only 47 but being offered a cash lump sum from closing pension.

Akaroa

Hello All, first time on the Forum so please bear with me. I am only 47 and have recently received a letter regarding a pension i was briefly in at a former job.
 
The pension fund is closing and i am being offered the chance to take a cash lump sum of approx £2000 (25% will be tax free) so will be taxed on around £1500. 

as opposed to doing nothing and receiving £80.00 per annum when i retire. 

My concern is if i take this lump sum will it affect my tax code and place me on Emergency tax? my Salary is around £30,000 so i am taxed at 20%. 

Could anyone offer any insight as to how this would impact my tax code should i choose to take this amount?

Thanks in advance!

DRS1

So you're not asking how you could be offered such a payment given that you are under 55?

DRS1

Winding-up lump sums - Royal London for advisers

If you go to the end of this note it explains the tax.

Marcon

Akaroa said:

Hello All, first time on the Forum so please bear with me. I am only 47 and have recently received a letter regarding a pension i was briefly in at a former job.
 
The pension fund is closing and i am being offered the chance to take a cash lump sum of approx £2000 (25% will be tax free) so will be taxed on around £1500. 

as opposed to doing nothing and receiving £80.00 per annum when i retire. 

My concern is if i take this lump sum will it affect my tax code and place me on Emergency tax? my Salary is around £30,000 so i am taxed at 20%. 

Could anyone offer any insight as to how this would impact my tax code should i choose to take this amount?

Thanks in advance!

It's a one off winding up lump sum, so nothing dodgy. You'll get 25% tax free and the pension provider will deduct basic rate tax from the remaining £1,500. Neither of those actions will impact on your tax code unless you're a higher rate taxpayer or the £1,500 would push you into a higher tax bracket - and if you are on a salary of £30k with little or no other taxable income, that won't apply.

molerat

Akaroa said:

Hello All, first time on the Forum so please bear with me. I am only 47 and have recently received a letter regarding a pension i was briefly in at a former job.
 
The pension fund is closing and i am being offered the chance to take a cash lump sum of approx £2000 (25% will be tax free) so will be taxed on around £1500. 

as opposed to doing nothing and receiving £80.00 per annum when i retire. 

My concern is if i take this lump sum will it affect my tax code and place me on Emergency tax? my Salary is around £30,000 so i am taxed at 20%. 

Could anyone offer any insight as to how this would impact my tax code should i choose to take this amount?

Thanks in advance!

Or the third option of transferring it to another pension.

Marcon

molerat said:

Akaroa said:

Hello All, first time on the Forum so please bear with me. I am only 47 and have recently received a letter regarding a pension i was briefly in at a former job.
 
The pension fund is closing and i am being offered the chance to take a cash lump sum of approx £2000 (25% will be tax free) so will be taxed on around £1500. 

as opposed to doing nothing and receiving £80.00 per annum when i retire. 

My concern is if i take this lump sum will it affect my tax code and place me on Emergency tax? my Salary is around £30,000 so i am taxed at 20%. 

Could anyone offer any insight as to how this would impact my tax code should i choose to take this amount?

Thanks in advance!

Or the third option of transferring it to another pension.

Better bet is to take the cash and then reinvest it in OP's current workplace pension (or other personal pension arrangement). The amount is too low to fall foul of recycling regulations, and there'd be an extra bit of tax relief (bringing it up to around £125 "extra overall") once safely tucked into another pension) making it a better deal - even more so if OP's employer will let them make the contribution by salary sacrifice (and might even get an extra bit of employer contribution).

FIREDreamer

No MPAA implications presumably?

Marcon

FIREDreamer said:

No MPAA implications presumably?

No - it's a DB scheme.

singhini

Akaroa said:

Hello All, first time on the Forum so please bear with me. I am only 47 and have recently received a letter regarding a pension i was briefly in at a former job.
 
The pension fund is closing and i am being offered the chance to take a cash lump sum of approx £2000 (25% will be tax free) so will be taxed on around £1500. 

as opposed to doing nothing and receiving £80.00 per annum when i retire. 

My concern is if i take this lump sum will it affect my tax code and place me on Emergency tax? my Salary is around £30,000 so i am taxed at 20%. 

Could anyone offer any insight as to how this would impact my tax code should i choose to take this amount?

Thanks in advance!

As pointed out by others, it won't affect your tax code
The pension company should give you 25% of the money tax free i.e. £500 and then take off 20% tax on the £!.500 and then give you that aswell (so £300 gets taken off as tax and you receive £1,700)

If you were to take the offer, i would do what "Marcon" has suggested "Better bet is to take the cash and then reinvest it in OP's current workplace pension (or other personal pension arrangement)."

If you can get the money back into a pension you might be in a better financial place ------> if you were to say put the £1,700 into a SIPP, the SIPP company will claim tax relief automatically for you and so they will add £425 to the £1,700 making it £2,125  which pointed out in "Marcon's" post "(bringing it up to around £125 "extra overall)" 

Even better still is if you can speak to your HR department and see if you could try to add an extra £1,700 into your work pension (the theory is since you have just received a cheque for £1,700 you could afford to ask your employer if you can salary sacrifice £1,700 out of your wages and put it into the work pension). -----> the benefit of doing it this way instead of the SIPP is you avoid paying both income tax and NI on the £1,700 and your employer might be able to add a few quid aswell -----> hence why "Marcon" also said "even more so if OP's employer will let them make the contribution by salary sacrifice"

Apologies, i didn’t mean to make that sound overly simple — I just wanted to make it easy to follow and make sure you don't pay any unnecessary tax. 

HedgehogRulez

Why do people get obsessed about their tax code? It doesn’t really relate to your tax liability, just a means of payment. It shouldn’t be a significant consideration 

Marcon

HedgehogRulez said:

Why do people get obsessed about their tax code? It doesn’t really relate to your tax liability, just a means of payment. It shouldn’t be a significant consideration 

A request for clarification is hardly 'obsessed'.