Small pot pensions

corky2

I have two small pots of pensions, one with Utmost (10k) and one with Standard Life (£7K) I was just about to withdraw the tax free amount of 25% on each and noticed that I could use the small pots exemption instead. I haven't use this before.
How does it work in practice? Do I email the provider? 
I am worried about triggering a tax demand/reduction in the amount I can save into a pension if I get it wrong as I am still contributing into a pension plan through work.

Doctor_Who

corky2 said:

I have two small pots of pensions, one with Utmost (10k) and one with Standard Life (£7K) I was just about to withdraw the tax free amount of 25% on each and noticed that I could use the small pots exemption instead. I haven't use this before.
How does it work in practice? Do I email the provider? 
I am worried about triggering a tax demand/reduction in the amount I can save into a pension if I get it wrong as I am still contributing into a pension plan through work.

Lots of useful information on small pension pots below. My understanding is that taking small pension pots does not trigger the MPAA.

https://www.litrg.org.uk/tax-guides/pensioners/how-do-i-cash-my-small-pension
https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/small-pots-and-triv-qna

corky2

Thank you Doctor Who - I have looked at the link "Although the initial tax applied may be different (usually small pots are taxed at basic rate) both types of payment are ultimately treated in the same way and any over or underpaid tax would need sorted out with HMRC directly." - so I would be required to sort out the tax deducted with HMRC myself?

molerat

How much is the "£10K",  £9999 or £10001 ?

Why do you want to cash them in and give the taxman £2.5K (or more) ?

corky2

Molerat - thank you. That was the question. I misunderstood as I thought the small pots exemption meant no tax. So it is taxable? (I pay 40% tax) If so, I will stick to withdrawing the 25% tax free amount. 

Doctor_Who

corky2 said:

Molerat - thank you. That was the question. I misunderstood as I thought the small pots exemption meant no tax. So it is taxable? (I pay 40% tax) If so, I will stick to withdrawing the 25% tax free amount. 

Yes - The tax situation is explained in the link above (the text below is taken from that link):

Do I have to pay tax on trivial commutation and small pots lump sum payments?

The pension payer will deduct tax under Pay As You Earn (PAYE) from the taxable part of the lump sum at the time of making the payment to you. How much tax is taken depends on your circumstances:

1. If the trivial commutation lump sum comes from a pension scheme operated by your former employer – either their own scheme, or one operated for them by a specialist pension provider – the pension payer will normally deduct tax on the basis of the tax code that applied to your earnings immediately before retirement;
2. In most other circumstances, the pension payer must deduct tax from the trivial commutation lump sum using a basic rate tax code. This means that the pension payer must deduct tax from the taxable part of the lump sum at a flat rate of 20%. So, let’s say your trivial commutation lump sum is £10,000, £2,500 of that is tax free and £7,500 is taxable. Using the basic rate code, tax of £1,500 will be taken off (£7,500 x 20%).

corky2

Thank you Doctor Who - that has saved me £8k in tax as I was assuming small pots were somehow tax free. I really appreciate it.