Cetv

Davo58

:j:jHello all
I have just received my CETV from a deferred pension with a view to looking into drawing it out. It's valued at £171,000. I do hold another final salary pension, so it's not my only option. Looking into the tax burden i think it's in the region of £25,000+adviser fee's, do you pay tax on a draw down product? I haven't made a decision yet. Also does anybody know of an adviser that charges less than 3%
Thanks for any response.

dunstonh

Looking into the tax burden i think it's in the region of £25,000+adviser fee's, do you pay tax on a draw down product?

The product has no tax but the drawdown will.

Looking into the tax burden i think it's in the region of £25,000

Assuming you have no other income, it would be more like £45,000 tax.

Also does anybody know of an adviser that charges less than 3%

Yes. However, seeing as what you want to do sounds like a missale in waiting, I suspect you would be looking at many advisers not offering their services.

jamesd

For defined contribution pensions you can take 25% tax free.

The remaining 75% can be placed into a pension drawdown account. Money from this part is taxable PAYE income without NI in the tax years in which it is taken. Unless you desperately need the money to avoid something like prison time it's likely to be far better to take this over several tax years than making HMRC grin in delight by taking it all at once and paying the maximum amount of tax possible.

If you were to take the whole £128,250 taxable part in one tax year you'd pay at least £44,600 in income tax, more if you have other taxable income. One of many tax calculators for this is at Aviva. Put £171,000 as the amount to take, click on the 25% of each withdrawal as tax free cash button then on the calculate button.

Now change the amount to £85,500 to see what happens if you spread it over two tax years. Tax for that is £14,350 twice, total of £28,700. You just saved yourself £15,900 that you get instead of HMRC.

Now try three years, £57,000 each year. £6,250 times three of income tax, total £18,750. That's £25,850 less tax than the one year plan and £9,950 less than the two year one. No 40% income tax to pay with this plan if you have no other taxable income so that's most of the potential tax saving in place.

As you can see, the tax costs of taking it all at once are so high that it's normally going to be far better to take a mortgage and repay that over time than to pay the tax cost.

sandsy

Davo58 wrote: »

:j:jHello all
I have just received my CETV from a deferred pension with a view to looking into drawing it out. It's valued at £171,000. I do hold another final salary pension, so it's not my only option. Looking into the tax burden i think it's in the region of £25,000+adviser fee's, do you pay tax on a draw down product? I haven't made a decision yet. Also does anybody know of an adviser that charges less than 3%
Thanks for any response.

An adviser is there to tell you whether it's likely to be the right thing for you to transfer, not just to do it for you. So the advice will look at what you might get from the DB scheme and what drawdown could give you as an alternative, but explain the risks associated with drawdown, and explain the tax position.

Dazed_and_confused

You could pretty easily manage to pay no tax on the £171k but it all depends on your other taxable income and how long you're willing to spread the payments/draw down over?

See jamesd's post for a start.

Davo58

Wow thank you there is a lot here for me to consider, that tax figure is frightening

dunstonh

Davo58 wrote: »

Wow thank you there is a lot here for me to consider, that tax figure is frightening

It is and those figures assume you have no other income. If you do, it will be higher still.

AlanP_2

You only pay the tax when you take the income remember, transferring out doesn't trigger a tax charge.

Do you need it all as one big lump sum or were you thinking of taking a smaller amount each year to supplement your other income?

Davo58

Thank you all again. i do have a taxable income of £24000 also, my initial thought was to take it all in one go, but with the higher rate tax figure, i am wavering. If i go at 64 then i have another 6 yrs to go.

dunstonh

i do have a taxable income of £24000 also, my initial thought was to take it all in one go,

That brings the tax to £50k

Why do you think you have the need to draw so much cash from the pension? Why can the money not stay in the pension?

Davo58

My initial thought train was the figure of £171,000 is roughly 29x my pension, if i drew my pension at 64, i would need to live to 93 to get that amount. With the best will in the world i will not be around that long. So i was going to use age 85 and divide the cash accordingly to increase the yearly pension. Bearing in mind i have a small annuity of £125.34 pcm and another final salary scheme.