UFPLS vs. Flexi-Access Drawdown policy

pafpcg

old_codger1 wrote: »

Why would I want to start paying it in again?

Because if you're a non-taxpayer, HMRC will pay you £720! And if you are a taxpayer, something slightly less. And you can do this every year until you're 75....

Check the thread on this forum for "paying £2880 into pension when retired" here:
https://forums.moneysavingexpert.com/discussion/5580163

You have a couple of weeks to arrange it for this tax year.

old_codger1

pafpcg wrote: »

Because if you're a non-taxpayer, HMRC will pay you £720! And if you are a taxpayer, something slightly less. And you can do this every year until you're 75....

Check the thread on this forum for "paying £2880 into pension when retired" here:
https://forums.moneysavingexpert.com/discussion/5580163

You have a couple of weeks to arrange it for this tax year.

Yeah, I can see what you're saying but, as the point of the exercise is to get the money OUT, (and my intention is to take the absolute maximum amount each year until it's all gone), I'd be paying £2,880 in, getting the extra £720 credited to the pension 'pot' and then having to withdraw it as taxable income which, if my maths is correct, would be the same £720 with which I've just been credited.

The thing is, if I've got £2,880 to spend then I'd want to add that to the 'pot' for my daughter's house purchase which is kinda where we came in The point being to reduce the mortgage borrowing amount for her.

old_codger1

old_codger1 wrote: »

So, to be clear, does that mean I can also take another £5,000 tax free if the withdrawal from my pension pot is my only income?

Actually I DO have a small income which is interest from my savings. That's about 1% of the savings of £65k, i.e. about £650 which, presumably, would reduce that tax-free amount to roughly £4,350.

OR does the fact that I'm taking the pension withdrawal, itself, mean that my 'non savings income' is £27k for this year so above the £16.5k limit you mention.

I'm still not sure I've got this bit straight.

If I'm reading it right the information given here seems to indicate I COULD take the extra £5k in the first payment at 0% tax but then, how does tax allowance for pension contributions combine with tax allowance for PCLS, (I think that's the right acronym ), AND ones normal personal tax allowance.

If so I could take the £5k (0%), £16k (the 25% PCLS) and the £11k personal allowance making a total withdrawal of about £32k this year. if I also take another £11k late April this year I could withdraw £43k within the next month or so.

Does that seem right?

Zanderman

old_codger1 wrote: »

.... I'd be paying £2,880 in, getting the extra £720 credited to the pension 'pot' and then having to withdraw it as taxable income which, if my maths is correct, would be the same £720 with which I've just been credited.....

No, it's a pension, so you can withdraw 25% of it tax-free, so you won't be paying £720 tax.

If withdrawing the £3600 gross is all above your tax allowance - i.e you pay 20% tax on it you won't be paying 20% on the whole 3600 as 25% is tax free. You get £900 tax free and pay 20% on £2700, which is only £540 in tax, less than the £720 uplift..

So for the 2880 you put in you get, after tax, 2700 -540 + 900 which is 3060. That's a £180 gain, a net 6.25% return on the 2880.

If, of course, the taxable 2700 keeps you below or partly below the tax threshold you'll be taxed on less of it.

Dazed_and_confused

So, to be clear, does that mean I can also take another £5,000 tax free if the withdrawal from my pension pot is my only income?

No. The clue is in the name, starter savings rate. This tax rate applies to savings interest only not wages, pension, rents etc (non savings income).

If your non savings income is now going to be £27k then you won't be entitled to the starter savings rate however I don't know quite why the sudden jump in income? Originally you were planning on taking £11k taxable pension so why now £27k?

If you miss out on the starter savings rate then you will still get the Personal Savings Allowance which is upto £1,000 of interest which is taxed at 0%. So overall you are unlikely to have any tax to pay on interest of £650 but you will have a big tax bill if you do decide to take £27k of taxable pension income.

old_codger1

OK! I see what you're saying about the savings rate. Forget that then.

But, again, to be clear...

I don't know quite why the sudden jump in income? Originally you were planning on taking £11k taxable pension so why now £27k?

Because, as stated, the intention is to take the maximum cash out as quickly as possible without paying any tax.

... but you will have a big tax bill if you do decide to take £27k of taxable pension income.

Er... when I said...

So if I'm able to take 25% of the total pension 'pot' of about £67k, (so roughly £16k), PLUS the £11k for this year making a total withdrawal THIS YEAR of £27k.

JamesD said...

Yes, you can do that and it's an efficient way to go. It's PCLS (the 25% ta x free lump sum) on the whole pot with the other 75% placed into a flexi-access drawdown account from which you take the taxable but no eventual tax to pay personal allowance amount.

Also, you, yourself said...

Anything over the 25% PCLS is taxed as non savings income.

So that's right, isn't it?

I can take 25% of the total pension pot of about £67k THIS financial year and also take my maximum tax-free income of £11k THIS financial year as long as that's my only income.

Does that seem right? Based on what I've told you guys, obviously.

fifeken

Can you use the quote function to make your posts easier to follow?

sandsy

old_codger1 wrote: »

Because, as stated, the intention is to take the maximum cash out as quickly as possible without paying any tax.

There's two ways of doing it:

First way: take 25% tax free then the personal allowance each tax year
Second way: take an amount equal to the personal allowance divided by 0.75 each tax year - 25% of this payment is taxfree and the rest will be equal to the personal allowance.

For you, if the personal allowance stayed unchanged at £11,500 (which it won't - we already know it's going up to £11,850 in April) and there was no growth on your remaining funds:

First way = £16750+ £11500 four times + £4250
Second way = £15,333 four times + £5668

Both ways will take 5 tax years to get all the money out tax free. It's up to you to decide which way suits you best.

old_codger1

fifeken wrote: »

Can you use the quote function to make your posts easier to follow?

Yeah, sorry... there were multiply replies and others had bolded some posts so I thought that was acceptable

old_codger1

sandsy wrote: »

There's two ways of doing it:

First way: take 25% tax free then the personal allowance each tax year
Second way: take an amount equal to the personal allowance divided by 0.75 each tax year - 25% of this payment is taxfree and the rest will be equal to the personal allowance.

For you, if the personal allowance stayed unchanged at £11,500 (which it won't - we already know it's going up to £11,850 in April) and there was no growth on your remaining funds:

First way = £16750+ £11500 four times + £4250
Second way = £15,333 four times + £5668

Both ways will take 5 tax years to get all the money out tax free. It's up to you to decide which way suits you best.

Number one looks favourite to me because it gives me more out ASAP to help reduce the mortgage for my daughters house, as discussed.

The daft thing is I had the free pensionwise advice a year or so back and made notes but, when I came to try and make sense of them, I couldn't.

I mean, I THOUGHT that's what I'd discussed with the guy but didn't want to go ahead without checking with somebody who had at least some idea what the situation is.

I suppose, strictly speaking, my situation is relatively straightforward, at least superficially unless you start to examine more complex methods of reducing the tax burden such as the idea of putting some funds into the 'pot' and then taking it out again.

I think I'm going to keep it simple though, tbh.