Withdrawing all of pension at 55 which date in tax year is best

oliel

I plan to withdraw all of my pension in a scheme I am in at 55 (i have other pensions I still pay into).   I know what I will be taxed on 75% of this - I still work.  My question is which point in the year is best to withdraw the money start of tax year of end of tax year.   I would prefer if my employed take home pay isn't affected and the tax to just come off the pension payment is that possible?  thanks

molerat

There is no best time as such but if you want to get the correct tax deducted, leaving you not owed or owing at the end of the year or having to reclaim, you need to do it in at least 2 bites so starting off earlier in the tax year gives you more chance of getting your ducks in a row.  The first will be taxed at 1257LX after which a code will be allocated.  You can then plan how the rest needs to be taken according to the tax code allocated.  You do realise that taking 1p of taxable cash limits you to paying £10K into a DC scheme each year ? What sort of amount are we talking about, will this pension change your tax band ?

Brie

You haven't said but is there a good reason to take the pension at 55 rather than leaving it where it is?  Some people do this to clear debts or to pay for renovations or to fund a big trip.  If there's something like that then you need to consider if this is the best use of what should be your retirement nest egg.

PootleF

Are you sure this is the best way forward. 

Do you need the money urgently? If so, would it be better to take more tax free cash from multiple pensions instead of everything from one? You’re likely to pay a lot of tax, and as a previous poster says it will limit what you can contribute to DC pensions going forward. 

dunstonh

 I would prefer if my employed take home pay isn't affected and the tax to just come off the pension payment is that possible?  thanks

it may do.  HMRC generally allocate your tax code to your highest income.   If the 75% value is greater than your income, then HMRC may redirect the tax code.   Even if there is no further money to come.

Don't forget that unless you are using the small pots rule, you will be triggering the MPAA and you are legally required to notify other schemes you have that you have done so and on what date.

Albermarle

Money purchase annual allowance (MPAA) | MoneyHelper

oliel

molerat said:

There is no best time as such but if you want to get the correct tax deducted, leaving you not owed or owing at the end of the year or having to reclaim, you need to do it in at least 2 bites so starting off earlier in the tax year gives you more chance of getting your ducks in a row.  The first will be taxed at 1257LX after which a code will be allocated.  You can then plan how the rest needs to be taken according to the tax code allocated.  You do realise that taking 1p of taxable cash limits you to paying £10K into a DC scheme each year ? What sort of amount are we talking about, will this pension change your tax band ?

it won't make a difference to my tax code i will still be under the highest tax bracket so should i do 50% at beginning of year and 50% at end of year?  Would it be difference it i went into higher rate tax?

HedgehogRulez

If you went into a higher rate tax band then you’d be paying some tax at a higher rate….

Linton

oliel said:

I plan to withdraw all of my pension in a scheme I am in at 55 (i have other pensions I still pay into).   I know what I will be taxed on 75% of this - I still work.  My question is which point in the year is best to withdraw the money start of tax year of end of tax year.   I would prefer if my employed take home pay isn't affected and the tax to just come off the pension payment is that possible?  thanks

The detailed tax effects of your withdrawal will depend on your ongoing taxable income and the size of the withdrawal, neither of which you have divulged.  However the tax deducted by the pension provider will usually be higher than that found to be necessary at year end and so most people will eventually receive a tax refund rather than a tax bill.

It does not normally matter when in the year you make your first ever withdrawal.  As has been suggested you could minimise excessive taxation being applied by making 2 separate taxable withdrawals, perhaps a small one early in the year and a second larger one towards the end of the year.

I trust you are aware that the withdrawal of any (even 1p) of taxable DC pension will result in the maximum amount of annual pension contributions eligible for a tax allowance being set permanently at £10K.  So if you are currently paying large amounts into your pension to reduce your income tax band you could be seriously affected.

DRS1

oliel said:

molerat said:

There is no best time as such but if you want to get the correct tax deducted, leaving you not owed or owing at the end of the year or having to reclaim, you need to do it in at least 2 bites so starting off earlier in the tax year gives you more chance of getting your ducks in a row.  The first will be taxed at 1257LX after which a code will be allocated.  You can then plan how the rest needs to be taken according to the tax code allocated.  You do realise that taking 1p of taxable cash limits you to paying £10K into a DC scheme each year ? What sort of amount are we talking about, will this pension change your tax band ?

it won't make a difference to my tax code i will still be under the highest tax bracket so should i do 50% at beginning of year and 50% at end of year?  Would it be difference it i went into higher rate tax?

Blindingly obvious perhaps but when you do the first one will depend on when your 55th birthday is.