Annual Drawdown

222Johnny222

Sorry if this is a silly question.
I am 60 and currently paying £20,000 via salary sacrifice into a work pension.
Can I, each year move £15,000 into a drawdown plan and take £5,000 tax free? I am sure there will be a reason why I cant but not sure what it is!
TIA

Albermarle

222Johnny222 said:

Sorry if this is a silly question.
I am 60 and currently paying £20,000 via salary sacrifice into a work pension.
Can I, each year move £15,000 into a drawdown plan and take £5,000 tax free? I am sure there will be a reason why I cant but not sure what it is!
TIA

Yes you can. Two points to consider.
1) You will need to discuss what is possible with your pension provider. Some are restricted on what they can offer due to their systems and procedures.
2) It would normally only make sense to do it if you had an actual need for the tax free cash. 

Linton

222Johnny222 said:

Sorry if this is a silly question.
I am 60 and currently paying £20,000 via salary sacrifice into a work pension.
Can I, each year move £15,000 into a drawdown plan and take £5,000 tax free? I am sure there will be a reason why I cant but not sure what it is!
TIA

Yes in principle you can.  Whether your current pension has that facility especially whilst you are a current member of the scheme is another matter.  You would need to check.  If not you would have to transfer it to a personal pension first.  Yet again there may be some complications with doing this whilst remaining a member.  Something else to check.

What do you hope to achieve by this?  Using the tax free lump sum to increase your pension contributions to get a second bite of the 25% tax free would be "pension recycling" and against the rules.  If you intend to spend it now you could be jeopardising your standard of living when retired.  Why not keep it invested and take the 25% tax free when the pot has grown a bit more?

dunstonh

Justification for doing that would be interesting.  Blowing your 25% TFC unnecessarily may not be a good idea and result in more tax being paid in the long term.  It will also lower your income in retirement by 25% (potentially more due to tax).

222Johnny222

Linton said:

222Johnny222 said:

Sorry if this is a silly question.
I am 60 and currently paying £20,000 via salary sacrifice into a work pension.
Can I, each year move £15,000 into a drawdown plan and take £5,000 tax free? I am sure there will be a reason why I cant but not sure what it is!
TIA

Yes in principle you can.  Whether your current pension has that facility especially whilst you are a current member of the scheme is another matter.  You would need to check.  If not you would have to transfer it to a personal pension first.  Yet again there may be some complications with doing this whilst remaining a member.  Something else to check.

What do you hope to achieve by this?  Using the tax free lump sum to increase your pension contributions to get a second bite of the 25% tax free would be "pension recycling" and against the rules.  If you intend to spend it now you could be jeopardising your standard of living when retired.  Why not keep it invested and take the 25% tax free when the pot has grown a bit more?

Thanks Linton
reason for it is my fixed mortgage deal ends soon and I would rather pay the increased monthly payment this way rather than out of taxed income. Not sure this is the best way but wanted to just check it’s an option.

comments noted though, cheers

222Johnny222

dunstonh said:

Justification for doing that would be interesting.  Blowing your 25% TFC unnecessarily may not be a good idea and result in more tax being paid in the long term.  It will also lower your income in retirement by 25% (potentially more due to tax).

I am going to need to find extra income to pay increased mortgage costs for four years.

I can do it this way or reduce my pensions contributions and pay it out of taxed income. 

Not sure on best options though.

NannaH

How big is your pension?   If it’s relatively small then maybe not a wise plan, although you’ll still have the £15k x4 growth -  if it’s £500k then taking £5k for the next four years won’t really make a big difference to growth. 

If it’s a straight choice between lowering contributions or taking TFLS, then I’d take the TFLS,  assuming you are able to do it within the remit of your pension scheme.