may be the odd time when I fail. Yes I know it's hard to believe but even Your Hero can make mistakes. Apologies in advance.
  • gadgetmind
    gadgetmind Posts: 11,130 Forumite
    Part of the Furniture 10,000 Posts Combo Breaker
    There's nothing wrong with retiring early, if you've planned ahead and made provision,

    What is rather silly is -
    1) Drawing down your pension so quickly that you pay loads of unnecessary tax.
    2) Drawing down your pension and blowing the money rather than ensuring it funds your entire retirement.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • atush
    atush Posts: 18,731 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    You will in all likely hood, live 30 years or more after age 55.

    If you draw it all down then, what will you live on later?

    Lets face it, 42K isn't that great. You need to pay more into your pension as you still have time. If your mtg is paid off, and you have a good savings safety net, think about (while you still have income) putting some of your savings and investments into your pension to get the boost of TR.
  • dunstonh
    dunstonh Posts: 119,742 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    Your_Hero wrote: »
    I was thinking the same thing. All of a sudden everyone wants to retire at 55 or draw it all out.

    You can see some people drawing the money out, paying tax and then putting it in their bank. Not realising what they are doing is wrong.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • gadgetmind
    gadgetmind Posts: 11,130 Forumite
    Part of the Furniture 10,000 Posts Combo Breaker
    But doesn't that show distrust of government and financial services as much as ignorance?
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • lvader
    lvader Posts: 2,579 Forumite
    Part of the Furniture 1,000 Posts Combo Breaker
    I see no indication that the OP is planning to retire at 55, but is presumably talking about withdrawing the money starting from 55 simply because they can!
  • bmm78
    bmm78 Posts: 423 Forumite
    gadgetmind wrote: »
    But doesn't that show distrust of government and financial services as much as ignorance?

    I don't think they are mutually exclusive. It's right to take account of legislative risk, and to be wary of charges and fees. However, doing something monumentally tax-inefficient and counter-productive is not a rational way of protecting yourself against them.

    The reckless spending risk of the budget reforms is overplayed. The greater (but more subtle) risk is people making well-intentioned but irrational decisions that cost them far more in the long-run than the worst annuity rate or the biggest rip-off charge ever would.
    I work for a financial services intermediary specialising in the at-retirement market. I am not a financial adviser, and any comments represent my opinion only and should not be construed as advice or a recommendation
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