A few Pension queries please …

TimeToLiveNotWork

Hi

New to this forum but hoping you can help with some queries regards me taking early retirement….

1) Does it matter what tax year i take my pension lump sum seeing as it is tax free (25% up to cap)

2) Can I take my 25% in separate chunks or does input have to be the full lump sum in one go?  I.e if say my 25% was £100k…. Can I take £30k in feb then £30k July then rest say December?  NB I may or may not continue to make use of my tax earning allowance separately via my company dividends

3) If I had to take full lump sum in one go I.e. £100k but don’t spend it … I assume any interest earned as savings is taxable as normal?

thanks in advance 

Brie

A question back to you - what type of pension are you talking about?  Private pension?  Work pension?  If so, defined benefit or defined contribution?  

And different schemes allow different things - one of my work pensions allowed me to take drawdown over 2 years but I had to draw the whole amount in that time.  I could designate how much to take in either year and of that 25% was tax free and the rest was not.  So I made sure that in doing so I didn't go above the higher tax threshold.   That said I was taxed at 40% but that was on the assumption I would get the same big amount every month which of course didn't happen.  And so HMRC refunded that not much later.  

Marcon

TimeToLiveNotWork said:

Hi

New to this forum but hoping you can help with some queries regards me taking early retirement….

1) Does it matter what tax year i take my pension lump sum seeing as it is tax free (25% up to cap)

2) Can I take my 25% in separate chunks or does input have to be the full lump sum in one go?  I.e if say my 25% was £100k…. Can I take £30k in feb then £30k July then rest say December?  NB I may or may not continue to make use of my tax earning allowance separately via my company dividends

3) If I had to take full lump sum in one go I.e. £100k but don’t spend it … I assume any interest earned as savings is taxable as normal?

thanks in advance 

Check the terms of your pension - sounds as if it's a defined contribution arrangement, but if it was started some considerable time ago, it may not offer the sort of flexibility you'd like.

Helpful reading: https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/what-is-flexible-retirement-income-pension-drawdown

Secret2ndAccount

Tax free lump sum is tax free, outside of tax, not taxed, never taxed. It cannot affect your tax calculation.
If you put the money in a savings account and earn interest, you might end up paying tax on the interest exactly like any other savings - once it's out it's just cash. First £1000 of interest is taxed at zero. If you have no other income, up to £17k of interest could be taxed at zero.
You are permitted to take your TFLS in any number of chunks of any size at any time. Whether your pension provider is able to cope with this is another matter. You also have the option to transfer your pension to a different provider who can better meet your needs.
I am saying all this assuming your pension is a DC pension - a pot of money. If it's a final salary pension, quite different rules apply.

Drawing tax free cash will result in your pension pot being notionally split into two internal parts. There will be a crystallised part - the tax free part is taken, and all future withdrawals are liable to tax. Then there will be an uncrsytallised part - still elgibile for 25% TFLS. If the crystallised pot were to grow due to investment gains, it would still all remain taxable. If the uncrystallised part were to grow, then the 25% tax free part would grow too. So, on the hopeful assumption that that your invetments will grow and not shrink, you should leave each TFLS withdrawal in until you have a good plan to use it.

TimeToLiveNotWork

many thanks …I can confirm it is DC not Final Salary.

TimeToLiveNotWork

@Brie…
Can you explain why only 25% was tax free when you took a lump sum sorry?  

If the 25% of my Pot was sat £100k and I took that then it’s not taxed at all is it?  Only taxable when I start to drawdown above that 25% total of £100?
Am I wrong?

DRS1

TimeToLiveNotWork said:

@Brie…
Can you explain why only 25% was tax free when you took a lump sum sorry?  

If the 25% of my Pot was sat £100k and I took that then it’s not taxed at all is it?  Only taxable when I start to drawdown above that 25% total of £100?
Am I wrong?

Sounded to me as if she took the whole pension not just the tax free 25% so the 75% was taxed.

Marcon

TimeToLiveNotWork said:

@Brie…
Can you explain why only 25% was tax free when you took a lump sum sorry?  

If the 25% of my Pot was sat £100k and I took that then it’s not taxed at all is it?  Only taxable when I start to drawdown above that 25% total of £100?
Am I wrong?

Probably best to ignore 'non-standard' personal experiences, since they are likely to confuse - which seems to have happened here!

Please have a look at the link I gave above, which gives a clear explanation of what you are hoping to do.

A free appointment with PensionWise might help too: https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

Albermarle

OP - Nobody has mentioned it yet but presume you are old enough to start taking withdrawals from your pension ? Currently minimum age 55.

If you said who the pension provider was and approx how old it is , it might indicate how flexible it might be in how you take withdrawals.
Quite often it is necessary to transfer to a new pension, to get the flexibility and maybe a better website, customer service etc 
However you will be glad to hear transferring DC pensions is pretty easy nowadays and usually free.