Confused 😕

Perplexed67

Morning all. I have a pension from old employer that I'm considering cashing out in total on my 55th birthday.  I've done some research and come across a P532Z which I believe you can complete to get tax refund from HMRC.  Has anyone used this? Look forward to your comments. Thanks and good day to all 

LHW99

25% would be tax free and the remainder added to any other income and subject to tax. You would also be limited in the amount you could add to a pension going forward if you take any of the taxable part.

Unless the taxable amount is less than your available personal allowance I am not sure why you would get any tax refunded.

dunstonh

Do remember that if you do this, you will no longer be able to make pension contributions (including employer contributions) above £4,000 a year.   That can be highly damaging at a time in life when many people pile money into pensions because fo the tax advantages over virtually all other options.    

And with auto-enrolment, it is actually very easy for the contributions to exceed £4000

Malthusian

You would also be limited in the amount you could add to a pension going forward if you take any of the taxable part.

Unless the pension is small enough to take under "small pot" rules, which doesn't trigger the Money Purchase Annual Allowance - and the P53Z form is for small pots. (If it's not a small pot the OP needs the P55 form.)

Unless the taxable amount is less than your available personal allowance I am not sure why you would get any tax refunded.

That would usually be the case for a P53Z, as emergency tax isn't applied to "small pot" withdrawals.

When a pension is fully encashed and it's not a small pot, emergency tax is usually applied by HMRC, so most people would be due a refund. But that would need a P55.

OP - any particular reason you are cashing in the whole pension and paying tax all in one go?

Malthusian

dunstonh said:

And with auto-enrolment, it is actually very easy for the contributions to exceed £4000

Is it? The maximum annual contribution under auto enrolment rules is £3,522.40pa (8% of [50,270 minus 6,240]).

Naturally it's still a bad idea to trigger the MPAA when there's no need. And many people can or should save more than £4,000pa into a pension. But I'm not seeing the relevance of auto enrolment.

The reason the MPAA is £4,000 and not £0 (as it was between 2011 and 2015) is to avoid sabotaging auto-enrolment by hitting people who cash in a pension and then make auto-enrolment contributions with extra tax. Which in turn would have boosted the idea that "pension contributions are just another tax innit".

Perplexed67

Thanks for your comments guys.
I have a current pension with latest employer and the pension I was thinking of cashing in is a frozen one - from years back.
I will have a look at the P55 form that you made reference to. 

dunstonh

Is it? The maximum annual contribution under auto enrolment rules is £3,522.40pa (8% of [50,270 minus 6,240]).

As I am sure you are aware, many employers exceed the minimum standards set under the AE rules.

Albermarle

Perplexed67 said:

Thanks for your comments guys.
I have a current pension with latest employer and the pension I was thinking of cashing in is a frozen one - from years back.
I will have a look at the P55 form that you made reference to. 

Pensions are rarely 'frozen' . If you stop making contributions , your money still remains invested and charges will still be taken . Normally you can still switch around investments ( if you want ) and add more money at a later date ( if you want ).

LHW99

Is it a DC or a DB pension?

If DB, there is no "pot", although you may be able to get a CETV (value if you transfer). If that is over £30k you would need specialised advice, which is costly, the answer would probably be "No" and then you are likely to be stuck - plenty of other threads about that.

If DC, find out what funds it is in / charges, because it is the funds that make a pension do well or not, and charges can make that more or less difficult.

Malthusian

dunstonh said:

As I am sure you are aware, many employers exceed the minimum standards set under the AE rules.

I am. But what I wanted to query (in case I was missing something) was your statement that auto enrolment makes it easier to exceed the MPAA. It is easy to exceed the MPAA but not because of auto enrolment.

Arguably auto enrolment did the opposite due to levelling down (employers reducing contribution rates to the legal minimum).