Questions on Private Pension

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81892332#Comment_81892332

Sounds like Making Tax Digital!

tksnota

I understand that 25% of private pension is free and 75% is taxed when I do withdrawal but no tax will happen if the 75% fund is still invested

I have a few questions based from these scenarios.

1. Scenario Pensioner: I want to withdraw most money from the 75% fund and pay the tax via my monthly State Pension. Will this be possible?
2. Scenario Pensioner: Will HRMC get the tax full amount from my monthly State Pension leaving me with nothing and until the full amount has been settled which might take years?
3. Scenario 55+ years old: Withdrawal from the 75% might be subjected to the 40% tax. Will I get the full money first then pay the starting from the next financial year which is April I assume.
4. Scenario 55+ years old: Paying the 40% tax for a year will consume more than half of my salary. How can I make the payment manageable by paying longer terms so I can keep more money to pay my monthly expenses.

thanks. tksnota

DRS1

When you take taxable income from a private pension the tax is collected under PAYE just like the tax on a salary. The state pension is paid gross - no PAYE is operated on it at the moment. when you receive the state pension that will be reflected in your tax code on the private pension making you pay more tax on the private pension.

It is usually not a good idea to draw a pension while you are still working.

JoeCrystal

https://forums.moneysavingexpert.com/discussion/comment/81892258#Comment_81892258

The best answer is… soon and eventually, in the fullness of time!

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81952704#Comment_81952704

1. No, tax is never deducted from the State Pension
2. No. The maximum tax deduction at source from pension and earnings is set at 50%, even if that is insufficient to pay all the tax that should really be deducted. But as per point 1 this doesn't apply to the State Pension, which is always paid gross by DWP.
3. No.
4. The maximum tax that can ever be deducted from one source of earnings of pension is 50%. If anything extra is owed it is payable direct to HMRC at a later date. You would hope the majority of the tax would be deducted from the pensionm

molerat

As far as tax is concerned taking a pension is just like having another job and will use the same PAYE system, HMRC will apply tax codes, and just like in any job having a large bonus payment - or in this case taking a large lump sum withdrawal - will result in a disproportionately large tax deduction which may be resolved over the rest of the year or may need a claim. As stated PAYE will not deduct more than 50% of the gross payment so if that does happen you will get a bill to be paid directly to HMRC - usually around October after the end of the tax year to be paid by January. It is your responsibility to ensure the correct tax is paid so it is in your interests to understand how the system works so you are not taken by surprise if and when that bill drops on the doormat.

Marcon

It is your responsibility to ensure the correct tax is paid so it is in your interests to understand how the system works so you are not taken by surprise if and when that bill drops on the doormat.

…and understanding isn't that easy! Here's some help: https://www.litrg.org.uk/tax-nic/how-tax-collected/pay-you-earn-paye

tksnota

Is there a way to force the other 50% tax payment via pension while still working or I need to wait until I’m a pensioner for this to happen?

QrizB

Is there a way to force the other 50% tax payment via pension while still working or I need to wait until I’m a pensioner for this to happen?

I don't entirely understand the question.

If you're drawing taxable income from a pension, whether also working or not, it's just another PAYE income stream. HMRC can assign a tax code that can take up to 50% of that income stream.

hyubh

https://forums.moneysavingexpert.com/discussion/comment/81952748#Comment_81952748

Technically it's operational now, in fact I've made find requests myself...

(Not 'fully operational' indeed, but schemes of note have all connected to the central architecture and it's in industry testing.)