Pension withdraw 25% lump sum tax free

Scruffy_Meee

I am aware I could take out 25% of my pension tax free as a lump sum, after this point can I still carry on paying into the pension? If I can carry on paying in do I get 25% tax free on any additional money paid in after the point I withdrew the first 25% lump sum?

Secondly if I do not take 25% as a tax free lump sum, then when I start drawing my pension say £1000 a month do I get £250 tax free and only get taxed on the £750

SVaz

In basic terms, yes. 

dunstonh

Secondly if I do not take 25% as a tax free lump sum, then when I start drawing my pension say £1000 a month do I get £250 tax free and only get taxed on the £750

A very popular method.

Scruffy_Meee

SVaz said:

In basic terms, yes. 

So even if I withdraw 25% I can still carry on paying in. (Which is what I am thinking of doing) The maths for this must get a little complicated in the future then -

If I have 500K in a pension I take 25% out as a lump sum tax free, then over the next few years I pay in another 200K. I then start taking out £1000 a month how would Iwork out how much is tax free, not factoring in any increase in the pot from investments.

Linton

Scruffy_Meee said:

SVaz said:

In basic terms, yes. 

So even if I withdraw 25% I can still carry on paying in. (Which is what I am thinking of doing) The maths for this must get a little complicated in the future then -

If I have 500K in a pension I take 25% out as a lump sum tax free, then over the next few years I pay in another 200K. I then start taking out £1000 a month how would Iwork out how much is tax free, not factoring in any increase in the pot from investments.

When you take out a partial or full 25% tax free lump sum the corresponding 75% taxable is categorised as "crystallised".  Until then it is "uncrystallised".

You can only take tax free money from the uncrystallised portion and taxable money from the crystallised portion.  New money goes into the uncrystallised portion.

Some platforms manage this by holding separate sub-accounts of crystallised and uncrystallised investments, others simply maintain a total % crystallised figure, updating it as money is paid in or taken out.

Dazed_and_C0nfused

Scruffy_Meee said:

SVaz said:

In basic terms, yes. 

So even if I withdraw 25% I can still carry on paying in. (Which is what I am thinking of doing) The maths for this must get a little complicated in the future then -

If I have 500K in a pension I take 25% out as a lump sum tax free, then over the next few years I pay in another 200K. I then start taking out £1000 a month how would Iwork out how much is tax free, not factoring in any increase in the pot from investments.

Also, in that situation the £375k left after taking the TFLS is all taxable when taken out of the pension.

If the £375k grows back to say £450k then the whole £450k is taxable when taken out as you have the 25% TFLS up front.

You would still get 25% TFLS on any new contributions.

Subject to the ~£268k cap.

Albermarle

It is possible that a workplace pension may not allow withdrawals and still make new contributions. Most will, but worth just checking first.

Secondly if I do not take 25% as a tax free lump sum, then when I start drawing my pension say £1000 a month do I get £250 tax free and only get taxed on the £750

That is one way to do it, but there are others.. Your provider should explain on their website what withdrawal options they have.

You would probably benefit from a chat with Pensionwise.


Pension Wise: free pension guidance | MoneyHelper

squirrelpie

Scruffy_Meee said:

Secondly if I do not take 25% as a tax free lump sum, then when I start drawing my pension say £1000 a month do I get £250 tax free and only get taxed on the £750

It depends how you withdraw it. If you use a sequence of UFPLS then it behaves as you say. If you choose to "drawdown" instead then you nominate a total amount, you are paid 25% of it there and then and you specify how much of the remainder each month you want to take as taxable pay.

LHW99

Subject to the ~£268k cap

On all tax free amounts (so would include the first TFLS, and additional TF amount from additional contributions, and any possibly TFLS / PCLS from (old) work DC or DB pensions)

Cobbler_tone

This is similar to my situation. I spoke with L&G and they told me that once the 25% tax free was taken that there was no facility to continue paying into that fund. I understand the difference between crystallised and uncrystallised. They suggested you could open a new one and pay into that. Having said that the person I spoke to didn't fill me with confidence and put me on hold several times to speak to different people.
The thought of trying to implement that by speaking to our Rewards team and payroll was enough to put me off considering doing this. I'm currently paying £25k a year in via salary sacrifice and company contributions.

dunstonh

This is similar to my situation. I spoke with L&G and they told me that once the 25% tax free was taken that there was no facility to continue paying into that fund. I understand the difference between crystallised and uncrystallised. They suggested you could open a new one and pay into that. Having said that the person I spoke to didn't fill me with confidence and put me on hold several times to speak to different people.

Older contracts often cannot mix and match uncrystallised and crystallised.  (and many cannot offer drawdown at all)