To withdraw pension or not


Hi,

My mother currently has a small pension of 12k ( already withdrew 25% tax free) and it’s just sitting there as a cash with no interest being earned on it. With her state  and small RAF pension she has an income of around 12k a year. I have been reluctant to take it out because she’ll be taxed on it but the she will always be taxed on it based on current tax thresholds? Is it best we take it out now and put it into a fixed savings account with savings rates doing so well? Will she be emergency taxed unless a P45 is provided? 

Much thanks 


Replies

  • edited 25 January at 9:26AM
    dunstonhdunstonh Forumite
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    edited 25 January at 9:26AM
    I have been reluctant to take it out because she’ll be taxed on it but the she will always be taxed on it based on current tax thresholds?

    Based on what you have said, yes she will. (although it depends on how much over £12k it is as currently that leaves a very small unused personal allowance that could be used each year)


     Is it best we take it out now and put it into a fixed savings account with savings rates doing so well?

    Almost certainly not.  It is is best to invest it if it isn't needed.   No point losing 20% of its value in tax to put it in a savings account that will take 5-7 years just to recover the tax.

    Will she be emergency taxed unless a P45 is provided? 

    yes

    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • tr7philtr7phil Forumite
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    If her income really is £12K per year then she still has about £570 of her tax allowance to use so she could withdraw £500 per year for 24 years tax free to supplement her other income.
  • Dazed_and_C0nfusedDazed_and_C0nfused Forumite
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    tr7phil said:
    If her income really is £12K per year then she still has about £570 of her tax allowance to use so she could withdraw £500 per year for 24 years tax free to supplement her other income.
    But her Personal Allowance is remaining the same whilst State Pension increases by 10.1% from April 2023 so there may not be unused Personal Allowance in future years 😥
  • tr7philtr7phil Forumite
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    tr7phil said:
    If her income really is £12K per year then she still has about £570 of her tax allowance to use so she could withdraw £500 per year for 24 years tax free to supplement her other income.
    But her Personal Allowance is remaining the same whilst State Pension increases by 10.1% from April 2023 so there may not be unused Personal Allowance in future years 😥
    Good point, but she can get some out this tax year and the allowance will probably start increasing again eventually.
  • LintonLinton Forumite
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    An alternative view: £10K in an instant access account with a moderate rate of interest could be more useful and reassuring to your mother than £12K she cannot easily access without some level of hassle and delay.  Spread over the rest of her life this is a small amount and the returns from it (especially if it is being kept in cash in a pension) are unlikely to be life-changing.

    She cannot avoid the first ever drawdown being on taxed on an emergency code.  However she can avoid waiting until the end of the tax year to get a refund of excess tax by the use of form P53 - https://www.gov.uk/government/publications/income-tax-repayment-claim-when-small-pension-taken-as-a-lump-sum-p53.

    One secondary point - you refer to "I have been reluctant" and "we" take the money out.  As an OAP myself and sensitive on such matters I must point out that it is her money and it is her decision unless she is not mentally capable, in which case I assume you have Power of Attorney.
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