Advice for small pension

Gam2015

So my dad is currently 65 working full time in a job earning about 35k per year he can get his state pension in October when he turns 66 he won’t be retiring yet as he wants to carry on working after October. He has a small pension of about 16k from a previous employer he is wanting to just pull it all out as a lump sum would he pay tax on it all or just 75%? Would he be better drawing it this tax year before say the end of March? Any advice appreciated. 

SVaz

If he has never touched the smaller pension and it is a DC one ( not a DB/ guaranteed income one)  then yes,  he will be taxed on 75% of it if he draws the lot at once.
If he’s earning £35k then he can get it all out ( the 75% / £12k at 20% tax. 
So he’s looking at £2400 in tax and it may be too late to take it in this tax year. 

He may end up paying some 40% tax in the next tax year as he will have his £35k income plus 7 months of SP, say £7k.  That gives him £8kish at 20% tax and £4k at 40%,  very roughly speaking -  So £3200 tax. 
He needs to get on to his old pension but it’s a bit tight with only around 6 weeks to get it sorted.  Some firms are better than others and there will be funds to sell before anything else. 

Just adding that he can defer his State pension for a few months until May 2026 - that will solve the 40% tax issue - I think ! 

SVaz

It all hinges on whether they get it sorted before the payment cut off date in March for payment on the 28th.    
My Wife’s cut off date is around mid month usually but her account is already in drawdown with cash there waiting.  

If he has to transfer the pension to get at it in the way he wants,  it most likely won’t be done in time. 

Brie

I've applied to do something similar with a pension pot a bit bigger than dad's.  I've asked for it to be paid in 2 payments one of £10k this tax year and £15k next.  The admin have advised that each of these payments are 25% tax free.  So in this tax year £2500 will be tax free and the balance at the basic tax rate given my other income.  The rest will be paid immediately in the next tax year and £3750 will be TF.  So basically I'll get the whole thing within a month period rather than a whole year apart between payments.  

Given the time of year most pension admin teams are working extra hard to try to try and meet the demands and expectations of their clients.  I've just had to send some more paperwork for mine but expect the first payment by the end of March.  But this is because I started the process in December as the first step is to get a quote for the options available and that can take a bit longer.  If dad hasn't already got the process in motion I doubt it will happen in this tax year.

LHW99

Or assuming it's a DC pot, and he's not desperate for the money, take half in one financial year and the rest in the next.

Marcon

Gam2015 said:

So my dad is currently 65 working full time in a job earning about 35k per year he can get his state pension in October when he turns 66 he won’t be retiring yet as he wants to carry on working after October. He has a small pension of about 16k from a previous employer he is wanting to just pull it all out as a lump sum would he pay tax on it all or just 75%? Would he be better drawing it this tax year before say the end of March? Any advice appreciated. 

Why - always a question worth asking! Does he actually need a dollop of cash in the immediate future, and that pension scheme is probably the only source of the loot? 

DRS1

Why doesn't he wait until after he stops working?  Depending on his pension(s) he may not have to worry about tax at all (except reclaiming it).

dunstonh

Gam2015 said:

So my dad is currently 65 working full time in a job earning about 35k per year he can get his state pension in October when he turns 66 he won’t be retiring yet as he wants to carry on working after October. He has a small pension of about 16k from a previous employer he is wanting to just pull it all out as a lump sum would he pay tax on it all or just 75%? Would he be better drawing it this tax year before say the end of March? Any advice appreciated. 

Does he have sufficient provision for when he stops working?
i.e. can he afford to rob his retirement years to spend extra in his working years?