How many 25% tax free lump sums can be taken from a pension fund after 55

Pookie66

I will be 55 next year and will be combining 3 pension funds into one fund for drawdown purposes. Has the single 25% tax free lump sum rule  changed?

Albermarle

If you mean that after combining the three pensions , then assuming they are all DC pension , you can  take out 25% of the combined fund tax free. If you transfer to a modern pension there will be other options , such as only taking part of it and the rest later .
Do you have plans for the tax free money ?, as unless you are going to spend it then normally it is best left in the pension until you do need it .

clive0510

so the 25% is tax free, and when you draw your actual pension its tax free up to 11k pa? am I correct?

garmeg

clive0510 said:

so the 25% is tax free, and when you draw your actual pension its tax free up to 11k pa? am I correct?

The personal tax free allowance is £12,500 or £13,750 if your spouse has donated 10% of their personal allowance to you.

Albermarle

Some people crystallise and take out £16,666 a year .
£12,500 is taxable , but not actually taxed as it is not over the £12,500 personal allowance if there is no other taxable income .
+ £4166 tax free ( 25% of £16666) . This is one of the reasons not to be too hasty taking out the full 25% tax free from your pension as it can give you more options .

clive0510

if I knew how long I gunna live it would enormous help. I got visions of putting all this money away and dying before I had chance to spend it. its not like the old days where you worked all your life and when you retired the state looked after you.

clive0510

I do know a couple who both took early retirement. sold there house and use the money they got for it to live in rented accommodation, go on holiday to the far east twice a year, and just live life. the idea is once all there money is gone the state will have to look after them. its not the way I'm going to do it, but each to there own.

Albermarle

clive0510 said:

if I knew how long I gunna live it would enormous help. I got visions of putting all this money away and dying before I had chance to spend it. its not like the old days where you worked all your life and when you retired the state looked after you.

I think maybe you are looking at the past with rose tinted spectacles .
In any case , if you want to take out the 25% tax free and enjoy it then that is entirely a rational decision .
However many people take it out of their pension just because its there and it ends up in a savings account . In this case it is best left in the pension.

Silvertabby

clive0510 said:

I do know a couple who both took early retirement. sold there house and use the money they got for it to live in rented accommodation, go on holiday to the far east twice a year, and just live life. the idea is once all there money is gone the state will have to look after them. its not the way I'm going to do it, but each to there own.

The likely result of that is that after the first death the survivor will have to live on just £175 per week.  Even with housing benefit paying for some of the rent, that's not a good plan if they have other options.

dunstonh

 Has the single 25% tax free lump sum rule  changed?

Not since it was introduced in 1988.

so the 25% is tax free, and when you draw your actual pension its tax free up to 11k pa? am I correct?

That is one method.  it is not the only method.

if I knew how long I gunna live it would enormous help. I got visions of putting all this money away and dying before I had chance to spend it. its not like the old days where you worked all your life and when you retired the state looked after you.

And typically died within 2 years of that.  The state has never really looked after you.  It has always taken you up to the breadline.   Although in some areas, there were some advantages.  There used to be a joke in Norfolk that when you retired, you got a pay rise as the state pension and little occupational/personal pension was more than the average earnings for the area.   

AlanP_2

dunstonh said:

 Has the single 25% tax free lump sum rule  changed?

Not since it was introduced in 1988.

so the 25% is tax free, and when you draw your actual pension its tax free up to 11k pa? am I correct?

That is one method.  it is not the only method.

if I knew how long I gunna live it would enormous help. I got visions of putting all this money away and dying before I had chance to spend it. its not like the old days where you worked all your life and when you retired the state looked after you.

And typically died within 2 years of that.  The state has never really looked after you.  It has always taken you up to the breadline.   Although in some areas, there were some advantages.  There used to be a joke in Norfolk that when you retired, you got a pay rise as the state pension and little occupational/personal pension was more than the average earnings for the area.   

For those of us in Suffolk there are a lot of jokes related to Norfolk 

But you do raise a point worth thinking about which I thionk we lose sight of on here sometimes. For many people the SP is a major part of their retirement income, for many on here it is only a small element. There is a self selecting set of contributors on here who have an interest in pensions, investments and retirement planning, unlike probably 90%+ of the general population.