Please could I have a Noddy guide to drawdown?

downhillian

Malchester said:

I currently am accessing a small pot pension through UFPLS. Each month I take out the same amount of money of which 25% is tax free and the remaining 75% is taxable (although as I am not paying tax at the moment nothing is taken off). This pot is helping me with retirement income until I reach state retirement age and I can draw defined benefit pensions and state pension. As a non earner I can also add £2880 to the pot each tax year and, even though I am not paying tax, HMRC top the addition up with £720 to make a total of £3660. As I am not liable for tax at the moment this £720 top up is totally free money. However, not all pension providers have the option of UFPLS. Also note that if you take UFPLS it will trigger the MPAA whereby only a maximum of £4000 can be put into a pension each year.

Do you have to be drawing money from the pension in order to get this top up tax benefit?

Dazed_and_C0nfused

downhillian said:

Malchester said:

I currently am accessing a small pot pension through UFPLS. Each month I take out the same amount of money of which 25% is tax free and the remaining 75% is taxable (although as I am not paying tax at the moment nothing is taken off). This pot is helping me with retirement income until I reach state retirement age and I can draw defined benefit pensions and state pension. As a non earner I can also add £2880 to the pot each tax year and, even though I am not paying tax, HMRC top the addition up with £720 to make a total of £3660. As I am not liable for tax at the moment this £720 top up is totally free money. However, not all pension providers have the option of UFPLS. Also note that if you take UFPLS it will trigger the MPAA whereby only a maximum of £4000 can be put into a pension each year.

Do you have to be drawing money from the pension in order to get this top up tax benefit?

No, you need to contribute £2,880 to a pension using the "relief at source" method of contributing and the 25% extra will be added by the pension company, courtesy of HMRC, irrespective of whether you are paying tax or have any other pension income.

The £2,880/£3,600 limit is for non earners, you can be a non taxpayer and contribute more providing you have sufficient relevant (pensionable) earnings to match the contribution (taxable pay, self employment etc).

ColdIron

HL don't do automated UFPLS (few do) so you would need to do this manually every month which would be very tedious

You could crystallise/move into drawdown a sum, perhaps a year's worth, take the tax free element up front and have the remaining taxable cash as a monthly income. Rinse and repeat next year

jamesd

Not as a pre-planed thing, you can request it without hassle each month.

They do have the facility for regular monthly paying of taxable money from a drawdown account and easy adding to that online or changing it online if desired (request by 14th for end of that month change).

If you want that the easiest way at HL would be one request a year, stick the tax free in a savings account and use the taxable income facility for monthly payments from the 75%. Set up regular payments from the savings account and that's the task synthesized without too much pain.

Malchester

downhillian said:

Malchester said:

I currently am accessing a small pot pension through UFPLS. Each month I take out the same amount of money of which 25% is tax free and the remaining 75% is taxable (although as I am not paying tax at the moment nothing is taken off). This pot is helping me with retirement income until I reach state retirement age and I can draw defined benefit pensions and state pension. As a non earner I can also add £2880 to the pot each tax year and, even though I am not paying tax, HMRC top the addition up with £720 to make a total of £3660. As I am not liable for tax at the moment this £720 top up is totally free money. However, not all pension providers have the option of UFPLS. Also note that if you take UFPLS it will trigger the MPAA whereby only a maximum of £4000 can be put into a pension each year.

Do you have to be drawing money from the pension in order to get this top up tax benefit?

No. As a non-taxpayer at the moment the tax refund is all profit. If I was a taxpayer obviously the generosity of the tax refund would be reduced as tax would be taken when I withdraw from the pension fund. Because I have taken funds from the pension (and because of MPAA) I would be limited to putting £4000 in total into the pension in a year. I could put that much in but there would be no tax refund about the £720.

howmuch4

Very interesting thread and wish Id read it before posting my own round the houses question.

I dont work anymore, yes she is, umm.... keeping me at the mo. So does that mean I can drip drawdown cash from my pot each month and as long as it doesnt go over the personal allownace, not pay any tax at all?

Albermarle

howmuch4 said:

Very interesting thread and wish Id read it before posting my own round the houses question.

I dont work anymore, yes she is, umm.... keeping me at the mo. So does that mean I can drip drawdown cash from my pot each month and as long as it doesnt go over the personal allownace, not pay any tax at all?

Yes , you can take up to £12570 of taxable income and if you have no other taxable income then you will not pay any tax .
At the same time you can take 25% of the pot totally tax free, separate from the above . You can take this all at once or also in stages ( assuming the provider has the right software ) What you can not do is take taxable income without taking some tax free income first /at the same time. 

Langtang

Albermarle said:

howmuch4 said:

Very interesting thread and wish Id read it before posting my own round the houses question.

I dont work anymore, yes she is, umm.... keeping me at the mo. So does that mean I can drip drawdown cash from my pot each month and as long as it doesnt go over the personal allownace, not pay any tax at all?

Yes , you can take up to £12570 of taxable income and if you have no other taxable income then you will not pay any tax .
At the same time you can take 25% of the pot totally tax free, separate from the above . You can take this all at once or also in stages ( assuming the provider has the right software ) What you can not do is take taxable income without taking some tax free income first /at the same time. 

So, does that mean that potentially the OP could take £12570 PLUS  a tax-free sum?

Dazed_and_C0nfused

Langtang said:

Albermarle said:

howmuch4 said:

Very interesting thread and wish Id read it before posting my own round the houses question.

I dont work anymore, yes she is, umm.... keeping me at the mo. So does that mean I can drip drawdown cash from my pot each month and as long as it doesnt go over the personal allownace, not pay any tax at all?

Yes , you can take up to £12570 of taxable income and if you have no other taxable income then you will not pay any tax .
At the same time you can take 25% of the pot totally tax free, separate from the above . You can take this all at once or also in stages ( assuming the provider has the right software ) What you can not do is take taxable income without taking some tax free income first /at the same time. 

So, does that mean that potentially the OP could take £12570 PLUS  a tax-free sum?

Yes, £16,760 if they take 25% TFLS as part of each payment and have no other earnings or pension income.

Or £18,440 if they receive the Marriage Allowance tax deduction.

Or £18,528 if they are Scottish resident for tax purposes and receive the Marriage Allowance tax deduction.

If you have taxable interest or dividends you can easily add another £8,000 taxable income into the mix before any tax would actually be payable.