Withdrawing tax free amount from pension pot.

Albermarle

TELLIT01 said:

Albermarle said:

The normal advice is not to take the 25% tax free, just because it is there. She can take it later ( up to age 75 with current rules).
However if she has a use for it now, then it makes more sense to take it.

There is a potential use for it.  There is a niggling concern that the new Government may make changes to pension rules to fatten their coffers.  One obvious option would be to do away with the tax free element.

It is not obvious at all . Removing the 25% tax free would be deeply unpopular amongst all income groups, so will not happen.

Also it would remove a lot of incentive for pension saving, something both Labour and Conservative have always encouraged, and only at the weekend RR was talking about getting a better deal for pension savers.

dunstonh

Qyburn said:

Albermarle said:

The normal advice is not to take the 25% tax free, just because it is there. She can take it later ( up to age 75 with current rules).

What happens age 75 or later, is everything taxable? That would be a big incentive to pull out any remaining tax free beforehand.

For as long as she is alive, the 25% continues beyond age 75.  However, its often a good idea to take the 25% at 75 and use other tax wrappers for it unless the estate is subject to IHT.

TELLIT01

Albermarle said:

TELLIT01 said:

Albermarle said:

The normal advice is not to take the 25% tax free, just because it is there. She can take it later ( up to age 75 with current rules).
However if she has a use for it now, then it makes more sense to take it.

There is a potential use for it.  There is a niggling concern that the new Government may make changes to pension rules to fatten their coffers.  One obvious option would be to do away with the tax free element.

It is not obvious at all . Removing the 25% tax free would be deeply unpopular amongst all income groups, so will not happen.

Also it would remove a lot of incentive for pension saving, something both Labour and Conservative have always encouraged, and only at the weekend RR was talking about getting a better deal for pension savers.

Gordon Brown raided the pension funds back in 1997. 

dunstonh

TELLIT01 said:

Albermarle said:

TELLIT01 said:

Albermarle said:

The normal advice is not to take the 25% tax free, just because it is there. She can take it later ( up to age 75 with current rules).
However if she has a use for it now, then it makes more sense to take it.

There is a potential use for it.  There is a niggling concern that the new Government may make changes to pension rules to fatten their coffers.  One obvious option would be to do away with the tax free element.

It is not obvious at all . Removing the 25% tax free would be deeply unpopular amongst all income groups, so will not happen.

Also it would remove a lot of incentive for pension saving, something both Labour and Conservative have always encouraged, and only at the weekend RR was talking about getting a better deal for pension savers.

Gordon Brown raided the pension funds back in 1997. 

Not really.  It is frequently referred to as a raid, but it wasn't.     He abolished ACT, which allowed funds to reclaim the tax paid on dividends from companies in which they owned shares.

For the financial year 1999-2000, that measure equated to an annual £5.4 billion from pension funds. However, that sum was partly offset by other tax deductions and hit higher-yielding shares more than low-yielding shares. It is considered one of the events that has led to the FTSE100 being less attractive to pension funds.   For context, in 1997, UK institutional investors owned almost 50% of UK shares.    Now it is under 4%.   It was also considered one many reasons why DB pensions closed.   

It should also be noted that Gordon Brown was the second to reduce ACT.   Norman Lamont was the first with a reduction from 25% to 20%.  GB just went the whole hog.

So, he didn't really raid the pensions but he took away a tax relief that companies had been taking advantage of to avoid paying into the DB schemes coffers using their own money.

It was a classic stealth tax, but the raid is the wrong word as that suggests money taken from the pot when it was actually the removal of a relief that was added to the pot.

TELLIT01

The changes brought in Gordon Brown reduced the amount of money available for investment in pension schemes.  Call it a stealth tax if you wish.  So a raid by any other name

dunstonh

TELLIT01 said:

The changes brought in Gordon Brown reduced the amount of money available for investment in pension schemes.  Call it a stealth tax if you wish.  So a raid by any other name

How can it be a raid if no money was taken from the pension?

Tax relief used to be 30% for basic rate taxpayers.  So, are you calling the reduction to 20% a raid as well?

BigGirlPants

dunstonh said:

Qyburn said:

Albermarle said:

The normal advice is not to take the 25% tax free, just because it is there. She can take it later ( up to age 75 with current rules).

What happens age 75 or later, is everything taxable? That would be a big incentive to pull out any remaining tax free beforehand.

For as long as she is alive, the 25% continues beyond age 75.  However, its often a good idea to take the 25% at 75 and use other tax wrappers for it unless the estate is subject to IHT.

Can I ask why particularly at 75 is it a good idea to take the tax-free lump sum and move it to other wrappers?

Sarahspangles

BigGirlPants said:

dunstonh said:

Qyburn said:

Albermarle said:

The normal advice is not to take the 25% tax free, just because it is there. She can take it later ( up to age 75 with current rules).

What happens age 75 or later, is everything taxable? That would be a big incentive to pull out any remaining tax free beforehand.

For as long as she is alive, the 25% continues beyond age 75.  However, its often a good idea to take the 25% at 75 and use other tax wrappers for it unless the estate is subject to IHT.

Can I ask why particularly at 75 is it a good idea to take the tax-free lump sum and move it to other wrappers?

Because the tax treatment of lump sums from pensions changes when someone dies who was over that age. Summarised here. https://www.gov.uk/tax-on-pension-death-benefits

The original post pre-dates announcements about inheritance tax reform affecting pensions, these take effect in two years. So if IHT is relevant you’d be better starting a new thread to get up to date views.