Lump Sum Taxation

JAGUAR306

My Wife has a closed pension with a fund of £31000. I understand that she can take 25% Tax Free and then draw down the rest with each additional lump sum being taxed at her nominal rate of tax 20%. However she is going to retire early and will only have an annual income of £3542. My question is if she has not reached her personal tax allowance then will part of any pension draw down lump sum be tax free until her personal allowance is reached, with the remainder being taxed at 20% ??

Jerben

Yes,... if the pension provider will allow the drawdown in the way you describe? Some do, some don't.
Or you could consider transferring the pension to a provider which allows this. But before doing this, there are other things to consider, eg guarantees, fees, etc..
Some tax would initially be taken, but can be reclaimed through HMRC.

xylophone

What type of pension is this?
Is it a deferred Defined Benefit pension or a Defined Contribution pension to which she no longer contributes?

If the latter, are there any guarantees with the pension?

If not DB or DC with guarantees, then in principle she can take 25% PCLS and draw down sufficient of the remainder over the next 2-3 tax years to remain within the personal allowance.

Her current provider may not offer drawdown so she would have to transfer out to a provider that does.

A relative found Hargreaves Lansdown helpful with the transfer of a small pension pot and other posters have also found this.

There are other providers who accept transfers and facilitate drawdown.

Pension Wise may assist your wife.

https://www.pensionwise.gov.uk/?gclid=CL2t7ai9x8sCFSWu2wodPkAFdA