Prudential huge mistake who's accountable...

artyboy

bjorn_toby_wilde said:

artyboy said:

LeafGreen said:

MallyGirl said:

Please can that be the last comment in the style of 'thank you for contributing to the public coffers by paying unnecessary tax'. 

I can't believe someone has gone to the trouble of creating a fake account to do that!

Well, that's one possibility...

I think LeafGreen is referring to the post before Mallygirl's where someone has created an account in the name R_Reeves

Yes. And the other possibility I was alluding to was that our esteemed chancellor had actually joined MSE. 

But then I guess if I had to explain this joke to you, it may not have been that funny 🤣

bjorn_toby_wilde

artyboy said:

bjorn_toby_wilde said:

artyboy said:

LeafGreen said:

MallyGirl said:

Please can that be the last comment in the style of 'thank you for contributing to the public coffers by paying unnecessary tax'. 

I can't believe someone has gone to the trouble of creating a fake account to do that!

Well, that's one possibility...

I think LeafGreen is referring to the post before Mallygirl's where someone has created an account in the name R_Reeves

Yes. And the other possibility I was alluding to was that our esteemed chancellor had actually joined MSE. 

But then I guess if I had to explain this joke to you, it may not have been that funny 🤣

Too subtle for me 😂

Exodi

Francesco28 it's clear it's not sinking in and I worry you misinterpret everyones' genuine attempts to help you as lecturing or sticking our noses in.

I just want one last stab at it before I join the board accepting defeat and letting you off on your mission of self destruction.

You pay tax on the amount of income you receive in a year:

The first £0-£12,570 you earn you pay 0% tax on
Then between £12,571 - £50,270 you pay 20% tax
Then between £50,271 and £125,140, you pay 40% tax
Then any income above £125,470 you pay 45% tax

So if I earn £50k (for example), I'd pay 0% tax on the first £12,570, and then 20% tax on the next £37,430 (so £7,486 in tax).

When you take money out of a pension, it is also considered as income.

Most people ensure they receive combined income (remember this includes state pension) of £50,270 or less each year, as they know they'll be paying 40% tax on any money they receive above this and to be honest this is more than enough for most people. You can also add to this amount by taking money from your TFA, if necessary. The game with pensions is trying to take the money out at a lower tax bracket than was refunded paying in.

The problem with your plan is this:

Let's say you wanted to get out of investing like you said and so you are now sitting with your pension pot in cash. Let's say you have a pot of £770k.

You could take £38.5k per year for example for 20 years (adding this to the £11.5k state pension gives you £50k income for the year), where you'd pay £7,486 each year in tax as illustrated above. Over 20 years, you'd pay £149,720 in tax (20x £7486) withdrawing your £770,000 pension (or ~19%).

Alternatively, your idea is to take the whole pension pot in on go, making your income for that one year £770k (plus any other income received during the year).

So to follow this through, you would pay £0 on the first £12,570, then 20% on the next £37,700 (£7,540 in tax), then 40% on the next £74,870 (£29,948 in tax), then 45% on the remaining £644,530 (£290,038.50 in tax) - bringing your total tax bill to £327,526.50. On top of this, when your income pokes into the additional rate (45%), you lose the personal allowance (0%), so you'd pay an additional £5,656.50 in tax on top making the grand total tax bill £333,183 on £770,000 (or ~43%). I didn't even include the state pension which would also be taxed at 45%.

There are additional things like benefits in kind, inflation, changes to thresholds, government policy, pot growth, state pension, etc but I wanted to keep the example as simple as possible.

Hopefully this helps illustrate why your plan is absolute madness. You would almost certainly be paying more in tax than you ever received in relief while you were working.

It doesn't help your beneficiaries, it actively decimates the amount they might hope to receive one day.

Lastly I think you think P53Z is a silver bullet where HMRC will give you a big tax refund, but that isn't what will happen. It's usually used to correct emergency tax deductions (e.g. someone withdraws their full pot, an emergency tax rate of 20% is applied on the whole amount, but it turns out the taxpayer received no other income in the year so they are refunded the part they should have paid 0% tax on). It is a relatively negligible amount of money (3-4 figures) compared to the sums we are potentially talking about with you (potentially 6 figures of unnecessarily overpaid tax).

sheramber

If the pension company deduct 20%tax there will be a large underpayment rather than a  repayment. 

Do not spend any of the money until your tax is sorted out. 

Hoenir

sheramber said:

If the pension company deduct 20%tax there will be a large underpayment rather than a  repayment. 

They won't. Not the way the payroll tax system works, 

Triumph13

Just for clarity, Exodi missed the fact that 25% would have been tax free, but OP will still be looking at a massive and unnececessary tax bill.

I suspect he has got confused about the tax refund situation. because he is likely to have been taxed as if he was going to withdraw the same amount every month, rather than as a one off.  He should therefore get a small tax refund, but most of the tax won't be refunded for precisely the reasons that Exodi points out.  Depending on the size of the pot and what other income OP has, there is a good chance that he is looking at paying well into six figures more in tax than he needed to, but it's his funeral.

Pat38493

Skimming through this thread, I suspect that one of the things that Francesco has not realised, is that you don't only pay 20% tax on the entire pension, if you decide to take the entire pension all in one tax year (6th April to 6th April).

The tax you pay in each tax year, is based on the amount you earned in that year all added up, including your earnings from employment, pensions etc.  If it's more than certain limits, you pay a higher percent on the amount above that threshold e.g. 40%.

This means that if you take your entire pension at the same time, unless it's a pretty small amount, you would end up paying a lot more than 20% tax on it because you are taking it all at the same time and not spreading it over multiple years.

By the way, I am pretty sure that you would have been requested to read documents which explained what others are trying to explain to you on this thread, before making the withdrawal.  It's a legal requirement for them to alert you to these points.

Also, as others have pointed out, your family will still inherit the pension if you die, so you don't need to withdraw it all to stop that from happening.

(I really hope that you didn't try to do this quickly when you realised that it was overstated by £123K and hoping that you would get to keep the money by the way, as this was never going to happen - even if they had accidently paid out the £123K that never existed, you would have had to pay it back when they realised the error).

As others have stated, your best course of action is to stop the withdrawal if it's still possible to do so, as your posts here seem to indicate that you do not understand how pensions are taxed.

The only exception could be, if your total taxable income (including the 75% taxable part of the pension withdrawal and any other income like taxable savings income), is less thatn £50270 in the current tax year.  

GingerTim

I've just read through this thread and now I feel very sad.

ali_bear

The OP is lone gone. Probably off buying an extra large mattress to stuff it all under. 

Exodi

ali_bear said:

The OP is lone gone. Probably off buying an extra large mattress to stuff it all under. 

I don't think they'll need an extra large one after the taxman is finished...

GingerTim said:

I've just read through this thread and now I feel very sad.

Maybe, if not for the constant attitude. We've done all we can, I think we can only be grateful for the generous donation now (assuming they achieve it as I suspect there will be a handful of checks in place to counteract the inevitable future complaint/lawsuit when it finally sinks in).

There will be a thread next year: "Misled By Prudential", mark my words.