New pension rules

atush

Bobl wrote: »

Chill out guys, not everyone is thinking of taking it all now and leaving themselves penniless later.


Interesting link to the 25%, I though it was 25% tax free each year. Oh well back to the drawing board!

Well the OP is thinking of doing it lol. and enough others here it is a worry.

hazelh

The media were at fault there because there were loads of articles where it stated " the first 25% of each withdrawal will be tax free"


Many people talking about withdrawing have quite small pension pots which would probably make very little difference to their income or at least would not set the world on fire. Many others have other sources of income.


From what I have read, these pension freedoms will encourage more young people to invest as they no longer feel they are putting their money into something they are locked into. At least they will be doing more than the group who have never put a penny into a pension and have no pension/lump sum at all.

Paul_Herring

hazelh wrote: »

From what I have read, these pension freedoms will encourage more young people to invest

No. They really won't.

Especially since the government have a record of moving the goalposts every few years.

For example, when I started saving into a pension, I could start taking it at 50. It's now 55, and the government is now talking about moving it up again.

haulyfryn

Just to clarify what I want to do. I intend to draw out 25% tax free each year until all the fund has gone, this I have been told is possible under the new rules from April. I do not intend to take the remaining money as a pension so the tax issue is not relevant. I also have another fund which I am leaving in place until it matures at age 70 or earlier if needed.
I should also like to reply to the comment about " how long you might live and that I want to enjoy the money while I am still young enough".

I certainly don't want to end up in an old people's home thinking about what I should have done during my life, I want to enjoy life.

ONE LIFE, LIVE IT.

jem16

haulyfryn wrote: »

Just to clarify what I want to do. I intend to draw out 25% tax free each year until all the fund has gone, this I have been told is possible under the new rules from April

It will not be possible to take 25% tax free until the fund has gone and you have misunderstood the rules.

For example if you have a £40k fund you can take £10k tax free. The other £30k will always be subject to income tax.

Taking 25% tax free each year means that if you were to make a deduction of £10k each year for 4 years (for example), £2500 would be tax free and £7500 would be treated as taxable income. All of that £10k could be tax free as the £7500 is beneath the personal allowance if you had no other income. If you have other income you will be taxed.

jamesd

haulyfryn wrote: »

Just to clarify what I want to do. I intend to draw out 25% tax free each year until all the fund has gone, this I have been told is possible under the new rules from April.

You can take out 25% tax free from each pot or part of a pot exactly once. The money is then redesignated as a "crystallised" pot and the pension provider tracks this difference and none of them will let you take out any more tax free from that pot or part of a pot again. Nothing in the new rules changes this in any way. The new rules introduce two new options:

1. The uncrystallised funds pension lump sum (UFPLS). 25% of this is tax free and the rest is treated as normal taxable income. Say you had a £40,000 pot you could take out £10,000 a year in four UFPLS drawings. In each of them £2,500 would be tax free and 75% would be taxed. Or you could take it out all at once and £10,000 would be tax free with £30,000 taxed. The first way would be the better tax deal if you have unused personal allowance for income tax because it would save you income tax.

2. Flexi-access drawdown. You can put any part of a pot into this and take up to 25% of that as a tax free lump sum. You can draw the remaining 75% as taxable income whenever you like. Similar to the first way but it allows more flexibility in just when the 25% tax free part is taken because it's not a fixed 25% of each amount drawn.

You've probably been misled by press reports about UFPLS that just didn't mention that it only applies to uncrystallised pots..

haulyfryn wrote: »

I do not intend to take the remaining money as a pension so the tax issue is not relevant.

You already were planning and are planning to take it as a pension. But not as an annuity, which might be what you were thinking of by the word pension. Buying an annuity is pretty daft for those close to state pension age because deferring the state pension will pay out more income for the same money. But annuity companies continue to sell mug punters the annuities instead of telling them to defer instead.

Paul_Herring

haulyfryn wrote: »

Just to clarify what I want to do. I intend to draw out 25% tax free each year until all the fund has gone, this I have been told is possible under the new rules from April.

Then either
1) You have been misinformed or
2) You have grossly misunderstood what you have been told.


I suspect the latter.

Freecall

jem16 wrote: »

For example if you have a £40k fund you can take £10k tax free. The other £30k will always be subject to income tax.

I know that this is only intended to be an example because the OP has not said how big their pot is nor said if they have any other income but in such a case it although subject to tax there could well be no tax to pay.

25% Year 1 £10,000 (£2,500 PCLS / £7,500 drawdown)
25% Year 2 £10,000 (£2,500 PCLS / £7,500 drawdown)
25% Year 3 £10,000 (£2,500 PCLS / £7,500 drawdown)
25% Year 4 £10,000 (£2,500 PCLS / £7,500 drawdown)

or various other permutations

There must be many, many people in this position who are trying to fill financial gaps between retirement and other pension income (such as a deferred FS scheme for example).

This is the group of people who the new freedoms will really benefit. By drawing pension when their marginal tax rate is below their long-term marginal rate (whether that be from below personal allowance into BR or from BR to HR) they are able to manage their affairs in a way that could only have been dreamed of this time last year.

There sometimes seems to be an assumption on these boards and in other places that rapid withdrawal of funds from a pension scheme automatically means some sort of profligate activity.

The freedoms give people tools to better manage their affairs. How they use those tools is obviously a matter of conjecture but I wonder how those predicting doom and gloom would react if the changes were the other way around and the government was moving to an open system to one where people were restricted to taking little more than the GAD rate from their funds.

jem16

Freecall wrote: »

I know that this is only intended to be an example because the OP has not said how big their pot is nor said if they have any other income but in such a case it although subject to tax there could well be no tax to pay.

25% Year 1 £10,000 (£2,500 PCLS / £7,500 drawdown)
25% Year 2 £10,000 (£2,500 PCLS / £7,500 drawdown)
25% Year 3 £10,000 (£2,500 PCLS / £7,500 drawdown)
25% Year 4 £10,000 (£2,500 PCLS / £7,500 drawdown)

Yes, which was why the 2nd part of my post says;

jem16 wrote: »

Taking 25% tax free each year means that if you were to make a deduction of £10k each year for 4 years (for example), £2500 would be tax free and £7500 would be treated as taxable income. All of that £10k could be tax free as the £7500 is beneath the personal allowance if you had no other income. If you have other income you will be taxed.

Which is just exactly what you have repeated.

As the personal allowance next tax year is £10,600 you could actually withdraw £14,133 each year - £3533 tax free and £10,600 which would be tax-free also assuming no other taxable income.

Until the OP gives us the amount in his pot we have no idea as to whether or not this is what he is thinking, although to be honest I suspect not.

Freecall

jem16 wrote: »

....although to be honest I suspect not.

Actually, neither do I although without more information we cannot tell.

Your post was helpful and my comments were not a criticism, they were intended to be more of a reflection on the way that it can be easy jump to conclusions. You just happened to give the £40k example which works very nicely for the OP's four year time frame.

Although I rarely comment, I have seen many posts on here that take one small component of personal finance (particularly pension finance) and draw all sorts of conclusions without knowing all of the facts.

:undecided