£47K Pension Pot - Flexible Income D/down?

dimer

hi - my private pension matured about 2 months ago & i have a pot of £47k.
after working 43 years i've had to retire due to ill health & receive about £109 esa- it's presently my only income.

after researching the mine-field of info i think that a fexible income drawdown "might" suit me.

i would take the 25% cash free & an annual drawn downs of around £5k.

apart from other issues my main confusion is about the tax on the taxable drawdowns - i was told 40% would be taken at source & then adjusted at the end of "the year" according to my real taxable income - is that true?

can anyone please advise regarding with other info greatly appreciated.

zagfles

Pensions are usually paid via PAYE so if you take the whole £5k in one go you could end up paying a lot more tax than you should and have to claim it back, but if you take £400 a month say it should get the tax right. But like changing jobs it sometimes takes a while to get the tax sorted.

xylophone

Be careful - https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/417473/pension-flexibilities-dwp-benefits.pdf

You might wish to put your question on the benefits board, stating your age and the type of ESA you receive?

And see https://www.pensionwise.gov.uk/

With regard to drawing your pension, it is quite likely that the tax will not be correct on your first payment as the pension payer will not have a code from HMRC.

See http://adviser.royallondon.com/news/pensions/2015/april/emergency-tax-and-lump-sum-withdrawals/

http://www.pruadviser.co.uk/content/knowledge/technical-centre/taxation_on_pension_income/

dunstonh

apart from other issues my main confusion is about the tax on the taxable drawdowns - i was told 40% would be taken at source & then adjusted at the end of "the year" according to my real taxable income - is that true?

Only on ad-hoc withdrawals. Regular withdrawals get given a tax code.

dimer

further to my post & thanks for all previous replies.

i contacted my pension scheme provider & they confirmed that the d/down would be taxed at source = 40% & i would need to claim it back at the end of "the year" after which i would probably have to wait until july for a refund.

i am going to take a £400/month d/down.

atush

Have you checked if you will lose some/all of your ESA due to this new income?

xylophone

You have a pension pot of £47,000.

You plan to take the 25% PCLS - £11,750? This will be tax free.

You then plan to set up a regular withdrawal of £400 a month.

Even if you provider uses the 1100L month 1 code for this first income withdrawal , it would be free of any tax?

And in due course the pension provider should receive a code from HMRC so that the pension is correctly taxed.

And even if you had been incorrectly taxed it would have been possible to claim an in year refund from HMRC - see links above.

Have you checked the effect of the regular pension income on your ESA?

jamesd

If you take £400 a month drawdown only the first month will have higher tax and you'll get it back during the rest of the year after the scheme receives a tax code from HMRC. Given the ESA income you'd get it all back and end up paying no income tax.

Your benefit situation is something that you need to consider carefully. Help with council tax in particular can have low savings limits in the couple of thousand Pounds range.

Your age also matters, have you reached Pension Credit age yet?

CAB do excellent benefits checkups and it's well worth seeing them if you haven't done it already.

dunstonh

dimer wrote: »

further to my post & thanks for all previous replies.

i contacted my pension scheme provider & they confirmed that the d/down would be taxed at source = 40% & i would need to claim it back at the end of "the year" after which i would probably have to wait until july for a refund.

i am going to take a £400/month d/down.

Contact your provider again as that is not correct unless
a) it is being processed as a series of ad-hoc withdrawals (some are do it that way for flexi-access phased drawdown)
b) you have other income that a tax code will be allocated to
c) it is an ad-hoc payment and not a regular.

dimer

dunstonh wrote: »

Contact your provider again as that is not correct unless
a) it is being processed as a series of ad-hoc withdrawals (some are do it that way for flexi-access phased drawdown)
b) you have other income that a tax code will be allocated to
c) it is an ad-hoc payment and not a regular.

i phoned the FAD provider again, who was also my pension scheme provider & they said 40% was correct because they said my income could change during the year & that hmrc are just covering themselves with the 40% (??)

however they phoned back saying that they could not offer a FAD anyway as my pot was less than £50k.

dimer

atush wrote: »

Have you checked if you will lose some/all of your ESA due to this new income?

thanks - will need to check that out