Pension advice - tax? (LPA)

Hugbubble

Hi all

Advice welcome!

I am the LPA for a friend who has lost capacity following a stroke. He turned pension age earlier this year.

He has a pension pot of about £130k from a former work based scheme with Royal London. 

It seems it is flexible in terms of drawing it down, but struggling to understand the tax implications and how much we could withdraw for his use and care. It feels like it wouldn’t be enough to purchase an annuity which would pay much (and his complex health needs means he would benefit from more money in the shorter term).

Would welcome any advice especially around the tax implications.

Thanks in advance! 

Albermarle

25% will be tax free, the rest is taxable in the same way that employment income is taxed. So normally he will have a personal allowance of £12570 each tax year, before tax is payable at 20%

dunstonh

Would welcome any advice especially around the tax implications.

Assuming it is a mainstream pension and not a hybrid,  25% of what you draw on it will be tax free and 75% will be treated as income and taxed under income tax where it exceeds the personal allowance.

The 75% part, as it is income, can affect any means-tested benefits linked to income.   .e.g. if you drew £25,000 from the pension, £18,750 would be considered income.       If there are benefits that require income to be below a certain amount, then these could be reduced or removed as income would no longer be below that amount.

. It feels like it wouldn’t be enough to purchase an annuity which would pay much (and his complex health needs means he would benefit from more money in the shorter term).

His health and currently high (by recent times) annuity rates may be a better option than drawdown and blowing it too quickly.

sheslookinhot

If no tax free money has been taken from the pension and it’s his only income, he can take £16,670 and pay no tax.

molerat

He turned pension age earlier this year.

State pension age ?  If so that adds another dimension to your question.

Hugbubble

molerat said:

He turned pension age earlier this year.

State pension age ?  If so that adds another dimension to your question.

Yes, state pension age

Hugbubble

If no tax free money has been taken from the pension and it’s his only income, he can take £16,670 and pay no tax.

It’s not his only income - he already receives an income from another pension (a defined contribution scheme from another workplace pension) which he was able to access a year or so ago as he was retired early on medical grounds due to his stroke. Also state pension now.

LHW99

You may find an IFA could help, SOLLA keeps a list of those who are experienced in finance in later life

https://societyoflaterlifeadvisers.co.uk/

Presumably he / you have applied for Attendance Allowance. It depends only on his care needs, and is not means tested.