Pension transfer/encashment - left a little late!

devondiver

Albermarle said:

That is correct assuming you do not pay any tax on the withdrawals and only up to age 75.The amount of money involved for HMRC is small, compared to the overall huge cost of tax relief. If you think that higher earners can typically  get over £10K pa in tax relief if they add enough .

Wish you'd told me this six years ago. 

Albermarle

devondiver said:

Albermarle said:

That is correct assuming you do not pay any tax on the withdrawals and only up to age 75.The amount of money involved for HMRC is small, compared to the overall huge cost of tax relief. If you think that higher earners can typically  get over £10K pa in tax relief if they add enough .

Wish you'd told me this six years ago. 

Unfortunately you can not claim retrospectively , although you have a month to do it in this tax year.
Also if you withdraw the £3600 that you have added , then if you take any from your original pot you will end up paying some tax on it . As £3600 + your state pension will pretty much use up all your personal allowance.

L9XSS

Albermarle said:

Presumably the RL personal pension had some kind of limited flexibility on withdrawals ( often the case with older pensions) which is why you want to transfer it ? Or was there some other reason .

You say ' I had refrained from touching my one remaining investment – a Royal London personal pension '
But you also have a HL SIPP ? Is there no money /investments in it ?

 I’m hoping the transfer will complete in time for me to make a first lump sum withdrawal within this tax year, 
Presuming the transfer is in cash , then it should not take too long ( two weeks ?) , although HL are known to be slow on transfers out . Maybe transfers in is different . However starting the withdrawal process takes a certain amount of time, so overall could be a bit tight.

You will be aware that the state pension is taxable , so if you do not want to pay any tax , then you are going to be limited to withdrawing about £3600 pa ( of which 25% will be tax free and 75% taxable but within your personal allowance) 

My HL transfer took less than 7 days (albeit it was a cash transfer from a Vanguard SIPP).

devondiver

Transfer completed within 7 days. Thanks all. 

Albermarle

devondiver said:

Transfer completed within 7 days. Thanks all. 

Good news. Although if you ever want to transfer away from HL , then be prepared for a much longer wait .

devondiver

Albermarle said:

You will be aware that the state pension is taxable , so if you do not want to pay any tax , then you are going to be limited to withdrawing about £3600 pa ( of which 25% will be tax free and 75% taxable but within your personal allowance) 

So, just checking: 

Personal Allowance (12,570) minus State Pension (9,340) leaves 3,230 for drawdown.

So if one draws 4,300, 25% (1,075) is tax free and 3,225 is taxable but within the Personal Allowance.

Correct?

Albermarle

devondiver said:

Albermarle said:

You will be aware that the state pension is taxable , so if you do not want to pay any tax , then you are going to be limited to withdrawing about £3600 pa ( of which 25% will be tax free and 75% taxable but within your personal allowance) 

So, just checking: 

Personal Allowance (12,570) minus State Pension (9,340) leaves 3,230 for drawdown.

So if one draws 4,300, 25% (1,075) is tax free and 3,225 is taxable but within the Personal Allowance.

Correct?

That looks correct . However it is not possible to have the personal allowance set directly on to the State Pension ( not sure why but that is the case )
So what would happen is that your personal allowance would be reduced - £12570 minus £9340 = £3230 will be the tax code given to HL .
Then another quirk of the tax system is that if you took the £3225 in April for example , the system assumes that is a regular monthly payment and thinks you have an annual taxable income of 12X £3225 , so you will pay some tax on the payment , which you will get back at some later point. 
If you took the payment in March it would know that has been your only income that year , so not tax you. 

devondiver

devondiver said:

I had intended to look into transferring the whole pot to a more accessible vehicle in a tax efficient way well before reaching age 75 

Thinking further on this aspect it seems I could maximise the sum transferred tax free before age 75 by taking out the full 25% (12,500) plus 3,230 now and then 4 years @ 3,230pa subsequently (a total of 28,650); rather than the 4,300pa (x5 = 21,500) which I had (until now), intended. Have I got this right?

Albermarle

You can also do it that way .

devondiver

Albermarle said:

You can also do it that way .

But are there downsides?