Drawdown pension

smellywelly1234

Hi I need some advice on my drawdown pension only a small pot. I have reached the age of 55 now and I am currently work and would like to draw some of my pension. My question is if I take 25% tax free and also have another £20,000.00 from the drawdown and I am also earning £21,500.00 per year and have this all in the same tax year would this put me in the 40% tax bracket  until the new tax year.

Thanks in advanced for any help

NedS

The 25% tax free is just that - it can be ignored when considering your taxable income.

If you are earning £21,500 gross and take a further £20,000 of taxable income from a pension, your combined taxable income will be £41,500.

Of more concern is that by taking taxable income from a pension, you will have triggered the MPAA and will now be limited to contributing no more that £4,000 gross per year to a pension fund (including employers contributions) which could be disastrous for you. Are you aware of this and have you fully considered the implications?

Further, do you have other funds available to fund your retirement? If not, what do you plan to live on once you finish work? Pensions are intended to fund retirement and generally it is not advisable to be withdrawing money from them other than as part of a retirement plan.

Dazed_and_C0nfused

Unless you have some other income not mention them no, not even if you are Scottish resident for tax purposes.

You would have taxable income of £41,500.

The 25% TFLS should be completely ignored.

dunstonh

Hi I need some advice on my drawdown pension only a small pot.

no advice here.  Just discussion and opinion

I have reached the age of 55 now and I am currently work and would like to draw some of my pension. 

Just because you can, doesn't mean you should.  Can you afford to rob your retirement years to pay for something in your working years?

My question is if I take 25% tax free and also have another £20,000.00 from the drawdown and I am also earning £21,500.00 per year and have this all in the same tax year would this put me in the 40% tax bracket  until the new tax year.

No.  You would still be in the basic rate band.   However, the biggest problem is that your pension allowance will drop to a meagre £4,000 (that includes your employer contributions and is gross).  For someone in their mid 50s, seeing their limit drop that low can be catastrophic financially.  

smellywelly1234

NedS said:

The 25% tax free is just that - it can be ignored when considering your taxable income.

If you are earning £21,500 gross and take a further £20,000 of taxable income from a pension, your combined taxable income will be £41,500.

Of more concern is that by taking taxable income from a pension, you will have triggered the MPAA and will now be limited to contributing no more that £4,000 per year to a pension fund (including employers contributions) which could be disastrous for you. Are you aware of this and have you fully considered the implications?

Further, do you have other funds available to fund your retirement? If not, what do you plan to live on once you finish work? Pensions are intended to fund retirement and generally it is not advisable to be withdrawing money from them other than as part of a retirement plan.

Hi, yes I do have a another pension for my retirement the drawdown was just a bit of redundancy money for a rainy day.   

Albermarle

smellywelly1234 said:

NedS said:

The 25% tax free is just that - it can be ignored when considering your taxable income.

If you are earning £21,500 gross and take a further £20,000 of taxable income from a pension, your combined taxable income will be £41,500.

Of more concern is that by taking taxable income from a pension, you will have triggered the MPAA and will now be limited to contributing no more that £4,000 per year to a pension fund (including employers contributions) which could be disastrous for you. Are you aware of this and have you fully considered the implications?

Further, do you have other funds available to fund your retirement? If not, what do you plan to live on once you finish work? Pensions are intended to fund retirement and generally it is not advisable to be withdrawing money from them other than as part of a retirement plan.

Hi, yes I do have a another pension for my retirement the drawdown was just a bit of redundancy money for a rainy day.   

Good to hear you have another pension. 
So another question is, do you really need the 25% tax free + the £20K now for something specific/useful? Has that rainy day arrived?
Although you have another pension, having more for your retirement is never a bad thing, especially if it means you can retire a bit earlier.

Pat38493

As above, the 25% tax free will have no impact on your tax status for the year.  However be aware that  if you take any taxable income beyond that 25% out of your pension, you will trigger (for the rest of your life) a much lower pension contributions allowance from the work you are still doing and a lot of your pension contributions that you are making might become taxable.  As long as you only draw out the 25% tax free part it's not an issue.

The other question would be - usually if you are just drawing the money out because you fancy having it rather than you are specifically spending it on something, it might be better to leave it invested in the pension and having tax free growth until you actually know what you are going to spend it on.

smellywelly1234

Albermarle said:

smellywelly1234 said:

NedS said:

The 25% tax free is just that - it can be ignored when considering your taxable income.

If you are earning £21,500 gross and take a further £20,000 of taxable income from a pension, your combined taxable income will be £41,500.

Of more concern is that by taking taxable income from a pension, you will have triggered the MPAA and will now be limited to contributing no more that £4,000 per year to a pension fund (including employers contributions) which could be disastrous for you. Are you aware of this and have you fully considered the implications?

Further, do you have other funds available to fund your retirement? If not, what do you plan to live on once you finish work? Pensions are intended to fund retirement and generally it is not advisable to be withdrawing money from them other than as part of a retirement plan.

Hi, yes I do have a another pension for my retirement the drawdown was just a bit of redundancy money for a rainy day.   

Good to hear you have another pension. 
So another question is, do you really need the 25% tax free + the £20K now for something specific/useful? Has that rainy day arrived?
Although you have another pension, having more for your retirement is never a bad thing, especially if it means you can retire a bit earlier.

Hi yes I have a final salary pension which has 30 years contributions. I haven't decided what to do yet as the money was for my daughter for her birthday end of December, to buy a property with, so was just weighing everything up. So if I do decide to go ahead and trigger the MPAA it wont affect my final salary pension in anyway when I retire and start to draw this one and it will only affect  the one I am paying into now as I will only be able to pay in £4,000 contributions per year. The MPAA £4,000 per year is that for the rest of my working life or does it reset after 1 year. Also do I have to notify my other pension company's if I have triggered the MPAA.

Thanks      

smellywelly1234

Pat38493 said:

As above, the 25% tax free will have no impact on your tax status for the year.  However be aware that  if you take any taxable income beyond that 25% out of your pension, you will trigger (for the rest of your life) a much lower pension contributions allowance from the work you are still doing and a lot of your pension contributions that you are making might become taxable.  As long as you only draw out the 25% tax free part it's not an issue.

The other question would be - usually if you are just drawing the money out because you fancy having it rather than you are specifically spending it on something, it might be better to leave it invested in the pension and having tax free growth until you actually know what you are going to spend it on.

Hi yes I have a final salary pension which has 30 years contributions. I haven't decided what to do yet as the money was for my daughter for her birthday end of December, to buy a property with, so was just weighing everything up. So if I do decide to go ahead and trigger the MPAA it wont affect my final salary pension in anyway when I retire and start to draw this one and it will only affect  the one I am paying into now as I will only be able to pay in £4,000 contributions per year. The MPAA £4,000 per year is that for the rest of my working life or does it reset after 1 year. Also do I have to notify my other pension company's if I have triggered the MPAA.

Thanks      

smellywelly1234

NedS said:

The 25% tax free is just that - it can be ignored when considering your taxable income.

If you are earning £21,500 gross and take a further £20,000 of taxable income from a pension, your combined taxable income will be £41,500.

Of more concern is that by taking taxable income from a pension, you will have triggered the MPAA and will now be limited to contributing no more that £4,000 gross per year to a pension fund (including employers contributions) which could be disastrous for you. Are you aware of this and have you fully considered the implications?

Further, do you have other funds available to fund your retirement? If not, what do you plan to live on once you finish work? Pensions are intended to fund retirement and generally it is not advisable to be withdrawing money from them other than as part of a retirement plan.

Hi yes I have a final salary pension which has 30 years contributions. I haven't decided what to do yet as the money was for my daughter for her birthday end of December, to buy a property with, so was just weighing everything up. So if I do decide to go ahead and trigger the MPAA it wont affect my final salary pension in anyway when I retire and start to draw this one and it will only affect  the one I am paying into now as I will only be able to pay in £4,000 contributions per year. The MPAA £4,000 per year is that for the rest of my working life or does it reset after 1 year. Also do I have to notify my other pension company's if I have triggered the MPAA.

Thanks      

dharm999

The MPAA restriction is forever