Pension Tax free allowance

Brricktop69

I have a question relating to Tax on a pension, although I thought I understood it I have been told I may be wrong.

I understand that I am able to take 25% tax free from my DC pension but just assumed that anything above this would automatically be taxed at 20%, I have been told that this is not the case if I have no other income.

If I assume that I wanted to retire 5 years before state pension age and had a pot of £300k, In very simple terms and knowing the figures wont be exact and inflation and growth will affect the numbers.

Am i right in saying that I could take £75k Tax free using £15k per year for each of the five years and then take £12k a year from the remaining pot of £225k for five years giving me an income of £27k tax free?

This would then leave me around £165k

When the State pension kicks in at 67 to get the same £27k, i could draw out £15k from the pot knowing i would lose £3k in tax. but netting out at the £12k difference required for the next 11 years.

Again, I know i need to plan later than 78 years old and am just using numbers as examples, I have a wife with her own pension that i have not factored in as well as savings.

Dazed_and_C0nfused

I understand that I am able to take 25% tax free from my DC pension but just assumed that anything above this would automatically be taxed at 20%, I have been told that this is not the case if I have no other income.

That's not quite the whole story.  You could have other (taxable) income and still not pay any tax. 

For example say your total taxable income comprised part time earning of £5,200 and pension income of £6,000 then no tax would be payable

Am i right in saying that I could take £75k Tax free using £15k per year for each of the five years and then take £12k a year from the remaining pot of £225k for five years giving me an income of £27k tax free?

No, it would be £15k that is tax free and £12k that is taxable income.  There may be no tax to pay on the £12k but you will find life easier if you differentiate between tax free/exempt income and taxable income.

And that sounds a relatively unusual way of approaching things. Each time you take £15k TFLS you crystallise £60k of your pension.  After taking out the £15k TFLS and £12k in taxable pension income you are left with £33k in that crystallised part of your pension.   That will always be taxable, for example if it grew to £40k then the whole £40k is taxable income (when taken out of the pension).

xylophone

https://www.mandg.com/wealth/adviser-services/tech-matters/pensions/lump-sum-options/ufpls#:~:text=UFPLS are a way of,some protections are in place.

Sarahspangles

If your tax code is 1257L you can take £16,760 a year, 25% of which is tax free and the rest taxable, but as it is wholly within your personal allowance you don’t need to pay tax.

Dazed_and_C0nfused

Sarahspangles said:

If your tax code is 1257L you can take £16,760 a year, 25% of which is tax free and the rest taxable, but as it is wholly within your personal allowance you don’t need to pay tax.

And if you have applied for Marriage Allowance then £16,760 becomes £15,080 (£3,770 TFLS plus £11,310 taxable pension).