Pension query

sunnyflower

Please can someone explain this to me in simple terms!

I have a small pension lump sum worth £7,205 and I'm going to withdraw it as I'm 55.
They explained that 25% will be tax free, the rest will be taxed at BR.
Try as I might I'm struggling to do the maths :undecided
Then she said that they will send me a P45 and I may get some tax back if I am a normal rate taxpayer.
I have an NHS pension, and my tax relief all goes on that. I have a part-time job and I pay OT on it as I have no tax relief left over.
Also she mentioned a small fund scheme but I didn't quite get that either
Any advice appreciated :money::money:

xylophone

75% of the total will be treated as income for tax purposes and taxed on a Month 1 basis.

£917 tax free, £2677 @ 20% and the balance @40%.

Clearly you are not entitled to receive the £917 tax free but on the other hand, the money, when added to your NHS pension income, and your employment income might still not take you into the 40% band.

You might wish to contact HMRC when you have received the money - they might adjust your codes or require you to complete a tax return at the end of the year.

Also she mentioned a small fund scheme but I didn't quite get that either

Neither do I - possibly she meant you were accessing a "small pot"?

System

Hi

CROSSOVER, I defer to the answer above.

I suspect you have a small pension pot of money with a private provider, although you don't say who it is.

25% of this is a Tax Free Lump sum, if I understand it correctly, and the balance is taxable.

I think your options are to make the withdrawal and be taxed on it as explained, OR possibly have 25% tax free and a small pension.

BUT a little more detail on WHO, WHAT and WHERE this money is would be helpful.

Does this sound familiar, £7,205.00 divide by 4 and that is your lump sum (£1801.25) as quoted to you?

The remainder £5403.75 being taxed at BR rate, that is you pay 20% (£1080.75) and get the remainder (£4323.00), paid to you.

IF you are already a taxpayer elsewhere then I don't see any rebate due.

PLEASE give us more details.

bigadaj

You would normally get 25% tax free, so £1800, and the remaining £5400 taxed as added on top of your other income.

However the pension comoany won't have access to your other income, so you may be taxed on the basis that they assume you will get paid £5400 per month, and soapy some 40% tax. If that is the case then contact Hmrc and you will receive a refund.

sunnyflower

Thanks to you all

Just to make it clearer:
I receive £1100 a month from the NHS ( a bit of it is taxed).
I receive £1260 ish from my job....it's taxed as OT

The pension pot is with Equitable Life. The reason I have one is because in the 1980's I moved my NHS pension to the Prudential....many of us did it at the time as we were advised that it was a far better scheme.

However, several years later, someone ,somewhere realised that NHS staff were not going to be better of at all, so staff were given the option to transfer it back to superannuation. But, there was a limit to what could go back in, I had a bit over from what I'd paid in, but it had to go into another scheme, I wasn't allowed to have my own money back!
So there it's sat all these years!
Thanks again

System

Hi

If you need the cash, nice to take it.

If it sat there for a little longer would it grow?
Because taking it out and putting it an ISA may not get as much growth. Just a thought.

atush

If you dont need it? Leave it.

xylophone

Adding your small pot income to your other income will not take you into the 40% band.

The tax due on the small pot is therefore 20% of £5403 - that is (rounded down) £1080.

However, the pension provider will tax on a Month 1 basis as above, so you will pay £1258.

See https://www.gov.uk/claim-tax-refund/you-get-a-pension

sunnyflower

Thanks all for your help, now to decide where to put it / spend it :beer: