NEST WORKPLACE PENSION AND TRYING TO TAKE MONEY OUT PITFALLS

bladerunnergaff

im in the govt nest workplace pension scheme and have been for a few years. I enquired about taking a large % of the pot out in one lump sum but find that the penalties for doing so are very restrictive. Not only do they take a whopping 21% (im in scotland) tax of any amount you wish to borrow but the balance you do get then counts towards your income for the current financial year. If i take the amount out i planned i would go into the current 42% supertax as my total income would take me over the limit. It seems a bit wonky that you can go to a bank and get a loan and that doesnt count towards your total income yet a pension pot you have paid into for years does. Any contributions that your employer makes or the 1% tax relief the govt pays towards Nest gets wiped out by the income tax levy. Yes, you get 25% tax free but if your planning to take out £10/11/12K your looking at circa £2K tax deducted - crazy. Just had to share this....

molerat

You can't get a loan from a pension pot, you take a taxable income.  The idea is to provide you with an income when you stop working.  It is not a savings account that you dip into when you want to buy some new trinkets.

dunstonh

im in the govt nest workplace pension scheme and have been for a few years. 

Just for reference, it is not a government scheme.      Auto-enrolment rules were set by Government and initially it was concerned that the providers wouldnt cater for small employers.  So, NEST was set up to do that.  However, it turned out to be unnecessary as a number of providers decided to focus on small employers as well.

. I enquired about taking a large % of the pot out in one lump sum but find that the penalties for doing so are very restrictive.

Nest doesn't have any penalties.

Not only do they take a whopping 21% (im in scotland) tax of any amount you wish to borrow but the balance you do get then counts towards your income for the current financial year.

a) you cannot borrow against the pension
b) the tax is not 21% on what you draw.   It is an effective 15.75% for Scotland (15% for England & Wales).  25% is tax free, 75% is added to your income and if its basic rate tax (Sc) on the whole amount, then that equates to 15.75%.
c) noted that in your case, it could take you into higher rate.

 It seems a bit wonky that you can go to a bank and get a loan and that doesnt count towards your total income yet a pension pot you have paid into for years does.

It seems a bit wonky to think that a loan and a pension income should be considered similar things.

 Any contributions that your employer makes or the 1% tax relief the govt pays towards Nest gets wiped out by the income tax levy. 

No it doesn't.  You get tax relief going in and you pay tax on 75% of it, above your personal allowance, on the way out.   It is still an effective gain.    Nest does not get 1% tax relief.

 Yes, you get 25% tax free but if your planning to take out £10/11/12K your looking at circa £2K tax deducted - crazy. Just had to share this....

That is not correct.  
£10k out would have £2,500 tax free and £7,500 taxable.   At Scottish basic rate that is £1,575.
However, that £10k only cost you £8,000 (less if higher rate taxpayer).   So, that is £2,000 gained in the way in.  No income tax or capital gains tax on the investments, whilst invested.  No inheritance tax on the pension fund when you die and £1575 on the way out. 

xylophone

Not only do they take a whopping 21% (im in scotland) tax of any amount you wish to borrow 

Why do you think that you can borrow from a pension?

Are you of  an age to be permitted to access your pension?

It would be possible to take a tax free Pension Commencement Lump Sum

and leave the  balance invested.

Once you access the balance, it will be taxed at the rate appropriate to your circumstances.

https://www.nestpensions.org.uk/schemeweb/memberhelpcentre/retirement-pot/what-happens-after-taking-money-out.html#:~:text=You can take your money,your account will be closed.

You might wish to book a Pension Wise appointment for guidance.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

Have you obtained a state pension forecast?

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

Marcon

bladerunnergaff said:

It seems a bit wonky that you can go to a bank and get a loan and that doesnt count towards your total income yet a pension pot you have paid into for years does. 

Loans have to be paid back to the lender....you keep the cash once you've withdrawn it from a pension scheme.

bladerunnergaff said:

Any contributions that your employer makes or the 1% tax relief the govt pays towards Nest gets wiped out by the income tax levy. Yes, you get 25% tax free but if your planning to take out £10/11/12K your looking at circa £2K tax deducted - crazy. Just had to share this....

Probably better if you didn't share something which is so totally incorrect and likely to confuse other people, but hopefully you now have a better grasp of the matter.