Stupid question re DC pension into drawdown and 25pc tax free

jonnycash1212

I am currently below state pension and living on savings.
I am over 55
My question js can i put my pension into drawdown and withdraw 12749 per annum from my pension and leave the 25pc tax free to be drawn at eg state pension age

Follow up question: is the 25 pc tax free amount frozen at the time of first drawdown against the value at that point

E.g. if i have current value of 100k is the amount going to be 25k that i can withdraw tax free in 10 years time ?

Thanks

Exodi

As far as I understand, you can either take it as a lump sum - e.g. £25k in one go right away, known as PCLS.

Or you can take it as and when you drawdown from your pension, and 25% of each withdrawal would be tax free, known as UFPLS.

The value of the tax free element would always be changing in the second scenario (subject to the Lump Sum Allowance of £268,275), so if you didn't take it in one lump sum, as your investments grow, so to would the tax free element you could withdraw (which is why most on this forum suggest not taking the lump sum at the start).

It's not possible to take out taxable cash without touching the tax free element.

(this is just my understanding, I don't have first-hand experience).

QrizB

jonnycash1212 said:

My question js can i put my pension into drawdown and withdraw 12749 per annum from my pension and leave the 25pc tax free to be drawn at eg state pension age

The short answer is no, you can't.

You can take the 25% in advance, or at the same time, but you can't leave it in the pension after you've taken the taxable part.

If you take the 25% but don't want to spend it, you can reinvest it outside the pension.

molerat

Withdraw £16760 from the pension, £4190 tax free and £12570 taxable but within your allowance.  Pay £2880 back into the pension and the taxman will add £720.  £13880 in your pocket at a cost of £13160 to your pension pot.  Obviously need to tailor those amounts around other taxable income such as savings interest - remembering that with only £12570 taxable income you could have £6K savings interest with no tax due.

DRS1

Typically someone in your position wanting to take taxable income up to their personal allowance would do the UFPLS thing and would include an extra 25% as tax free cash (taking them up to a total withdrawal of c £16k).

Albermarle

jonnycash1212 said:

I am currently below state pension and living on savings.
I am over 55
My question js can i put my pension into drawdown and withdraw 12749 per annum from my pension and leave the 25pc tax free to be drawn at eg state pension age

Follow up question: is the 25 pc tax free amount frozen at the time of first drawdown against the value at that point

E.g. if i have current value of 100k is the amount going to be 25k that i can withdraw tax free in 10 years time ?

Thanks

You could probably benefit from a chat with PensionWise. It is free and they will not try to sell you anything.
If you do arrange this make sure you have details of your pension to hand,
Pension Wise: free pension guidance | MoneyHelper

LHW99

molerat said:

Withdraw £16760 from the pension, £4190 tax free and £12570 taxable but within your allowance.  Pay £2880 back into the pension and the taxman will add £720.  £13880 in your pocket at a cost of £13160 to your pension pot.  Obviously need to tailor those amounts around other taxable income such as savings interest - remembering that with only £12570 taxable income you could have £6K savings interest with no tax due.

And this is the UFPLS thing that @DRS1 and @Exodi are talking about