Drawdown and pension tax?

Dazed_and_confused

As the op's first post stated,

I asked a question the other day about £600,000 pot along with my pension income (state + works) of £12980/y.

then surely he cannot take any taxable income without having to pay more tax. The only thing they could take without having extra tax to pay would be the 25% TFLS (or whatever option applies to this element of the pension)

newhit

Again, sorry for the lack of basic knowledge but, as above, we're not after too much, just a reasonable future/retirement. If I'm not being clear enough I will gladly wait until my IFA appointment.


Many thanx for the replies.

dunstonh

The problem stems for you initially asking how much you can get out a year tax free. That may be the wrong question for your scenario.

Your pension is £600k. So, if you have no requirement for an immediate lump sum, you can draw the 25% tax-free with each withdrawal. So, if you drew £2500 per month, 25% of each withdrawal would be tax free and the other 75% would be taxable.

That is one method. The other, which your thread developed onto was taking none of the 75% but leaving it invested and only drawing the tax free amount. That is actually an unusual method unless you have a very low income requirement. That would require you taking £9600 per month on paper. However, only the 25% is paid to you. The other 75% stays in the pension. That £9600 (and any subsequent amounts each month) have already had their 25% paid. So, you can never get another 25% tax free against that segment.

So, your uncrystallised £600,000 pot is going down by £9600 per month. £2400 is being paid to you tax free with £7200 going into your crystallised pension fund and remaining invested. You can access that crystallised fund at any time in the future but it will be taxed on the full amount above your personal allowance. Behind the scenes, your pension is segmented into crystallised and uncrystallised pots under the one account number. The money lost its just down to tax. That is one of the areas the IFA will help you.

Your fund can sustain £2400 using reasonable assumptions and a reasonable level of investment risk. So, running out is not the issue. However, tax is going to come into play whatever way you do it.

newhit

Many thanx "dunstonh".


We have always used an accountant for most of our working life (top geezer), except when I was in a paid salary occupation. He handled all our finances and we were allowed get on with keeping ourselves above water with our business. I know, seems unlikely with my income/tax knowledge but, I can at least sit down with my IFA keep him interested for a couple of minutes (seconds?) before he gives up.


Once again, many thanx for the perseverance and expert replies of you guys that took the trouble to explain the basics of what we are up against, and what we can reasonably budget for.