How to calculate and pay tax on pension withdrawal

Bandy2023

MEM62 said:

@Bandy2023 This is possibly the worst financial decision that you can make.  Firstly, you are taking money from your future self.  Most of us will see a retirement income that is less than we earn when working.  If you are not managing on what you making now how will you manage to live on your pension income - a income that you are eroding even further to cover current spending?  Today's financial challenges need to be met from today's money.  All you are doing by robbing your pension is kicking the can down the road and potentially creating a situation where you will be living out your twilight years in poverty.  Bear in mind that you will also be paying 40% tax on any withdrawal instead of £20 by taking it in retirement.  Any way you look at this it cannot be considered anything other than a very ill advised course of action.      

No offence, but I'd have thought it pretty obvious that my needs 'now' won't be the same when I retire.
I currently have a mortgage which has rocketed along with everything else, and we wouldn't need two cars either etc.etc.etc.
I will also have an inheritance coming at some point, no one lives forever.
So what I earn now is pretty irrelevant to how comfy I will be in retirement, I don't expect to have the same income, but won't need it either

MEM62

Bandy2023 said:

MEM62 said:

@Bandy2023 This is possibly the worst financial decision that you can make.  Firstly, you are taking money from your future self.  Most of us will see a retirement income that is less than we earn when working.  If you are not managing on what you making now how will you manage to live on your pension income - a income that you are eroding even further to cover current spending?  Today's financial challenges need to be met from today's money.  All you are doing by robbing your pension is kicking the can down the road and potentially creating a situation where you will be living out your twilight years in poverty.  Bear in mind that you will also be paying 40% tax on any withdrawal instead of £20 by taking it in retirement.  Any way you look at this it cannot be considered anything other than a very ill advised course of action.      

No offence, but I'd have thought it pretty obvious that my needs 'now' won't be the same when I retire.
I currently have a mortgage which has rocketed along with everything else, and we wouldn't need two cars either etc.etc.etc.
I will also have an inheritance coming at some point, no one lives forever.
So what I earn now is pretty irrelevant to how comfy I will be in retirement, I don't expect to have the same income, but won't need it either

None taken.  But nothing is obvious.  We can only respond to the information that is provided and, in most cases, what you are proposing is far from a sensible idea.  For most people there is a direct correlation between finances in retirement and finances when working.  The hope is that the relative drop between the two does not result in a drastic drop in lifestyle / living standards when you cease work.  I still hold the opinion that you need to address todays spending with todays income.  You have to live on less than you make.  It is a basic principle.  Yes, mortgages have gone up and the narrative is that they are unusually high.  Actually this is not the case, the reality is that they have returned to more normal levels.  It is only since the 2008 crisis that they plummeted and that was never going to last forever.  People have become used to cheap borrowing and those days are gone. 

Whatever solution you put into place, I hope you manage to get your financial ship back on course.            

MetaPhysical

I agree with the narrative here.  Taking the pension now is robbing your future self and limiting your potential to save into your pension moving forward.  I of course understand that you have pressing needs now, many of us do.  But try at all possible to find another avenue other than robbing your pension pot to fund present day expenditures.  Even a loan is preferable.

Qyburn

Doesn't it also depend on the debt that's going to be paid off? If it's a £10k overdraft costing 40% then that's more likely to make sense, compared to say paying off a chunk of mortgage at 5.25%.

MallyGirl

penners324 said:

You'd then trigger the MPAA limiting future pension contributions to £10k per year.

You'd also pay tax at 42% on the withdrawal.

Sounds an utterly dreadful idea

no NI on pension income

Dazed_and_C0nfused

MallyGirl said:

penners324 said:

You'd then trigger the MPAA limiting future pension contributions to £10k per year.

You'd also pay tax at 42% on the withdrawal.

Sounds an utterly dreadful idea

no NI on pension income

Or is the op Scottish resident? 

Qyburn

Dazed_and_C0nfused said:

MallyGirl said:

penners324 said:

You'd also pay tax at 42% on the withdrawal.

no NI on pension income

Or is the op Scottish resident? 

Not according to his first post ..

Bandy2023 said:

I'm a 40% earner, so if I withdrew £10K how would I calculate how much to 'hold back' for tax?

Bandy2023

Ok, so the withdrawal has been done, the provider applied an emergency code 1257L.
How do I now get the correct code applied and find out if I need to 'hold back' some for an additional tax payment?

Bandy2023

MetaPhysical said:

I agree with the narrative here.  Taking the pension now is robbing your future self and limiting your potential to save into your pension moving forward.  I of course understand that you have pressing needs now, many of us do.  But try at all possible to find another avenue other than robbing your pension pot to fund present day expenditures.  Even a loan is preferable.

You're actually suggesting I add to my outgoings by getting a loan...?
I get what you're saying about the future, but this is terrible advice.

molerat

If you are already a 40% tax payer then tax of £4000 was due on that payment.  You had £2952 deducted so owe another £1048.  There is not much you can do about it now.  HMRC will reconcile  23-24 later in the year and adjust your tax code to recoup any underpaid tax. Look on it a an interest free loan.