Pension 25%

the_gardener

I have reached the age of 55 and found myself out of work as i could not work in my last job for much longer. I currently have around a large sum in my pension which i can now draw.I was looking at taking the 25% tax free and leaving the remaining 75% invested

iF in the future i wanted to take further amounts of the 75%, would any of this be tax free or would it all be taxed as I have originally taken the first 25% tax free.

YellowCarBlueCar

Future withdrawals would be taxable income, but whether you pay tax on it depends on you total taxable income. If you have no other income then the first £12,570 (personal allowance) of pension income would still be tax-free

Albermarle

https://forums.moneysavingexpert.com/discussion/6662015/pension-25

All the 75% would be taxable.

If you are unlikely to be employed again before state pension age, then it is usually advised to take a mix of tax free and taxable income from your pension each year, so as not to waste your personal tax allowance each year.

So not to take all your 25% tax free at once.

It is possible this way to take £16,760 per tax year, tax free. £4190 tax free and £12570 taxable but not actually taxed.

Most pensions allow this, but you would need to check with your provider.

NormalNorman

Also check if there are any allowances you can claim from HMRC to increase your personal allowance. I'm £12,942 for example. Cheers!

the_gardener

Thank you for all of your responses.

I wanted tot take the 75k now which will give me £30k to pay off my mortgage and then with the remaining 40k plus savings give me enough to live on for another say 4 years and with the remaining pot i will have left over in the pension, buy an annuity in around 4 years time before i get my full state pension.

QrizB

It might be a better idea (you'll have to look at the numbers and the tax implications) to buy the annnuity now, rather than wait four years.

Based on the current HL best buy table, and assuming an RPI-linked annuity, at age 55 £225k would get a healthy 55-yo about £9k a year. At 60, that same sum would get you almost £12k. But the extra years of annuity will fit inside your tax-free allowance whereas once you get to 67 it seems likely that the state penson will use all your TFA and the annuity wil be taxable.

(I know you;ve said four years and I've calculated based on five, but HL don't publish figures for 59-yos.)

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81944792#Comment_81944792

OK if you have a need for the tax free cash then fine.

However if you wait four years to get an annuity, you will have wasted your personal allowance of £12570 for four years. Which will be around £10K in tax you could have avoided paying, that you will end up paying later.

the_gardener

https://forums.moneysavingexpert.com/discussion/comment/81944853#Comment_81944853

Now that has really confused me:) Why would i lose my personal allowance of £12570 for four years? If i did not work I would not have to pay tax would I as i would not be earning over £12750 and would have most of my saving to live on in an ISA which I can withdraw from to pay for things.

My actual total amount I have, if I took the 75k and leave the rest in the pension, looking at annuity figures if i took it now, the guaranteed annuity for life would earn me around 16k a year but then I would have to pay tax on around 3k so that would only be leaving me around £1300 a month after tax.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81945127#Comment_81945127

You aren't losing it as such, just not able to make use of it if you have no taxable income.

The Personal Allowance can't be carried forward from one year to another so trying to use it is generally seen as a good idea.

Do you realise that if you take the 25% TFLS up front that means not only is the remaining 75% all taxable income when taken out of the pension but 100% of any growth within the pension is also taxable. So if you have say £225k left after taking the 25% TFLS and that £225k grows to £275k then the whole £275k is taxable when taken out of the pension, you don't get any more 25% tax free cash.

the_gardener

https://forums.moneysavingexpert.com/discussion/comment/81945134#Comment_81945134

I do but then the remaining in there I would use for an annuity and not take any out as another lump sum so would just just pay the tax on the amount over 12k a year, IS that correct? If not i think i will give pensionwise a call.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81945175#Comment_81945175

If you mean buy an annuity paying £12k/year when you are 60 then yes you will pay tax on anything above your Personal Allowance.

Will you have another pension starting at 60 or is it just this one and your State Pension at 67/68?

Just don't forget you will have wasted your Personal Allowance for several years from 55 to 60. And a consequence of that is you might pay more tax from when you are 60 or 67/68.