Pension Freedom

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SallyG wrote: »

http://www.moneymarketing.co.uk/news-and-analysis/pensions/aegon-to-remove-misleading-retiready-promotional-video/2020089.article

"Pensions provider Aegon has vowed to delete a video promoting its Retiready services containing misleading information ahead of next week’s reforms.
The video, which was published on Facebook on 25 March, seeks to illustrate savings options and differences between pensions and Isas, and has recorded more than 81,000 views.
However, it suggests people have to convert 75 per cent of their pension pot into an annuity....

jem16

jamesd wrote: »

If it is the first payment you may pay far too much tax because the pension provider has to assume that you will be doing the same each month, unless you take it all out. So just start with a regular payment for a while then once the pension place has your correct tax code, you'll avoid the big overcharge based on assuming the bit amount every month for twelve months. It's crazy but if you took out say £30,000 you'd be charged tax as if you were going to take out £360,000 during the year even though you don't have that much in the pension.

You keep repeating this information on various threads and in my opinion it's not accurate.

Even with a correct cumulative tax code, you will not avoid an overpayment of tax if the lump sum is taken early in the tax year. This is the way the PAYE system works.

The only way to avoid excess tax on a lump sum is to take it late in the tax year, preferably the last month.

onesixfive

I am almost 54. I have almost 30 years locked in a Deferred Clerical Local Government Pension Scheme (worth over £9k pension & almost £30k lump sum) - I left there in 2006.
I no longer work in Local Govt & my current employer doesn't yet have a pension scheme.
I understand these Local Govt Schemes are treated differently to other schemes. I am currently set to take this at 60.
I would like to take this at 55 if possible - is there any way I could do this?
Possibly using 85 year ruling - or is this only for serving employees ?

jamesd

jem16 wrote: »

You keep repeating this information on various threads and in my opinion it's not accurate.

It when combined with telling HMRC about the planned income for the years is an effective way to avoid paying the income tax appropriate for an annual income from that pension of twelve times the taxable lump sum being requested. It will not eliminate all potential for excess tax but it does eliminate the biggest issue.

jem16

jamesd wrote: »

It when combined with telling HMRC about the planned income for the years is an effective way to avoid paying the income tax appropriate for an annual income from that pension of twelve times the taxable lump sum being requested. It will not eliminate all potential for excess tax but it does eliminate the biggest issue.

A cumulative tax code in April will see exactly the same tax taken as a Month1 tax code in any month. The annual income will have no bearing on the tax code issued (apart from anyone likely to exceed £100k) if this is the only PAYE source.

jem16

sng165 wrote: »

I would like to take this at 55 if possible - is there any way I could do this?

I think you may need your ex employer's permission if taking it before age 60. However I may be wrong as some rules have changed. Perhaps better to start your own thread with LGPS in the title.

Possibly using 85 year ruling - or is this only for serving employees ?

It's not. However this rule only determines the reduction rather than allows you to take benefits early.

http://www.mylgpspension.co.uk/Member-Information/Member-information/Deferred-Member/Retirement-guide/Early-retirement/85-year-rule.aspx

jamesd

jem16 wrote: »

A cumulative tax code in April will see exactly the same tax taken as a Month1 tax code in any month. The annual income will have no bearing on the tax code issued (apart from anyone likely to exceed £100k) if this is the only PAYE source.

It is not necessary for HMRC to issue a cumulative tax code. If they wish they are entirely capable of issuing a non-cumulative tax code or to use BR or to use any of the other codes available to them that will produce the most correct tax level available. I do not assume that when told by the taxpayer of their anticipated annual income HMRC will deliberately choose to issue a tax code that will have income tax deducted at a rate appropriate to twelve times the declared anticipated income.

On a related subject, have you now accepted that it is possible to get 40% income tax relief on a non-earner's £3600 gross pension contribution?

jem16

jamesd wrote: »

It is not necessary for HMRC to issue a cumulative tax code. If they wish they are entirely capable of issuing a non-cumulative tax code or to use BR or to use any of the other codes available to them that will produce the most correct tax level available.

So what you are saying is that they will go against the PAYE rules and just issue what they like? Posts on the tax board have shown this doesn't happen.

I do not assume that when told by the taxpayer of their anticipated annual income HMRC will deliberately choose to issue a tax code that will have income tax deducted at a rate appropriate to twelve times the declared anticipated income.

Tax codes are issued on the basis or personal allowances and deductions. Annual income only matters where there is more than once income stream and a deduction can be made to collect tax that wouldn't otherwise be taken correctly or where the annual income is over £100k.

On a related subject, have you now accepted that it is possible to get 40% income tax relief on a non-earner's £3600 gross pension contribution?

Yes on that one you were perfectly correct.

mgdavid

jem16 wrote: »

A cumulative tax code in April will see exactly the same tax taken as a Month1 tax code in any month. The annual income will have no bearing on the tax code issued (apart from anyone likely to exceed £100k) if this is the only PAYE source.

It seems to me from this forum that the majority of people wanting to DD do have other PAYE income.

jem16

mgdavid wrote: »

It seems to me from this forum that the majority of people wanting to DD do have other PAYE income.

I agree - at the moment that is certainly true.

However going forward with the new pension rules I don't think that will be the case with many wanting to cash in their only pension pot. That is very different to drawdown.