pensions pot

CosmicDancer_21

hello all, 
hope i could get some advice here please,  just found out i have a pension that i had totally forgot about,  but due to earnings if i take it all it would push me into the next tax bracket,40%, 
my questions are,
1, if i take the lot now would i pay higher tax on   all my earnings for the rest of the year, or on just the amount over the 50000,
2, if i pay the higher tax would i be able to draw the pension next year  like February or march and just pay the higher tax for a couple of months,
 
i can take a tax free amount  then something like 50 a month for life, 
 thank you all so much ,  finding this a total mine field
:-)

Marcon

CosmicDancer_21 said:

hello all, 
hope i could get some advice here please,  just found out i have a pension that i had totally forgot about,  but due to earnings if i take it all it would push me into the next tax bracket,40%, 
my questions are,
1, if i take the lot now would i pay higher tax on   all my earnings for the rest of the year, or on just the amount over the 50000,
2, if i pay the higher tax would i be able to draw the pension next year  like February or march and just pay the higher tax for a couple of months,
 

If this is a defined contribution scheme, and it's an 'old' pension (given you'd forgotten about it, it could be quite elderly!), check what options the provider offers - in particular whether you can take 'phased drawdown' (chunks of cash at irregular intervals). You can take 25% tax free, and anything over that would be added to your taxable earnings for the tax year in which you make the withdrawal.

CosmicDancer_21 said:

i can take a tax free amount  then something like 50 a month for life, 
 thank you all so much ,  finding this a total mine field
:-)

This sounds more like a defined benefit scheme. Your tax free cash will be whatever amount the scheme rules permit, and then the £50 a month will be added to your taxable income for the tax year in which you receive it.

You could ask the scheme if 'total commutation' (taking the whole lot as cash) is possible under the scheme's rules, in which case you'd be taxed on anything over the tax free bit, and the balance would be added to your other taxable income for the tax year in which you receive it.

If you don't need the money now, do you have to take it now? Would waiting put you in a lower tax bracket (although at only £50 a money the extra tax isn't going to be a huge issue either way)? Check if there's a 'late retirement' option under the scheme rules.

xylophone

just found out i have a pension that i had totally forgot about,  

What kind of pension?

https://www.gov.uk/pension-types

What information have you been given as to how you may access this pension?

CosmicDancer_21

thanks you, 
 ill get back to you i think its one where i can take 25% then like 50 a month for life, but cant take   so much this year   and so much next, if you know what i mean, they will allow me to transfer to another provider, but im guessing i will loose money that way.

Marcon

CosmicDancer_21 said:

thanks you, 
 ill get back to you i think its one where i can take 25% then like 50 a month for life, but cant take   so much this year   and so much next, if you know what i mean, they will allow me to transfer to another provider, but im guessing i will loose money that way.

Only if there's some sort of exit charge (rare these days, but possible on older contracts if it is in deed a defined contribution scheme), so ask that too.

xylophone

ill get back to you i think its one where i can take 25% then like 50 a month for life, but cant take   so much this year   and so much next, if you know what i mean, they will allow me to transfer to another provider, but im guessing i will loose money that way.

Is this a defined benefit pension where you have been given a Cash Equivalent Transfer Value?

If so, what is it?

Can you name the pension scheme?

Post  up the letter you have received (with personal details removed)?

CosmicDancer_21

thanks, its a  annuity pension,   and i can take 1/4 tax free i realise that,   just need to know if im best waiting till end of tax year to take some then take some more  next tax year if poss or not 

xylophone

thanks, its a  annuity pension,   

But this type of pension does pay a specific amount every month (or other period) after taking the PCLS.

Please can you indicate how this pension arose and the provider/administrator?

af1963

On the original questions - couple of bits that sound unclear about how tax works ...

Nobody ever pays 40% on *all* their income - just the part above the relevant threshold.

And although PAYE tax is taken monthly, the tax you're due to pay is calculated on an annual basis - so it doesn't save any tax by "taking the lot now" in Feb or Mar.  ( If you're allowed to "take the lot now" ) 

The "25% tax free" would be ignored in your tax calculation, but anything else you take would be added to your taxable income for the whole year. 

If you don't need it immediately, why not leave it until you're no longer earning so that none of it gets taxed at 40% ?  ( If you retire before state pension age and have no other income, you might even end up being able to take it and pay no tax at all, if you keep each annual withdrawal less than your annual tax free allowance.) 


 

dunstonh

CosmicDancer_21 said:

thanks, its a  annuity pension,   and i can take 1/4 tax free i realise that,   just need to know if im best waiting till end of tax year to take some then take some more  next tax year if poss or not 

When you say annuity pension, are you referring to a section 226 retirement annuity contract?    Some of those had greater than 25% TFC available as they pre-date the 25% rule.  Most have now reset to 25% but you should check to see if there is protected tax free cash entitlement (along with guaranteed annuity rates)

Section 266 RACs are unlikely to support drawdown.

CosmicDancer_21

  heck, its so complex, im so confused,  i can take  1/4 tax free, and so much a month for life, of take the whole lot, 
if i do it would push me over the 50000 tax  mark for 20%,
so would i pay,20% tax on my wage then 40% on everything over that amount?  or would i pay 40% tax on  the whole lot, wage, pension.
those are my options, or i can loose money by transferring it to another provider,  where i can take  it over a few years,