Pension I forgot

billozz

I have been advised about a pension plan that I took out a few years ago and forgot about, I will be 65 next year and the plan is worth about £30,000, Sam someone explain the tax implications please.
Thanks

molerat

Assuming it is a straightforward money pot 25% will be tax free and the rest added to your income for the year and taxed accordingly.  That means £7500 tax free and £22500 taxed.  If you are working then that would likely mean at least £4500 tax.

L9XSS

As above, but take the 25% tax free lump sum and leave the remainder invested. Then drawdown the remaining £22,500 as and when required. If your not working but due to receive the State pension then you could “top up” your state pension from the £22,500 and not pay any tax if you don’t exceed the personal allowance of £12570 per annum.
All theoretical of course as I’m assuming the following:
A) Your not in employment 
You qualify for the State pension
C) Other variables.
let us know your current position as you could easily mitigate the £4500 tax bill.

Marcon

molerat said:

Assuming it is a straightforward money pot 25% will be tax free and the rest added to your income for the year and taxed accordingly.  That means £7500 tax free and £22500 taxed.  If you are working then that would likely mean at least £4500 tax.

Just to clarify - OP, you don't have to scoop the pool in one go! You can take your money spread over a number of years, and almost certainly don't have to take anything at age 65 if you don't wish to - but you'd need to check the options available to you, given the likely age of your plan (i.e. almost certainly not a modern contract).

xylophone

Have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

What exactly does it say?

Do you have other pension provision apart from the forgotten pension?  If so, what kind?

Are you currently employed/paying/credited with NI?

Are you currently contributing to a pension scheme? If so, what kind?

Albermarle

It would be worthwhile contacting the pension provider, and asking what your withdrawal options are.
If it is an old pension, the options might be limited, and restrict some of the suggestions made above.
If that is the case it is usually easy to transfer to a modern pension with more options, although in certain cases it can be more difficult.

LHW99

You probably don't need to take all the tax free up front either as withdrawals could be done by UFPLS, where 25% of each payment is tax free. As said you may need to transfer to do this..

billozz

molerat said:

Assuming it is a straightforward money pot 25% will be tax free and the rest added to your income for the year and taxed accordingly.  That means £7500 tax free and £22500 taxed.  If you are working then that would likely mean at least £4500 tax.

I spoke to the pension company and they said 25%tax free, then I have to pay 40% tax on the balance and claim it back, is that right? 
Not sure if it makes any difference but I'm self employed, thank you for your Reply 

billozz

L9XSS said:

As above, but take the 25% tax free lump sum and leave the remainder invested. Then drawdown the remaining £22,500 as and when required. If your not working but due to receive the State pension then you could “top up” your state pension from the £22,500 and not pay any tax if you don’t exceed the personal allowance of £12570 per annum.
All theoretical of course as I’m assuming the following:
A) Your not in employment 
You qualify for the State pension
C) Other variables.
let us know your current position as you could easily mitigate the £4500 tax bill.

I am self employed, I am 65 next year but don't get state pension until the year after. 

Dazed_and_C0nfused

billozz said:

molerat said:

Assuming it is a straightforward money pot 25% will be tax free and the rest added to your income for the year and taxed accordingly.  That means £7500 tax free and £22500 taxed.  If you are working then that would likely mean at least £4500 tax.

I spoke to the pension company and they said 25%tax free, then I have to pay 40% tax on the balance and claim it back, is that right? 
Not sure if it makes any difference but I'm self employed, thank you for your Reply 

It would be very unusual to pay 40% tax unless it's an ongoing pension and you are a higher rate payer.

If you take a large payment you might pay some 40% tax.  And some 20% tax.  And some without any tax at all.

And as a self employed person you wouldn't normally be able to claim anything back in the way I think they meant.

You simply include the taxable amount and tax deducted on your Self Assessment return and it forms part of your Self Assessment calculation.  If that means you have overpaid overall then you would get a refund.  But it could just as easily be that you have a much smaller Self Assessment bill to pay.

sheramber

Any money you take above the tax free amount will be added to your self employed income for the year in which you take it. and taxed accordingly.