25% tax free?

KTMlad70

I am 55, have 1 pension pot with Standard Life which currently has £200k in it. 
I have no intensions of retiring early at the moment, if I take out 25% (£50k) and pay off my outstanding mortgage which is around £50k, I will continue to put in £2k a month to it & say my pension pot grows to £400k or £500k will I pay tax on everything or do I get another tax free allowance from the £200k or £300k growth in say 10 or 12 years time ?

eskbanker

Once you've taken the 25%, that's it for good, no second bite of the cherry....

Edit: sorry, that's wrong in terms of subsequent contributions, as below.

molerat

You will pay tax on the remaining £150K and any growth, that will be held as crystalized funds.  Any further contributions and growth will be at the usual 25% / 75% rules.

af1963

Think of it as two pots.  The remaining £150k, plus any growth on that portion, won't have any further tax free cash.  The new money, plus any growth on that, will.

Some providers will split it into a "crystallised" and "uncrystallised" account, each of which is separately invested.  Others will just have one invested pot, and will track what percentage belongs to the crystallised/uncrystallised segment after each payment in or out.

KTMlad70

So from the answers so far I could, continue to put in £2k a month for the next 10 or 12 years & get 25% of that £290k tax free?

LHW99

KTMlad70 said:

So from the answers so far I could, continue to put in £2k a month for the next 10 or 12 years & get 25% of that £290k tax free?

Also of the growth on that part, subject to the total maximum tax-free amount from all pensions.

Albermarle

Do not take any taxable income at all, or you will be a lot more restricted in what you can add to the pension in the following years. If you only take the tax free money, then no problem,

WitsEnd101

Also worth considering the trade-offs between paying off the mortgage early and the potential growth of that pension for the remaining mortgage term. Very often it makes better financial sense to pay down relatively cheap mortgage finance over the remaining mortgage term than early payment. On the other hand what a great feeling it is to be mortgage free.

We chose to pay off our mortgage early but knew that was probably not the best financial option. 

KTMlad70

WitsEnd101 said:

Also worth considering the trade-offs between paying off the mortgage early and the potential growth of that pension for the remaining mortgage term. Very often it makes better financial sense to pay down relatively cheap mortgage finance over the remaining mortgage term than early payment. On the other hand what a great feeling it is to be mortgage free.

We chose to pay off our mortgage early but knew that was probably not the best financial option. 

Very good advice, thanks.   The end goal is to be mortgage free but we've only 3 years left to go, just weighing up all our options. Our monthly mortgage is about £1600 which between us we need to earn over £2200 pre-tax, I'd rather pay that £2200 salary sacrifice into my pension pot & reduce my tax liability if that makes sense?
Am I overlooking something?

af1963

Looks like a pretty high interest rate on the mortgage ?  If there's 50k outstanding and it will take 3 years to pay off at 1600 per month ( £19k per year), that seems to be just under 10% annual interest rate on the outstanding balance?  If that's the case, paying it off would probably make sense.

Cheaper mortgage might be another option though.

Seanster

If you take tax free monies and then increase your pension contributions significantly you will fall foul of pension recycling rules.