Pension Drawdown

Scruffy_Meee

Albermarle said:

Scruffy_Meee said:

Linton said:

a)  You cannot take a taxable sum without taking or having taken the corresponding 25% tax free.

b) How you do this is very flexible.  You can take it all in one go or you can take regular payments consisting of 25% tax free and 75% taxable or something in between.  You should check whether your pension scheme provides this flexibility.
 
c)  If you only take some, but not all the tax free amount your pot is effectively split into 2 parts.  The first part where the tax free 25% has alreadt been taken is "crystallised".  The second part consisting of the money for which the tax free has not been taken is "uncrystalised"*.  Any new money goes into the uncrystalised part.

To take a simple example.:
1) You start with £200K with a possible £50K of tax free money available.
2) You take £20K tax free.  This leaves you with 3X£20K= £60K crystalised and £120K uncrystalised still in your pension.
3) You pay in £50K**.  So you now have the previous £60K crystalised and £120K+£50K =£170K uncrystalised.
4) So you could take 25%of £170K tax free.

*Different pensions implement this in different ways.  Your pot could be physically split giving you possibly different investments in the crystalised and uncrystalised portions.  Alternatively the pension scheme could smply maintain a % crystalised figure that is adjusted when money is withdrawn or paid in.

** you can only pay in £50K if this was covered by earned income (ie from employment) received in the same tax year.

Sorry just trying to get my head around your example, Can you explain this further - 
You take £20K tax free.  This leaves you with 3X£20K= £60K crystalised and £120K uncrystalised still in your pension.
If I took 20K tax free would I not be left with a possible 30K take free I could take?

The pension i have is a current private pension which I am still paying into.

After you took the £20K tax free, you would be left with .

£60 K crystallised ( this means no more tax free from this part, anything you take from this part is taxable income)

And £120K still uncrystallised, so 25% can still be taken tax free from this and the rest would be crystallised. If in the meantime the pension grew or shrunk, you would actually get 25% of that ( so could be more or less than 25% of £120K )

thanks, I understand now.

Scruffy_Meee

Albermarle said:

Scruffy_Meee said:

squirrelpie said:

And if/when you take even 1p of taxable money from your pension, you forever limit how much you can pay into your pension each year to £10k (google MPAA for detail)

So after I take any money out the max I can pay back in each year is 10K? It that 10K overall or me paying in 10K. So for example if I am in a private pension and I pay in 6K a year can my employer only pay in 4K?

If you only take tax free cash then the MPAA of £10K does not apply.
It will apply as soon as you take one penny of taxable income from the pension.
The £10K includes your contribution, tax relief and employer contribution.

Normally it is best to avoid taking taxable income from your pension, whilst you are still working /contributing.

Thanks, so if I took the 25% or less tax free allowance then I can carry on contributing as much as Like upto the 60K threshold.

Linton

Scruffy_Meee said:

Albermarle said:

Scruffy_Meee said:

squirrelpie said:

And if/when you take even 1p of taxable money from your pension, you forever limit how much you can pay into your pension each year to £10k (google MPAA for detail)

So after I take any money out the max I can pay back in each year is 10K? It that 10K overall or me paying in 10K. So for example if I am in a private pension and I pay in 6K a year can my employer only pay in 4K?

If you only take tax free cash then the MPAA of £10K does not apply.
It will apply as soon as you take one penny of taxable income from the pension.
The £10K includes your contribution, tax relief and employer contribution.

Normally it is best to avoid taking taxable income from your pension, whilst you are still working /contributing.

Thanks, so if I took the 25% or less tax free allowance then I can carry on contributing as much as Like upto the 60K threshold.

If you mean  because of the Annual Pension Allowance, yes.  But of course you would still need sufficient earned income.  Unlike the Annual Allowance there is no carry over from previous years.

Another factor to consider is pension recycling.  HMRC dont want you to use your tax free cash to finance more pension contributions than would otherwise be made and hence get a second bite at the tax free cherry. This is frequently discussed on this forum.

NickPoole

On recycling, when I applied for partial retirement and gave my pension options one of the questions was whether I intended to recycle tax fee lump sum into pension(s).

I suspect the correct answer is "no".