Pension Income

jayship

A colleague has a private pension and recently took the tax free lump sum of 25%. She does not want to buy an annuity but draw income of 5% monthly from the pot and remain invested. I believe this will be tax free. She is 60 years old. Any other options available?

Silvertabby

jayship said:

A colleague has a private pension and recently took the tax free lump sum of 25%. She does not want to buy an annuity but draw income of 5% monthly from the pot and remain invested. I believe this will be tax free. She is 60 years old. Any other options available?

Her tax position will depend on her other taxable income, if any.

And if she really does intend to draw 5% of her pot per month, then she very quickly won't have a lot left to remain invested! 

Paul_Herring

 She does not want to buy an annuity but draw income of 5% monthly from the pot and remain invested. 

That pot will last around, and about, 2 years. Probably less.

 I believe this will be tax free. 

Nope. Any withdrawal of the 75% remaining after the PCLS will be taxed as income.
Presuming no other income, anything under £12,500 per year will be taxed at 0%, anything over that at 20% (and 40% over £50,000)

jayship

I understand the pot is worth around K90. Drawing 5% will naturally reduce the pot but hopefully remaining invested will increase the value. Although the annual growth of 5% may not be met from investment.

Thanks Silvertabby and Paul for your input

Paul_Herring

 Although the annual growth of 5% ...

... doesn't match the stated annual withdrawal of 60%...

I think there's some confusion between monthly and yearly numbers over there...

Audaxer

Paul_Herring said:

 Although the annual growth of 5% ...

... doesn't match the stated annual withdrawal of 60%...

I think there's some confusion between monthly and yearly numbers over there...

Yes, I think he must have meant to say drawing 5% annually rather than monthly.

Marcon

If the pot is only worth around 90K, 5% pa is £4.5K, so one can only hope she has other income on which to live.

Any other options? Yes, draw down more or less than 5%.

squirrelpie

Even at 5% a year it's important to realize that the pot may run out before she dies.

jamesd

jayship said:

Any other options available?

How much income does she need?

There's nothing wrong in principle in taking her future state pension amount now then just topping it up with what's left when she gets there.

jayship

Thanks everyone for your input. 
To clarify I should have mentioned a total of 5% per year but taken in 12 monthly instalment. She has no need to draw until she retires or may have to take it earlier if she is made redundant. She is single and no debts or mortgage.  Modest lifestyle.

mark55man

Thank you.  Unfortunate your thread got a bit derailed, by the confusion.

Assuming that the 25% tax free amount has been taken then all the other amount drawn from the pension at whatever rate will be taxable and therefore taxed at her marginal rate. 
Before state pension that will give £12500 that will be taxable at 0% and then the next 37500 will be taxable at 20%.  Assuming state pension of £9K then that would allow £3.5K pension income that could be taken at 0% tax  (probably by then the personal allowance may have increased but you get the point)