Advice On Small Pension Pot

Dazed_and_C0nfused

Ciprico said:

I think a small pot has to be less than 10k though you can have three of them... Which is subtly different to a single pot of 30k.

And a fraction of the op's £71k.  Although they could potentially split it if MPAA is a factor.

xylophone

A small pot is £30k or less so unless your £71K figure was a typo you can’t simply use the small pot rule.

Yes indeed - I had misread £71K as 7K so have deleted post with reference to small pot.

slpierce

Albermarle said:

slpierce said:

Thanks for all your replies, and apologies I didn't give enough info.

It's a personal pension pot worth 71k at the last evaluation at Feb this year, I have not contributed to the pot for a decade or so, It just sits there growing slowly over the years I'm 54 yrs old, my basic salary is £40K so I pay 20% Income tax atm, I'm in good health and plan on working for many more years, I wont need to use this pension pot as a retirement income.

House is almost paid for so have around £450K equity in that, no Credit cards or loans, Wife works for the government and could retires next year on very good pension. 

Thanks in advance for any advice.

You still have not said why you want to withdraw it, is there a specific reason ?

No specific reason, I just wanted to know my option, when I reach 55, as I said I don't need this pot for an income, so It's potentially money we could spend on whatever we wanted, seems like I have two options, take the hit for the 40% tax and get the money quickly, or spread it over several years and pay 20% tax.

slpierce

QrizB said:

Linton said:

slpierce said:

It's a personal pension pot worth 71k at the last evaluation at Feb this year

25% is tax free leaving about £53K taxable. If you took all of the money in one tax year your £40K salary would leave about £43K taxed at 40%. To avoid higher rate tax you would have to spread the drawdown over several years.

So (in round numbers) you'd get £18k tax-free, pay £2k tax on £10k and £17k tax on the remaining £43k.

This would give you £52k in your pocket and £19k to the Exchequer.

Alternatively, you could take the £18k tax-free then spread the rest out over 5 years, avoiding the 40% tax band and saving £8k in tax.

How desperate are you to get this into your bank account? Is your need urgent enough that you're happy to pay £8k to do it?

Thanks for those numbers, that makes it much more clear, I have another related question, If I requested the whole sum, is it taxed at source before I receive it, or do i have to do that myself?

Thanks

Dazed_and_C0nfused

slpierce said:

QrizB said:

Linton said:

slpierce said:

It's a personal pension pot worth 71k at the last evaluation at Feb this year

25% is tax free leaving about £53K taxable. If you took all of the money in one tax year your £40K salary would leave about £43K taxed at 40%. To avoid higher rate tax you would have to spread the drawdown over several years.

So (in round numbers) you'd get £18k tax-free, pay £2k tax on £10k and £17k tax on the remaining £43k.

This would give you £52k in your pocket and £19k to the Exchequer.

Alternatively, you could take the £18k tax-free then spread the rest out over 5 years, avoiding the 40% tax band and saving £8k in tax.

How desperate are you to get this into your bank account? Is your need urgent enough that you're happy to pay £8k to do it?

Thanks for those numbers, that makes it much more clear, I have another related question, If I requested the whole sum, is it taxed at source before I receive it, or do i have to do that myself?

Thanks

It will be taxed using the emergency tax code (1257L) so you will pay no tax on a bit then some will be deducted at 20%, 40% and 45%.

Total will be £22,340, so you'd be due a refund from the tax deducted by the pension company.

This will be automatically refunded by HMRC after the end of the tax year.  Or you can make a claim during the year if you want.  But it's tricky to get any in year claim perfectly correct when you are still working and the amount of basic rate band available could change.