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  • FIRST POST
    • MumOf2
    • By MumOf2 10th Apr 18, 2:44 PM
    • 523Posts
    • 939Thanks
    MumOf2
    Pension lump sum
    • #1
    • 10th Apr 18, 2:44 PM
    Pension lump sum 10th Apr 18 at 2:44 PM
    I'd be grateful for some clarification about taking a lump sum please.


    I have two pensions, one DB (which I understand just fine) and the other defined contribution (which I don't).


    I retire in 3 months' time at 60. I'll wait to 65 to take the DB pension to avoid discounting. There will only be about 6K in the defined contribution which I'd like to take as a 100% lump sum in April 2019.


    2018/19 tax year, I'll earn just under the personal tax limit so I'll claim back tax paid.


    2019/20 tax year, I'll take the 6K lump sum and won't have any further taxable income for that year.


    Basic question - will tax be payable on the lump sum?


    Thanks ever so much to anyone who knows the answer to this!


    MumOf2
    MumOf4
    Quit Date: 20th November 2009, 7pm

Page 1
    • molerat
    • By molerat 10th Apr 18, 2:50 PM
    • 18,370 Posts
    • 12,540 Thanks
    molerat
    • #2
    • 10th Apr 18, 2:50 PM
    • #2
    • 10th Apr 18, 2:50 PM
    75% of that 6K, 4500, will be exposed to tax. If you have no other taxable income then no tax will be due as it will be below your personal allowance. The pension provider will tax that payment using a BR tax code as per HMRC guidelines, which would be 900, but anything deducted will be reclaimable immediately.
    Last edited by molerat; 10-04-2018 at 3:00 PM.
    www.helpforheroes.org.uk/donations.html
    • kidmugsy
    • By kidmugsy 10th Apr 18, 3:35 PM
    • 10,377 Posts
    • 7,067 Thanks
    kidmugsy
    • #3
    • 10th Apr 18, 3:35 PM
    • #3
    • 10th Apr 18, 3:35 PM
    If you are facing a period until age 65 when you will have little or no income, a fine wheeze is to contribute 2,880 p.a. to a pension so that the taxpayer makes it up to 3,600. Then you withdraw the 3,600 and there's no tax to pay (except temporarily, as molerat explained) because your Personal Allowance is otherwise unused. In fact it's such a fine wheeze that you could consider making a contribution in, say, late 18/19 which will set you up nicely for a withdrawal in 19/20. Your permitted contribution in 18/19 might well be bigger than 3,600 gross (=2,880 net) depending on your earnings in 18/19 and your other pension arrangements.

    As for waiting until age 65 to draw your DB pension without an actuarial reduction: that may well be wise but did your sums allow for the advantage of drawing it early in years when you can avoid income tax on some or all of it? For instance, could it be worthwhile to start it in 19/20 or 20/21?
    Free the dunston one next time too.
    • MumOf2
    • By MumOf2 10th Apr 18, 6:16 PM
    • 523 Posts
    • 939 Thanks
    MumOf2
    • #4
    • 10th Apr 18, 6:16 PM
    • #4
    • 10th Apr 18, 6:16 PM
    Thanks so much, Molerat. That's so useful to know and I now feel more confident about this! I'll reclaim the tax paid straight away as I will have no additional taxable income in the 2019/20 tax year. Brilliant - thanks again.


    MumOf2
    Last edited by MumOf2; 10-04-2018 at 6:27 PM. Reason: clarity
    MumOf4
    Quit Date: 20th November 2009, 7pm

    • MumOf2
    • By MumOf2 10th Apr 18, 6:26 PM
    • 523 Posts
    • 939 Thanks
    MumOf2
    • #5
    • 10th Apr 18, 6:26 PM
    • #5
    • 10th Apr 18, 6:26 PM
    Thanks so much, Dunstan. I never thought about putting in to take out 3600 in subsequent years - brilliant idea and I've copied and pasted your advice to a word doc and filed it so I can read again and do this later on.


    re waiting to draw down the DB pension, really good thinking about taking it a bit earlier to make the most of each year's personal allowance. However, the lump sum is tax free and the monthly residual amount isn't enough to break through the personal allowance in any one year. I have a cash/ISA nest egg and a significant level of unearned (non-taxable) income so I'll bide my time unless additional funds are desperately needed.


    I've played with the idea of doing a part time job which would obviously affect the tax situation, but with very elderly relatives, four children, a grandchild and a wonderful husband I am now firmly resolved never to darken the doorstep of an employer again.


    MumOf2
    Last edited by MumOf2; 10-04-2018 at 6:27 PM. Reason: clarity
    MumOf4
    Quit Date: 20th November 2009, 7pm

    • atush
    • By atush 10th Apr 18, 6:51 PM
    • 16,640 Posts
    • 10,342 Thanks
    atush
    • #6
    • 10th Apr 18, 6:51 PM
    • #6
    • 10th Apr 18, 6:51 PM
    if you wont be earning for 5 years, id be whacking in savings up to your annual allowance/earned income limit now. So as tog get TR and therefore more free money.
    • LHW99
    • By LHW99 10th Apr 18, 7:51 PM
    • 1,249 Posts
    • 1,139 Thanks
    LHW99
    • #7
    • 10th Apr 18, 7:51 PM
    • #7
    • 10th Apr 18, 7:51 PM
    Don't forget to check your state pension situation. If you are short of a year or two, its a good "investment" to buy post-2016 years.
    • kidmugsy
    • By kidmugsy 10th Apr 18, 7:58 PM
    • 10,377 Posts
    • 7,067 Thanks
    kidmugsy
    • #8
    • 10th Apr 18, 7:58 PM
    • #8
    • 10th Apr 18, 7:58 PM
    ... re waiting to draw down the DB pension, really good thinking about taking it a bit earlier to make the most of each year's personal allowance. However, the lump sum is tax free and the monthly residual amount isn't enough to break through the personal allowance in any one year.
    Originally posted by MumOf2
    When your State Pension begins, will it plus your DB pension make you a taxpayer? If so, it may be worthwhile to start the DB pension several years before your State Pension begins.
    Free the dunston one next time too.
    • MumOf2
    • By MumOf2 11th Apr 18, 12:43 AM
    • 523 Posts
    • 939 Thanks
    MumOf2
    • #9
    • 11th Apr 18, 12:43 AM
    • #9
    • 11th Apr 18, 12:43 AM
    All good points. I'll do some sums for the next few years and see what's best to do in re drawing down DB pension before 65.


    Thanks everyone.


    MumOf2
    MumOf4
    Quit Date: 20th November 2009, 7pm

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