Tax free sum rules and annuities

Safersurfer

Hi, like a lot of people I suspect, I find pensions very confusing. I just need an answer to two straightforward questions (the more I research this online the more confused I get!).

1. I know you can usually take 25% of your pot tax-free from the age of 55. If I do this, does the remaining amount stay invested in my pension - or do I have to decide now what to do with the remaining sum? So if I had 100k, and took 25,000 now at 55, would the 75k remain in my pension until I decide to access it when I retire at 67?

2. Is the amount of your pension pot that is transfered into an annuity taxed? In the example above, if I decided to transfer the remaining 75k into an annuity because I had already taken my tax-free sum, would that 75k be taxed - so I would only be able to pay, say, 50k (75k less tax) into an annuity or can transfer the whole 75k?

Thanks

NoMore

1) yes its possible to do that, only take the tax free and leave the rest in pension.

2) You can use the whole 75k to buy annuity, only the income from the annuity will be taxable

How old are you ? If your above 50 a call with Pension Wise, the government run help site, would help answer these and other questions you have with your pensions
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Pension Wise: free pension guidance | MoneyHelper

Marcon

Safersurfer said:

Hi, like a lot of people I suspect, I find pensions very confusing. I just need an answer to two straightforward questions (the more I research this online the more confused I get!).

1. I know you can usually take 25% of your pot tax-free from the age of 55. If I do this, does the remaining amount stay invested in my pension - or do I have to decide now what to do with the remaining sum? So if I had 100k, and took 25,000 now at 55, would the 75k remain in my pension until I decide to access it when I retire at 67?

2. Is the amount of your pension pot that is transfered into an annuity taxed? In the example above, if I decided to transfer the remaining 75k into an annuity because I had already taken my tax-free sum, would that 75k be taxed - so I would only be able to pay, say, 50k (75k less tax) into an annuity or can transfer the whole 75k?

Thanks

1. You can take your 25% tax free now and leave the rest until a future date - doesn't have to be 67. Alternatively, you could take less than 25% tax free cash and then take some more at a later date. If you don't have an immediate use/other tax-efficient savings vehicle in which to invest, that may be worth considering.
2. If you buy an annuity, you'll (potentially) be taxed on the income it provides in each tax year. If you have no other income, then it may fall within your tax-free personal allowance, so you won't pay tax on it. You can use the whole 75% to buy an annuity, or take a lesser amount and buy a smaller annuity - and access any balance as and when you choose to do so.

Albermarle

Hi, like a lot of people I suspect, I find pensions very confusing. I just need an answer to two straightforward questions (the more I research this online the more confused I get!).

Apart from the useful link supplied for PensionWise, you could also spend some time scrolling through this forum, which you will probably find more useful than googling.

Safersurfer

Thank you all for your help. You've anwered my questions.