Pension Release

czql5vr

Hello All,

I hope someone is able to help.

This is my situation. Myself and my wife are thinking of putting in an offer for a house. We fall short of the asking price by 150k. I was thinking of withdrawing one of my pensions worth 60k in order to reduce the shortfall and therefor save interest on the monthly payments which will result in a small mortgage.

I am currently in the 40% tax bracket and also paying into a Salary Sacrifice pension scheme through my employer. I contribute 45% to this each month and this has resulted in a reduced yearly income of 24,200. I also receive an on-call allowance of £8000 a year. Total yearly salary income is £32,500.

In addition to my yearly salary I also have a yearly pension of £24,000. Both yearly incomes come to £56,500 and therefor I am in the 40% tax bracket and would have to pay some of the 60k pension at 40% tax. 

My question. If I manage to contribute extra to my Salary Sacrifice and manage to get the yearly income below £50k threshold would I qualify for 20% Tax and would I only pay 20% on the 60k.

If further clarification on explanation is needed please let me know.

If you can help or offer any advice it would be very much appreciated.

Regards.

Dazed_and_C0nfused

czql5vr said:

Hello All,

I hope someone is able to help.

This is my situation. Myself and my wife are thinking of putting in an offer for a house. We fall short of the asking price by 150k. I was thinking of withdrawing one of my pensions worth 60k in order to reduce the shortfall and therefor save interest on the monthly payments which will result in a small mortgage.

I am currently in the 40% tax bracket and also paying into a Salary Sacrifice pension scheme through my employer. I contribute 45% to this each month and this has resulted in a reduced yearly income of 24,200. I also receive an on-call allowance of £8000 a year. Total yearly salary income is £32,500.

In addition to my yearly salary I also have a yearly pension of £24,000. Both yearly incomes come to £56,500 and therefor I am in the 40% tax bracket and would have to pay some of the 60k pension at 40% tax. 

My question. If I manage to contribute extra to my Salary Sacrifice and manage to get the yearly income below £50k threshold would I qualify for 20% Tax and would I only pay 20% on the 60k.

If further clarification on explanation is needed please let me know.

If you can help or offer any advice it would be very much appreciated.

Regards.

You cannot look at each source of income independently.

Say you got your existing (taxable) earnings and pension income down to £50,270 so no bother rate tax was payable 

If you then took £45k taxable pension from the £60k pension (I'm assuming you haven't already taken 25% TFLS) then you would pay 40% tax on the whole of the £45k 😳.

I'd your existing was only say £49k then you would basic rate tax on a bit of the £45k but 40% on the vast majority.

You could easily turn £60k into just £42k after tax.

And you are getting close to tapered Personal Allowance territory.

Marcon

Dazed_and_C0nfused said:

Say you got your existing (taxable) earnings and pension income down to £50,270 so no bother rate tax was payable 

Beware this little-known tax!!

...and you'd trigger the Money Purchase Annual Allowance, meaning any future contributions to your current scheme (?assuming it's defined contribution rather than defined benefit, and sounds as if it is?) would be limited to £10K per annum for every future tax year. That £10K includes personal contributions, tax relief on these, and any employer contributions whether made by salary sacrifice or 'genuinely' by the employer.

dunstonh

Pension Release

Be wary using that phrase.   It has negative connotations.  Frequently referring to scams.

In addition to my yearly salary I also have a yearly pension of £24,000. Both yearly incomes come to £56,500 and therefor I am in the 40% tax bracket and would have to pay some of the 60k pension at 40% tax. 

You would have all of the taxable element charged at 40%.
Plus you would need to notify your employer scheme and ensure that contributions do not exceed £10,000 a year.

My question. If I manage to contribute extra to my Salary Sacrifice and manage to get the yearly income below £50k threshold would I qualify for 20% Tax and would I only pay 20% on the 60k.

no.  You would need £5000 income or less for it not to fall under a higher rate tax.

Can you afford to rob your retirement years to pay for something that should be met out of money from your working years?

xylophone

Can you afford to rob your retirement years to pay for something that should be met out of money from your working years?

The poster has what looks like a DB pension (presumably index linked) of £24,000 already in payment  (a), a pension to which he is

currently contributing (b),   is presumably looking forward to full NSP (c) (he should check here https://www.gov.uk/check-state-pension)

and in addition, the pension which is is considering accessing (d).

It would appear that his retirement years should be pretty well covered by (a), (b) and (c)?

With regard to (d), presumably this is a standard DC.

If so, as stated above, if  he takes more than the tax free PCLS from (d), he will trigger the MPAA in respect of future

contributions to any other DC pension, including his current workplace scheme if this is DC.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/money-purchase-annual-allowance-mpaa

jimjames

czql5vr said:

My question. If I manage to contribute extra to my Salary Sacrifice and manage to get the yearly income below £50k threshold would I qualify for 20% Tax and would I only pay 20% on the 60k.

You will also be very close to the limit of how much you can salary sacrifice so you don't go below the minimum wage. Pension income doesn't count so it would only be your salary that is used for that calculation.

dunstonh

The poster has what looks like a DB pension (presumably index linked) of £24,000 already in payment  (a), a pension to which he is
currently contributing (b),   is presumably looking forward to full NSP (c) (he should check here https://www.gov.uk/check-state-pension)

and in addition, the pension which is is considering accessing (d).

It would appear that his retirement years should be pretty well covered by (a), (b) and (c)?

All sounds very nice whilst alive but what about on death?  He is married.  So, spouse could be facing the loss of one state pension and 50% of the DB pension.    If the pension provision is loaded in his name and not hers, then that could leave her with a big drop in living standards.

There doesn't sound like there are other savings and investments as there wouldn't be the need to raid the pension early if that was the case.

xylophone

There is no information on the OP's wife's own occupational/private pension provision  or her state pension situation (which she can check as above).

With regard to the death of the OP before his spouse, £12,000 per annum index linked, a state pension (assuming OP's wife were of SPA) and whatever provision he made from his current workplace pension would hardly be a pittance?

If they have a mortgage, one would hope that there is insurance in place to cover death of either party before repayment.

The OP may also have other pension provision in addition to a, b, c and d - this is not wholly clear from his first post.

dunstonh

There is no information on the OP's wife's own occupational/private pension provision  or her state pension situation (which she can check as above).

Hence why its worth pointing it out as it may not have been considered.

With regard to the death of the OP before his spouse, £12,000 per annum index linked, a state pension (assuming OP's wife were of SPA) and whatever provision he made from his current workplace pension would hardly be a pittance?

However, the OP says he is a higher rate taxpayer (we don't know spouse position).   So, they have a lifestyle based on over £50k a year (possibly more) and will have limited savings/investments and are looking to move up the property ladder.  So, £24k may not be enough.
        

If they have a mortgage, one would hope that there is insurance in place to cover death of either party before repayment.

You would hope but nowadays, more mortgages are arranged without life assurance being put in place.    

The OP may also have other pension provision in addition to a, b, c and d - this is not wholly clear from his first post.

Indeed.   These are all scenario questions and comments that need to be considered.    They may have been considered but they may not have been.

czql5vr

HI All,

Thanks very much for the information provided. Its very much appreciated.

From what I have learnt I am beginning to think that clearing out one of my personal pension pots may not be the sensible thing since I am also contributing to SS of 50% with my current employer.

I wouldn't want the situation to be that I could only SS 10% of my salary after closing that particular Pension Pot. Its a shame and I don't think there is any way I would be able to cash in that particular pension pot without sacrificing 40% in tax.

Once again Regards and thanks to all who have taken the time out to reply.

Albermarle

czql5vr said:

HI All,

Thanks very much for the information provided. Its very much appreciated.

From what I have learnt I am beginning to think that clearing out one of my personal pension pots may not be the sensible thing since I am also contributing to SS of 50% with my current employer.

I wouldn't want the situation to be that I could only SS 10% of my salary after closing that particular Pension Pot. Its a shame and I don't think there is any way I would be able to cash in that particular pension pot without sacrificing 40% in tax.

Once again Regards and thanks to all who have taken the time out to reply.

There would be nothing to stop you just taking the 25% tax free cash from it, if that helped.
This would not trigger the restriction on adding money to your current pension.