Working out tax on more than one pension - HELP

Lucyloo1000

Hi - I wondered if someone could help me, I'm trying to work out what tax I will pay if I get lump sums from my two pensions? I know that I get 25% tax free but I'm confused about my personal allowance and how its all calculated. 
Pension 1 is 23k and Pension 2 is 20k. I would like to get a lump sum because I have a lot of debt that needs to be paid off, otherwise I would have taken it a different way, but there's no alternative, I know this is not be the best approach as I'll have to pay more tax. But my monthly outgoings are just too high, I cannot sustain it. 
My currently salary is £43k. Can anyone tell me what tax I will need to pay? Also do I pay the tax via my self assessment or has it been deducted when I get it? 
Thank you very much in advance. 

Lucy. 

molerat

Pensions £43K so £10.75K tax free and £32.25K taxable.  £32.25K + £43K = £75.25K total income for the year.  Tax on £75.25K = £17258, tax on £43K = £6084 so £17258 - £6084 = £11174 tax on the pensions.  All of course assuming Eng/Wal.  Tax will be deducted by the pension provider on the emergency code of 1257X.  The £23K will deduct £6141 and the £20K £5128 = £11269 total so a small refund due which HMRC will sort out in due course.

Cobbler_tone

Lucyloo1000 said:

Hi - I wondered if someone could help me, I'm trying to work out what tax I will pay if I get lump sums from my two pensions? I know that I get 25% tax free but I'm confused about my personal allowance and how its all calculated. 
Pension 1 is 23k and Pension 2 is 20k. I would like to get a lump sum because I have a lot of debt that needs to be paid off, otherwise I would have taken it a different way, but there's no alternative, I know this is not be the best approach as I'll have to pay more tax. But my monthly outgoings are just too high, I cannot sustain it. 
My currently salary is £43k. Can anyone tell me what tax I will need to pay? Also do I pay the tax via my self assessment or has it been deducted when I get it? 
Thank you very much in advance. 

Lucy. 

Hi Lucy, so many if's, buts and maybes....

Assuming:
- They are both defined contribution schemes.
- You have no other income. No salary sacrifice and no taxable benefits....i.e. your taxable income is £43k
- You have a standard tax code.
- You are over 55.

I reckon you'll pay about £11.5k in tax to take the whole lot after the tax free lumps sums.

As to how and when that is paid. There is another thread close by regarding the perils of not paying all the tax due when you think you have!
Also consider any impacts of making future pension contributions once 'cashing in' existing pensions.

Lucyloo1000

Hi there 

Thanks for the very fast reply. Yes I'm 55 and they are both work place pension schemes. I had the figure of around 10k in my head as a starting point so thank you. I will check out the other threads. Thanks again for taking the time to reply. 

GibbsRule_No3.

Lucyloo1000

Have you considered doing a DMP or could this affect your employment?  Reason for asking is that more years ago now than I care to remember, I was (or thought I was!) plodding along, taking a loan out, paying it back when suddenly I was turned down, due to reaching almost retirement age (age would have been reached during the period of the loan). Wake up call for me, as I thought it was okay and I'd use my Pension lump sums to pay the remainder off. So glad I kept my pensions untouched and did the DMP as I now have a nice sum in my semi retirement. Taking lump sum and paying tax on it to service a debt is not a good idea. The DMP also made me more financially aware and I have even more money now. If you feel really sure that you will not use the money and NOT get into debt again then it might work for you. Living on a DMP budget helped me budget now. If you do a DMP make sure it is a realistic monthly amount, do not scrimp to the bare bones or it will fail.

QrizB

Lucyloo1000 said:

Hi - I wondered if someone could help me, I'm trying to work out what tax I will pay if I get lump sums from my two pensions?

In addition to all that's been said already, you'll pay somewhat less tax if you take two separate payments, one this tax year (before 5th April) and one next. More of the taxable element will be taxed at 20% and less at 40%.

Something like a £1500 tax saving, if my mental arithmetic isn't too far off.

And I agree with Gibbs, there might be better ways to manage your debt. Take a look at the "Debt Free Wannabe" section of the forum, they can probably help.

LHW99

Be aware also, that if you take any taxable cash above the 25% tax-free lump sum, you will be limited to the MPAA (currently £10k pa) for the rest of your working / contributing life.

That may not be a factor, but worth knowing.

Have you checked the debt-free-wannabe board, for ideas to reduce your outgoings - if you don't do that, you will find yourself in the same situation in a few years time, with fewer options to sort it.

https://forums.moneysavingexpert.com/categories/debt-free-wannabe

Lucyloo1000

Thank you for all your replies. My workplace pension contribution is less than £10,000 per year. I've now got a lodger which will stop me from getting in debt again in the future.
As far as my retirement goes, there will probably not be one. I've had cancer already and most of my family have died from it, so I'm not expecting to get to old bones. I do have quite a lot of equity in my house. I'd prefer not to mess up my credit. A very long time ago I had a business and that got into difficulty and I had a lot of debt and then bad credit which I rebuilt. I was also mulling over equity release too. I thank you for all your replies to far, its been very helpful. 

af1963

To expand on what was said above: you could get most of the money out without paying any 40% tax:

Take 25% tax free from both immediately = about £10k
Take a suitable amount from one pension during this tax year so that your *total* income is under the 40% threshhold = about £7k
Take a similar amount ( minus any likely salary increase from your job next year, as that will leave less remaining allowance)  early in 2025-6 tax year = say about £6k

You'd pay 20% tax on the £7k and £6k which is about £2.6k

Every £1 you take out above that, you'd pay 40% tax on it, which may be more costly than servicing your debt.

A year later, if needed ... another £6k or so.  etc....