Tax treatment on pension if below personal allowance

fluffpig

Hi all, apologies if this is really obvious but I'm totally clueless and most things I've read seem to talk about taking a lump sum and/or assume much higher sums involved.

Hypothetical at the moment, but assuming the below

£30k in old Aviva pension
£35k in Vanguard SIPP
£60k in Pru shared cost AVC

If I decided to give up work at 57, could I withdraw £12500 per year from these pots (with no other income) for 10 years to SP age without paying tax on it? 

I've always understood that you save on tax paying into a pension so it is taxed when withdrawn instead, so I can't convince myself that my thinking it would be tax free is correct?

Dazed_and_C0nfused

It can only be taxed* if your income is above your Personal Allowance (£11310 or £12570)

*tax may be deducted from the first payment which is later repaid if need be

spurdog1

Hi fluffpig. Having gone through this recently i can add a bit. 

You need to check whether there is a refundable element (usually 25% tax free, but some companies/pensions don't permit. Contact each, be sure they offer and decide how much of a cash in is available/wanted.

I found as a guide the difference would take 20 years to recoup without inflation.

that is a £50 reduction per month in your pension, 50.00x12 (months) x20(years)= 12,000.00 offered.

Hope this makes sense

QrizB

fluffpig said:

If I decided to give up work at 57, could I withdraw £12500 per year from these pots (with no other income) for 10 years to SP age without paying tax on it?

Hypothetically, you could withdraw more than that.

With a £12570 personal allowance and no other taxable income, you could take £16760 a year.

• 25% tax-free - £4190
• 75% taxable - £12570 but all within your personal allowance.
  

af1963

As others say above, you'd pay no tax as long as the taxable part (75%) of any withdrawals remains below your personal allowance, which means you can withdraw up to £16760 without paying income tax.

But 10 years withdrawing that amount ( or even just taking about £12.5K per year ) is likely to wipe out these pension pots.  What happens after that ?  Are you happy to live on State Pension only ( and if so, do you know how much you'd receive ) ?  Or do you have other savings or pensions as well as the three you mentioned  ?

fluffpig

Brilliant, thanks for the replies everyone! 

@af1963 this is just me musing on how to bridge the gap up to state pension age if possible really. I'm fairly frugal anyway, but do have cash savings too and will also get an LGPS pension on top of full state pension

NSG666

The £16760 can be boosted to around £18.5k too if you have a spouse that doesn't use their personal allowance and give 10% of it to you.

Albermarle

spurdog1 said:

Hi fluffpig. Having gone through this recently i can add a bit. 

You need to check whether there is a refundable element (usually 25% tax free, but some companies/pensions don't permit. Contact each, be sure they offer and decide how much of a cash in is available/wanted.

I found as a guide the difference would take 20 years to recoup without inflation.

that is a £50 reduction per month in your pension, 50.00x12 (months) x20(years)= 12,000.00 offered.

Hope this makes sense

The OP is asking about DC pensions, where there is a specific pot. They can take 25% tax free from all of them by law, once they reach the right age.
You seem to be talking about a DB /final salary scheme, where the rules are different.

MX5huggy

fluffpig said:

Brilliant, thanks for the replies everyone! 

@af1963 this is just me musing on how to bridge the gap up to state pension age if possible really. I'm fairly frugal anyway, but do have cash savings too and will also get an LGPS pension on top of full state pension

Is the Pru AVC attached to the LGPS? Because you have to take the AVC at the same time as the main benefits. (I’ll add more if you say yes). 

Don’t dismiss taking your LGPS early, yes it’s reduced but the reductions are fair (works out equal for average life expectancy). 

wjr4

Remember, if you take any taxable income (flexibly), you will be subject to the Money Purchase Annual Allowance. 

fluffpig

MX5huggy said:

fluffpig said:

Brilliant, thanks for the replies everyone! 

@af1963 this is just me musing on how to bridge the gap up to state pension age if possible really. I'm fairly frugal anyway, but do have cash savings too and will also get an LGPS pension on top of full state pension

Is the Pru AVC attached to the LGPS? Because you have to take the AVC at the same time as the main benefits. (I’ll add more if you say yes). 

Don’t dismiss taking your LGPS early, yes it’s reduced but the reductions are fair (works out equal for average life expectancy). 

I believe it can be transferred to another provider and be taken flexibly when the time comes but I need to find out if this definitely is the case. 

Yes I've checked out the reductions for taking the lgps earlier and this is definitely something to consider!