New Pension Rules

Phil the Brit

Phil the Brit

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1,499
Following on from yesterdays budget..................
I realise the answer is not that easy as each persons circumstances is different. however let me ask in the hope that there is someone here who can give me (and probably others) a good answer.
For say a 40% taxpayer who has already taken drawdown on three out of four pensions what options would you advise. I was about to take the fourth. Do I take it now while I am a 40% person or do I wait until I drop down to a 20% taxpayer as I am shortly disposing of my business.
Secondly do I capitalise the whole lot or do I just keep receiving my weekly pension. I am 61 years old.
Any answers chaps?
 
midlifecrisis

midlifecrisis

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16,253
Forgive my ignorance but do 40%tax bracket people get 40% from the gov like 20% tax bracket people getting 20%?
 
D Walker

D Walker

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9,827
As the weather is **** I thought I’d do some admin.. look at my pensions, update and move some investments etc..
I have one pension pot that has £33k in it..
I was confused when the little calculator thing told me I could take £600.00 a year from being 65..
Now, my ready maths rough calculator (brain) says 10 years is £6k, and £6k goes into 33, 5.5. 5.5 times x 10 = 50 odd years......are they taking the pi55....
 
Phil the Brit

Phil the Brit

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1,499
Doesn't seem quite right. Can you not take 25% drawdown straight away though tax free? That's £8250 in your hand.
 
hashluck

hashluck

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1,525
Indeed I am assuming they have factored in you taking 25% tax free.

That said yes they do take the ****. Once i am no longer contributing I shall be taking the lot and pay the tax.
 
D Walker

D Walker

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hashluck said:
Indeed I am assuming they have factored in you taking 25% tax free.

That said yes they do take the ****. Once i am no longer contributing I shall be taking the lot and pay the tax.
Click to expand...
Can you do that....just take the lot, say when you are 55?
And pay the tax...
 
jonny

jonny

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528
Yes you can, though your taxable income in the year you do so will go up by 75% of the amount you take. So rarely sensible with a big pension.
 
hashluck

hashluck

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1,525
D Walker said:
Can you do that....just take the lot, say when you are 55?
And pay the tax...
Click to expand...

In most cases yes. You take 25% tax free and pay tax on the rest. BUT.....

i) The tax you will pay will be at your headline rate so might be best to wait if you are a higher rate payer (though depending on the size of your pot that may tip you over in any case).
ii) Most importantly for me, as soon as you draw down anything (however little) you no longer get tax breaks on contributions (beyond a small contribution limited to £4,000 each tax year called the Money Purchase Annual Allowance.). So as long as I still contributing I cannot draw anything down despite being 56.

It is all (unnecessarily) complex so before doing anything take advice. If you contact a pension fund about drawing down they are obliged to send you a fact sheet to consider all the options available to you and you have to state you have taken advice (which is available free).
 
Doctor Houx

Doctor Houx

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792
Once 55 you can take the 25% lump sum tax free and provided you leave the entire remaining 75% invested and don’t touch it, you can still get tax relief at the highest rate you pay on up to £40k of contributions each year.

As soon as you take a penny of the 75% you will pay tax on it and the maximum contribution you can put away tax free reduces to £4K a year. So if you are over 55 and still a higher rate tax payer, then better to keep the 75% invested and add to it by 40k per annum if you can afford to, then draw down after you retire with just pension income and hopefully pay tax on it at the lower rate.

The other thing to watch for is that your overall pension value does not exceed the Lifetime Allowance, which is currently just over £1M. You will pay tax at 55% on anything over that when you crystallise it.
 
D Walker

D Walker

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9,827
Thanks both, “only” 52 at the moment so got a while yet...and I get my full military pension on my 55th birthday so will have to box clever with everything tax wise, work etc...
 
midlifecrisis

midlifecrisis

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16,253
Just want to be clear on a few terms. Please comment.

Headline rate = the highest rate of income tax I pay? Say 40%.

Crystallising = buying the annuity or other product that will keep me in beer and petrol in my old age.
 
E

Ebenezer

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4,521
I'm a little confused by the lifetime allowance. The way everyone refers to it, it appears to be the size of the pot. However I think in reality, it's the amount you have withdrawn from your pot. So even if it never reaches £1M, if the pot keeps replenishing despite your withdrawals because of canny investment, you could end up withdrawing more than £1M depending on how long you live and then be liable for whopping 55% tax. £40K a year for 25 years takes you to 80 which is not unreasonable in this day an age. After which time you'll be taxed back to the stone age. (I know in practice, the lifetime allowance is increasing by RPI or CPI or some other index)
Eb
 
safrane

safrane

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16,895
Our pensions advisor has warned us both not to go above the 1m limit... until that goes up again. This is from the BMA advisor.
 
gb-gta

gb-gta

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1,140
safrane said:
Our pensions advisor has warned us both not to go above the 1m limit... until that goes up again. This is from the BMA advisor.
Click to expand...

I presume it means don’t let your pension pot go over 1m. Remembering you may have more than one pension of course. Rather than continuing to feed your pension if you get to that point you would be better putting it elsewhere.

Sorry darling, the pension is full, I will now have to diversify and invest in a stradale.
 
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