Stakeholder Pension Thicko

jonB

Hi, I'm slightly confused by the pension rules for taking a lump sum at 55.  Background, I have a Virgin Stakeholder pension, stopped paying into it ten years ago, it has £4500 give or take sat in it at the moment and that sum fluctuates, sometimes widely day to day (mostly losing money). I stopped working a year and a half ago to care for a family member. I receive no welfare payments, have no income and don't pay tax or NI. I'm supported by my child's mother. I intend to do this for another year.  I have two preserved work pensions that coupled with my state pension, will be more than enough to live on in retirement. 

My question is, I'm 55 in June this year. I would like to cash in the full amount of the Virgin Stakeholder pension in June. The £4,500 would be my full income for the tax year 2021/2022, so would I pay any tax on this taking it in one go?  If not, would it be 'taxed at source' by Virgin, then I would I have to wait until the next tax year 2022/2023 to claim the tax back, or would Virgin just send me a cheque for the full amount and a letter stating 'sort your own tax affairs out yourself'?

Thank you for any advice. Apologies for my ignorance regarding pension rules.

Dazed_and_C0nfused

jonB said:

Hi, I'm slightly confused by the pension rules for taking a lump sum at 55.  Background, I have a Virgin Stakeholder pension, stopped paying into it ten years ago, it has £4500 give or take sat in it at the moment and that sum fluctuates, sometimes widely day to day (mostly losing money). I stopped working a year and a half ago to care for a family member. I receive no welfare payments, have no income and don't pay tax or NI. I'm supported by my child's mother. I intend to do this for another year.  I have two preserved work pensions that coupled with my state pension, will be more than enough to live on in retirement. 

My question is, I'm 55 in June this year. I would like to cash in the full amount of the Virgin Stakeholder pension in June. The £4,500 would be my full income for the tax year 2021/2022, so would I pay any tax on this taking it in one go?  If not, would it be 'taxed at source' by Virgin, then I would I have to wait until the next tax year 2022/2023 to claim the tax back, or would Virgin just send me a cheque for the full amount and a letter stating 'sort your own tax affairs out yourself'?

Thank you for any advice. Apologies for my ignorance regarding pension rules.

You don't need to pay tax upfront if you don't want to.

If your total taxable income in the year is just £3,375 them you simply need to take a small initial payment of less than £1,042.

The pension company will use the emergency tax code (1250L) on a non cumulative basis and no tax will be deducted.

You will then be allocated a new tax code by HMRC, quite possibly the emergency code of 1250L on a cumulative basis, and you can then, subject to how far through the tax year we are, take the rest of the taxable income without paying tax.

jonB

Thank you Dazed and Confused.  Sounds like a plan!

Brynsam

Dazed_and_C0nfused said:

jonB said:

Hi, I'm slightly confused by the pension rules for taking a lump sum at 55.  Background, I have a Virgin Stakeholder pension, stopped paying into it ten years ago, it has £4500 give or take sat in it at the moment and that sum fluctuates, sometimes widely day to day (mostly losing money). I stopped working a year and a half ago to care for a family member. I receive no welfare payments, have no income and don't pay tax or NI. I'm supported by my child's mother. I intend to do this for another year.  I have two preserved work pensions that coupled with my state pension, will be more than enough to live on in retirement. 

My question is, I'm 55 in June this year. I would like to cash in the full amount of the Virgin Stakeholder pension in June. The £4,500 would be my full income for the tax year 2021/2022, so would I pay any tax on this taking it in one go?  If not, would it be 'taxed at source' by Virgin, then I would I have to wait until the next tax year 2022/2023 to claim the tax back, or would Virgin just send me a cheque for the full amount and a letter stating 'sort your own tax affairs out yourself'?

Thank you for any advice. Apologies for my ignorance regarding pension rules.

You don't need to pay tax upfront if you don't want to.

If your total taxable income in the year is just £3,375 them you simply need to take a small initial payment of less than £1,042.

The pension company will use the emergency tax code (1250L) on a non cumulative basis and no tax will be deducted.

You will then be allocated a new tax code by HMRC, quite possibly the emergency code of 1250L on a cumulative basis, and you can then, subject to how far through the tax year we are, take the rest of the taxable income without paying tax.

Unfortunately that won't work  because Virgin stakeholder pensions don't support drawdown, which is what this would be:

• Although there are various ways of accessing pension savings, the Virgin Stakeholder Pension only allows you to take your pension savings as a single lump sum payment. 25% of this will be tax-free and the other 75% will be taxed as income.

• If you want to access your pension savings in any other way (e.g. multiple lump sums or as a regular income), you’ll need to transfer your pension savings to another pension scheme.

OP, you don't need to wait for the next tax year. See https://www.gov.uk/claim-tax-refund