Withdrawal from Standard Life

Green_hopeful

My mum has £22k in a Standard Life pension. She doesn’t know what sort of pension it is but I guess she was paying into it in the late 1990s to 2000 as she left that job then. She has an income of about £24k. She is 75. Standard Life have been sending her valuations each year and then just after her 75 birthday they have written to say that the pension was designed for people under 75 and not her so they might charge more. 

As she is and will be a basic rate tax payer going forward, I suggested she could just take the money out and pay the tax of about £3000 as she will pay tax on it anyways. 

She has sufficient capital and income from a DB pension and state pension. She will also be well over the IHT limit so if we leave it in the pension, her estate will have a 40 % liability on it. As a result, I think she should get it out and spend it. 

Have I missed anything and will she be ok just to contact Standard Life and ask for the money. 

Dazed_and_C0nfused

Green_hopeful said:

My mum has £22k in a Standard Life pension. She doesn’t know what sort of pension it is but I guess she was paying into it in the late 1990s to 2000 as she left that job then. She has an income of about £24k. She is 75. Standard Life have been sending her valuations each year and then just after her 75 birthday they have written to say that the pension was designed for people under 75 and not her so they might charge more. 

As she is and will be a basic rate tax payer going forward, I suggested she could just take the money out and pay the tax of about £3000 as she will pay tax on it anyways. 

She has sufficient capital and income from a DB pension and state pension. She will also be well over the IHT limit so if we leave it in the pension, her estate will have a 40 % liability on it. As a result, I think she should get it out and spend it. 

Have I missed anything and will she be ok just to contact Standard Life and ask for the money. 

The tax (£3,300?) will ultimately be correct but she can probably avoid too big an initial over deduction at source by taking it in two withdrawals (if SL offer that option).

One smallish one (hundreds max) then once HMRC have issued a basic rate tax code she can take the rest.

If it is all taken at once then the emergency code (1257L) used on the first payment will result in a lot of tax to start with as she is taking the equivalent of £200k/year.

Green_hopeful

@Dazed_and_C0nfused thanks. Does it make a difference that she is already paying tax on her pensions. 

Dazed_and_C0nfused

Green_hopeful said:

@Dazed_and_C0nfused thanks. Does it make a difference that she is already paying tax on her pensions. 

Sort of.

That is why a basic rate tax code should be put in place by HMRC for a second payment.

But she also needs to consider the overall position, taking it one go and tipping into higher rate territory might be easily avoided by splitting it across two tax year.  Especially given there is currently a smallish window to cover two different tax years.

From what you have posted she is probably well under the higher rate limit.  But if the £24k you mentioned didn't include (taxable) interest or she is Scottish resident for tax purposes then she could be much closer than you think.

Green_hopeful

@Dazed_and_C0nfused thank you. I will see what we can do. Hopefully it will be ok to split it into two payments.