Pension help

Joyful

Hi all



I am sure someone here will be able to give me the answer. I am looking at taking early retirement but am not sure the correct date to do this. If I take a lump sum, do they add it onto may wages for the years and tax me a lot? If this is true should I retire at the beginning of a new financial year? Is that beginning or end April?

HappyHarry

Joyful wrote: »

Hi all



I am sure someone here will be able to give me the answer. I am looking at taking early retirement but am not sure the correct date to do this. If I take a lump sum, do they add it onto may wages for the years and tax me a lot? If this is true should I retire at the beginning of a new financial year? Is that beginning or end April?

It depends;

(i) If you are taking a tax-free lump sum, then this is tax-free.

(ii) If you are taking your entire pension as a lump sum, then 25% of it is tax-free, and the remaining 75% will be taxed as income.

Taking option (ii) above would be very unusual, and you ought to consider speaking to a professional first, or at the very least, make an appointment with Pensionwise https://www.pensionwise.gov.uk/en

Joyful

I have been offered a lump sum then my Pension on top. Thank you for your fast response. Will I then be taxed on my pension as I have already paid tax on my salary up to retirement date? Maybe this is where I am also confused so would I be better starting retirement with a clean slate in April?


I will be taking advice but this has been thrown upon me due to ill health and I am trying to see how I can help myself.

AnotherJoe

You pay tax on your pension income (assuming by pension you mean you get £x per month from BG).
You do not pay tax on a tax free lump sum.
If you've already been paid close to the higher tax rate boundary (about £45k from memory) this year then you might do well to start your pension next April otherwise you'll be paying 40% tax on it.
If you are well past that rate it wont matter.
I take it this is a DB pension? If so you could also look at opening a SIPP and paying a decent sum into it this year as you'll get a 25% top up, if you are 55 or over you can then start withdrawing that. Thats very useful especially if you are a high rate taxpayer now but will be basic rate be next year.

HappyHarry

Joyful wrote: »

I have been offered a lump sum then my Pension on top. Thank you for your fast response. Will I then be taxed on my pension as I have already paid tax on my salary up to retirement date? Maybe this is where I am also confused so would I be better starting retirement with a clean slate in April?


I will be taking advice but this has been thrown upon me due to ill health and I am trying to see how I can help myself.

Your pension will count as income, and will be taxed accordingly.

e.g. if you've earned £30,000 this year already, and your pension is £15,000 per year, then you should expect to pay 20% tax on all your pension this year.

Next year, £11,850 (or whatever the PA is) of your pension income will not be taxed (personal allowance), and the remaining £3,150 will be taxed at 20%.

Joyful

Hi another Joe. I am not a high rate taxpayer. My pension is peanuts which is why I need to know re the tax situation. As I would not be able to pay my way if they took tax off my pension, it will be better to wait until the new financial year. Thanks for your input.

Joyful

Thanks. Don't I wish I earned that lol

atush

I have been offered a lump sum then my Pension on top.

This sounds like a DB/final salary type pension. So is handled slightly differently than DC pensions.

Some have automatic lump sums (and these are tax free) and others have variable TFLS. And you can 'commute' some of your pension into a lump sum (generally a bad idea). Some you c an choose not to take a lump sum, and get a higher pension. Which is indexed annually for life.

Who did you work for?

AnotherJoe

atush wrote: »

Who did you work for?

The sig wasnt clue enough :eek:?