[Finance] Private pension withdrawal

[Neville's Breakfast]

You can apply online for an immediate refund….don’t have to wait. Mine took no more than a few days.

https://www.gov.uk/government/publi...im-when-small-pension-taken-as-a-lump-sum-p53

Oh, fair enough

 

[dazzer6666]

Oh, fair enough

Staggering efficiency too, which was a surprise

 

[Weststander]

Has anyone cashed in a private pension?
I know the first 25% is tax free then the rest will be subject to emergency tax.
Can I just give my P60 or tax code letter from HMRC to the pension company so I get taxed at the correct rate or do I have to pay emergency tax then apply for a refund directly to HMRC?

It depends on your current total income and relevant tax bands. Assuming that you're a basic rate taxpayer for 2021/22, even with the new pension having total taxable income not exceeding £50,270, then:

- the private pension payer will initially deduct 25% income tax from each payment.

- HMRC PAYE will receive that data almost in real-time. If your other income for 2021/22 is less than the personal allowance of £12,570, then HMRC will in quick time notify the pension company of a more advantageous tax code to you (and copy you with that tax coding notice, usually by letter to your home).

 

[Deleted member 2719]

Thank you, thank you. I am here now, ready to save the day.



I read in some study that in the wild, children would probably leave their parents at the age of 8 or so and in our "natural" state most of us would only become 40-50 years old. As I see it, none of us should have to work more than half our lives. Since we really can not - without the luxuary of modern society, which can not be taken for granted - expect to live past 45. This means we should only work for 22.5 years.

Starting at the age of 8 and then doing it for 22.5 years would make us retire at the age of 30.5. Time to cash in.

Recover from what? Never mind, I'll just assume things: yes. Yes they will get chance to recover. See the positives, comrade. See the half-full glass. They will recover the shit out of whatever it is.

Glass is always half full with me, but experience tells me realistically, that if no one shoves it under the tap for years, it will evaporate.

Calling [MENTION=38333]Swansman[/MENTION]

Now look what you've gone and done.

 

[Deleted member 2719]

Are we over complicating this?

Let's say the average pension pot is 100k (it's not apparently it's 61k)

So if the pot stood at 70k now and you planned to take it in 10 years, but due to the Putin war it crashed from 70k to 40k, how long could an economic crash hurt your pot for, 2,5,7,10 years

I realise there are so many variables here, but what are your guesstimated timeframes to get back to the 70k figure?

There must be data somewhere?

I know my father in law took early retirement(2 year's early) fortunately just before the 2007 crash, he would have lost a lot had he took retirement at the right time. Pure luck for him not for others at that time I bet.

 

[arewethereyet?]

Has anyone cashed in a private pension?
I know the first 25% is tax free then the rest will be subject to emergency tax.
Can I just give my P60 or tax code letter from HMRC to the pension company so I get taxed at the correct rate or do I have to pay emergency tax then apply for a refund directly to HMRC?

HMRC will use tax code BR
So 20% will be taken as long as you are a basic rate tax payer.

 

[Weststander]

HMRC will use tax code BR
So 20% will be taken as long as you are a basic rate tax payer.

Unless he's a higher or additional rate tax payer, or his total taxable income (excluding the new pension income) is less than £12,570.

At which point, HMRC swiftly issue a new tax code to the pension company.

 

[Pondicherry]

Others have sort of said this but here is the official answer from CWG2 (Tax Payroll Bible)



So the pension payroll should use 1257L on a Week 1/Month 1 basis unless they already know your HMRC issued tax code (which they won't if they have never paid you before). HMRC will then issue an adjusted tax code which will in theory adjust the tax deducted on any future payments to account for all your other income. If you don't take any more payments (you take the whole fund in one go) then as others have said, you can claim back any excess tax online at any point in the year. Or HMRC should sort out and end of the tax year.

 

[Neville's Breakfast]

Are we over complicating this?

Let's say the average pension pot is 100k (it's not apparently it's 61k)

So if the pot stood at 70k now and you planned to take it in 10 years, but due to the Putin war it crashed from 70k to 40k, how long could an economic crash hurt your pot for, 2,5,7,10 years

I realise there are so many variables here, but what are your guesstimated timeframes to get back to the 70k figure?

There must be data somewhere?

I know my father in law took early retirement(2 year's early) fortunately just before the 2007 crash, he would have lost a lot had he took retirement at the right time. Pure luck for him not for others at that time I bet.

I don’t think anyone should make decisions on their pension basis taking a view on the stock market. Most market professionals don’t know where it’s going let alone the average man in the street.

 

[East Staffs Gull]

As others have said, the pension provider will apply emergency tax to the taxable portion.

The taxable portion will count towards your income in the current tax year and could result in you paying higher rate tax in the current year. Some people spread the “cashing-in” of their pension over two or more years to reduce the amount of tax paid.

A friend of mine, who has no other taxable income, withdraws £12,500 from his pension pot every March (tax month 12) and has no tax deducted.

 

[Weststander]

As others have said, the pension provider will apply emergency tax to the taxable portion.

The taxable portion will count towards your income in the current tax year and could result in you paying higher rate tax in the current year. Some people spread the “cashing-in” of their pension over two or more years to reduce the amount of tax paid.

….. of the remaining 75% element available for income drawdown.

 

[timbha]

Staggering efficiency too, which was a surprise

Agreed. The highly automated HMRC on line system is very efficient and prompt.

 

[dazzer6666]

As others have said, the pension provider will apply emergency tax to the taxable portion.

The taxable portion will count towards your income in the current tax year and could result in you paying higher rate tax in the current year. Some people spread the “cashing-in” of their pension over two or more years to reduce the amount of tax paid.

A friend of mine, who has no other taxable income, withdraws £12,500 from his pension pot every March (tax month 12) and has no tax deducted.

I’m doing that as I have no income…….advisor recommended at least using up the personal allowance. Tax is deducted but I simply do an online reclaim.

 

[Creaky]

I don’t think anyone should make decisions on their pension basis taking a view on the stock market. Most market professionals don’t know where it’s going let alone the average man in the street.

I’m waiting to see whether my IFA was right or not, when all this Ukraine business started they advised to move my fund from various investments on the Aviva Platform into a cash account - all done last week, much lower potential growth but no danger of a loss.

No charges for doing this but there will be when it’s moved back into managed funds.

 

[portlock seagull]

Good thread.

What age do people feel they should cash in these pensions?

Will they get chance to recover

Who is NSC expert on this?

I am not talking a saleperson!

Life’s a gamble and pensions are gambles. I knew a depressing number of retired aged 65 and then died 66,67 or 68 persons so the answer to your question is…how long do you reckon you’ve got?

 

[moggy]

So I’ll give you my figures.
The small private pension I want to cash up is today 65k
Using one of those pension calculators I see I’ll get 49k having had 25% tax free and paying emergency tax on it.
I work full time and basic salary is 34k

So I should be able to claim the emergency tax back shouldn’t I ?

 

[portlock seagull]

I don’t think anyone should make decisions on their pension basis taking a view on the stock market. Most market professionals don’t know where it’s going let alone the average man in the street.

Probably the best advice on this thread.

 

[Weststander]

So I’ll give you my figures.
The small private pension I want to cash up is today 65k
Using one of those pension calculators I see I’ll get 49k having had 25% tax free and paying emergency tax on it.
I work full time and basic salary is 34k

So I should be able to claim the emergency tax back shouldn’t I ?

If you’re absolutely certain about taking the pension:

- Income drawdown £16,270 gross on or before 5 April 2022, taking your total taxable income for 2021/22 to £50,270 and ultimately you’ll only suffer 20% tax on the pension drawdown.

Then do the same after 5th April 2022 and so on.

If you draw that monthly in 2022/23, exactly as with PAYE, you’ll get the cash flow benefit of it all only being taxed at 20%.

On the other hand, if for example you drew the entire 2022/23 drawdown in April 2022, you’d see a very large chunk of it withheld in income tax, to be reclaimed by you in say April/May 2023.

 

[Harry Wilson's tackle]

Are we over complicating this?

Let's say the average pension pot is 100k (it's not apparently it's 61k)

So if the pot stood at 70k now and you planned to take it in 10 years, but due to the Putin war it crashed from 70k to 40k, how long could an economic crash hurt your pot for, 2,5,7,10 years

I realise there are so many variables here, but what are your guesstimated timeframes to get back to the 70k figure?

There must be data somewhere?

I know my father in law took early retirement(2 year's early) fortunately just before the 2007 crash, he would have lost a lot had he took retirement at the right time. Pure luck for him not for others at that time I bet.

****ing hell. My long years of grunty toil seem to have paid dividends then, given that my tax free lump sum is over £200K

The pension was paid off a couple of years ago. I have been told I should retire, so I can stop NI payments, then go back part time. Sounds like a lot of faff, and I am far too busy (etc). But I'm 63 and could croak any minute, halving Mrs T's 'expectation'.

Should I pay someone to 'sort me aaht' I wonder?

 

[giveusfalmerplease]

nobody has mentioned that you can put the money into a drawdown fund. you have 2 choices here. you can choose to say take 5k a year. First 25% tax free, rest taxable (note the word taxable not taxed). This has the advantage that as the tax free band is usually raised each year you may pay less tax or none dependent on other income . i have two company pensions which JUST keep me under the current £12500 band so if i start drawing from my personal pension i know this will be taxed but in a few years time it may not.