Pension draw down

scarr

Hi All,

OK I have two pensions, one private and one works pension, on my 55th birthday I can drawdown on this private pension. I intend to take the 25% tax free (approx 25k)

I have heard I might incur tax on my company pension contributions.

I pay £1824 pension annually and the company contributes a further 8%

Can anyone tell me if it will or not?

Thanks Steve

eskbanker

The short answer is 'no, you won't incur tax' but worth reading up on why at https://www.moneyadviceservice.org.uk/en/articles/money-purchase-annual-allowance

SonOf

I intend to take the 25% tax free (approx 25k)

Have you considered the consequences for your retirement years? e.g. reduced income in retirement. By taking the 25% up front you have reduced long term tax efficiency and preventing phased drawdown being available to you for that chunk of money.

I have heard I might incur tax on my company pension contributions.

Where have you heard that and in what context?

Can anyone tell me if it will or not?

As long as you do not access a penny of the 75% then no you wont.

scarr

Hi SonOf,

"I have heard I might incur tax on my company pension contributions.
Where have you heard that and in what context?"

I'm not sure where I heard it tbh.

Regarding the "don't touch a penny" so what happens if I take 5k more out this year apart from getting taxed on it (5k will keep me below the 40% tax threshold)

Thanks for your help so far.

Steve

Albermarle

I think there is some confusion .

You said you wanted to take out the 25% tax free lump sum. You can do this without causing any tax problems .
If you withdraw any of the remaining 75% , it is taxable and also restricts your ability to contribute to pensions in future.

The question from Sonof , was why do you want to take the 25% tax free sum out of the pension?
Sometimes people take it out for no good reason , just because they can .
Unless you need this money for something specific it is usually best left in the pension.

Pension_Geek

Is the 8% of your salary? What's the total contribution when you add yours to your employer?

WHen you say 5k, do you mean £5k PCLS (Pension Commencement Lump Sum) or £5k of taxed income (ie on top of PCLS, so from the residual £75,000).

If you take as much of a penny of income other than PCLS from a drawdown arrangement you will trigger the reduced MPAA, and therefore possibly have to cease either personal or employer pension contributions.

steve0510

Pension_Geek wrote: »

Is the 8% of your salary? What's the total contribution when you add yours to your employer?

WHen you say 5k, do you mean £5k PCLS (Pension Commencement Lump Sum) or £5k of taxed income (ie on top of PCLS, so from the residual £75,000).

If you take as much of a penny of income other than PCLS from a drawdown arrangement you will trigger the reduced MPAA, and therefore possibly have to cease either personal or employer pension contributions.

Spot on. Exactly what I was going to say

quirkydeptless

Albermarle wrote: »

The question from Sonof , was why do you want to take the 25% tax free sum out of the pension?

To put it into an ISA?

Albermarle

To put it into an ISA?

If you mean a Stocks and shares ISA , then there is no point .
All you will have done is moved the money from investments in the pension, to investments in the ISA.
In doing so you will have closed off a couple of drawdown strategies for the pension and the money in the ISA is now potentially exposed to inheritance tax , whereas in a pension it isn't .

It can make more sense to put it into a cash ISA , if you think that you want a cash buffer , but even then the OP is only 55 so would be best to stay invested .

The only good reason to take the 25% TFLS is you need it for something specific ( ie to spend it) otherwise it is best left in the pension , except in very specific circumstances.