Would take-home-pay be affected by cashing in pension?

m33r4

I paid into a pension for 2 years and it's accrued approximately £6000. I left that job and the pension is sitting in the pension provider's account. I am now 55 and can take money out of my pension.

My daughter is saving towards a deposit for a house and I wish to help her. I work full time 37.5 hours week and my annual before tax is £42K. After current tax and NI I take home about £2700 pcm.

Questions I'd like your knowledge on please as I have no experience of this:

1. If I withdrew the lot, how would that affect my annual/monthly take home pay, and how long will this continue?
2. Would my tax code change?
3. Would I need to apply for a new tax code to resume my take home pay rate before I cashed the pension?
4. Am I still liable to pay tax on taking the pension if I was giving it as inheritance to my daughter?

I also have another NHS pension I paid into for 12 years and considering taking some money out of that too.

Thank you very much.

Marcon

m33r4 said:

I paid into a pension for 2 years and it's accrued approximately £6000. I left that job and the pension is sitting in the pension provider's account. I am now 55 and can take money out of my pension.

My daughter is saving towards a deposit for a house and I wish to help her. I work full time 37.5 hours week and my annual before tax is £42K. After current tax and NI I take home about £2700 pcm.

Questions I'd like your knowledge on please as I have no experience of this:

1. If I withdrew the lot, how would that affect my annual/monthly take home pay, and how long will this continue?
2. Would my tax code change?
3. Would I need to apply for a new tax code to resume my take home pay rate before I cashed the pension?
4. Am I still liable to pay tax on taking the pension if I was giving it as inheritance to my daughter?

I also have another NHS pension I paid into for 12 years and considering taking some money out of that too.

Thank you very much.

1. 25% of your pension pot will be tax free, and the remaining 75% will be taxed at an emergency rate by the pension provider. If you do proceed with this plan, ensure your provider knows that you wish to cash in your pot using something known as the 'small pots' regime. That way you won't trigger something called the Money Purchase Annual Allowance, which would limit the amount you could contribute in future if you wanted to rebuild your pension provision
2. Not if you apply to HMRC for a refund of any overpaid tax before the end of the tax year
3. Doesn't work like that - see 1. above
4. Yes, because (happily) you are still alive!

Re the NHS pension - you can't just dip into that in the same way. You would have to put the pension into payment (heavily reduced because it is being paid years before the scheme's retirement age) and would have an option to take a lower pension + tax free cash.  Laudable as it is that you wish to help your daughter, robbing your retirement years to do so might not be a great idea - and certainly not by permanently reducing your future NHS pension.

Albermarle

How do you intend to fund your retirement? Living off the state pension+ a modest NHS pension will not be a life of luxury ! Plus little chance to retire early.
Ideally you should probably be putting extra money into pensions, not taking it out.
Fully appreciate you want to help your daughter, but you have to look after yourself as well.

katejo

Albermarle said:

How do you intend to fund your retirement? Living off the state pension+ a modest NHS pension will not be a life of luxury ! Plus little chance to retire early.
Ideally you should probably be putting extra money into pensions, not taking it out.
Fully appreciate you want to help your daughter, but you have to look after yourself as well.

I was thinking the same. I wouldn't have considered touching my pension before 60. I am even feeling mildly concerned at the reduced amount which will be paid into it when I drop to 4 days a week later this year (since I have to continue to 65 to get the full pension.