Partial encashment

Lori59

Hi, please can someone tell me if Tax credits are correct in classing a partial encashment of a pension pot as income?
My hubby is 63 so not yet retired and is trying to make the most of an old pension pot which wouldn't pay him much of an income when he retires.

dunstonh

Hi, please can someone tell me if Tax credits are correct in classing a partial encashment of a pension pot as income?

The 25% pension commencement lump sum is tax free and not treated as income.

The 75% taxable portion is taxed as income as it is income. Tax credits will be reduced if you take income (ad-hoc or regular) from this segment.

Lori59

Many thanks for that

jamesd

Do be sure that he doesn't just buy whatever annuity the pension company tries to sell him. It's almost never the best deal.

In the UK the best deal - highest income for life for the money - is usually to use income drawdown to pay an income while deferring the state pension. That causes the state pension to be increased by 5.8% per year of deferral, pro-rated for less than a year. That 5.8% is about twice what a normal annuity would pay to a person in normal good health.

There are three main exceptions: Guaranteed Annuity Rates, Guaranteed Minimum Pension and if his health is worse than normal to produce a reduced life expectancy. In any of those cases it's possible that the annuity might offer a better deal, it needs to be compared. The two guaranteed options are not available for new pension setups but he might have one or both for old pensions.

Lori59

Many thanks, again