Pension lump sum question
Discussion
After extensive googling and perusal of HMRC's website I'm unable to get a clear answer to a simple question.
At age 55 it is currently possible to withdraw 25% of a pension pot tax-free but can you do this if you are an employee and continue working and paying into the same pension?
I've found conflicting and confusing advice and HMRC aren't clear on it, or if they are, I can't find it.
Anyone with a definitive answer?
At age 55 it is currently possible to withdraw 25% of a pension pot tax-free but can you do this if you are an employee and continue working and paying into the same pension?
I've found conflicting and confusing advice and HMRC aren't clear on it, or if they are, I can't find it.
Anyone with a definitive answer?
Legislation permits this, but the rules of the actual pension arrangement may not.
You will need to ask your pension administrator/provider.
You may need to transfer out what you have accrued to be able to access the PCLS. You should then be able to start a new arrangement with the existing arrangement.
You will need to ask your pension administrator/provider.
You may need to transfer out what you have accrued to be able to access the PCLS. You should then be able to start a new arrangement with the existing arrangement.
Yes, hence thinking about taking it when my wife reaches 55 in a few years. I fear it may be too late though, whispers have it that Labour and the Libdems want to limit the tax-free lump sum to £35k and also restrict payments to pension plans to basic rate tax and a much lower maximum annual tax-free contribution. Because of course you must be 'rich' to pay higher rate tax.
rovermorris999 said:
Yes, hence thinking about taking it when my wife reaches 55 in a few years. I fear it may be too late though, whispers have it that Labour and the Libdems want to limit the tax-free lump sum to £35k and also restrict payments to pension plans to basic rate tax and a much lower maximum annual tax-free contribution. Because of course you must be 'rich' to pay higher rate tax.
Very likely. Maximise the contributions now and if you are at that age clearly do what's in your best interest
Welshbeef said:
rovermorris999 said:
Yes, hence thinking about taking it when my wife reaches 55 in a few years. I fear it may be too late though, whispers have it that Labour and the Libdems want to limit the tax-free lump sum to £35k and also restrict payments to pension plans to basic rate tax and a much lower maximum annual tax-free contribution. Because of course you must be 'rich' to pay higher rate tax.
Very likely. fandango_c said:
Welshbeef said:
rovermorris999 said:
Yes, hence thinking about taking it when my wife reaches 55 in a few years. I fear it may be too late though, whispers have it that Labour and the Libdems want to limit the tax-free lump sum to £35k and also restrict payments to pension plans to basic rate tax and a much lower maximum annual tax-free contribution. Because of course you must be 'rich' to pay higher rate tax.
Very likely. http://www.telegraph.co.uk/finance/personalfinance...
The limiting of the tax free lump comes up shortly before the budget every couple of years. It's not going to happen.
The main, and arguably only, tax break for a basic rate tax payer is the tax free cash. The pension in retirement is taxable. If they remove or start tinkering with the tax free cash for basic rate tax payers then large numbers will likely stop making pension provision and that is the last thing the government wants.
Restricting tax relief on personal contributions to basic rate could easily happen. I have always thought it was unfair that one person gets more tax relief than another simply because they earn more.
I could easily see the MLA reducing to £1M soon. Relatively few people get anywhere near that.
The main, and arguably only, tax break for a basic rate tax payer is the tax free cash. The pension in retirement is taxable. If they remove or start tinkering with the tax free cash for basic rate tax payers then large numbers will likely stop making pension provision and that is the last thing the government wants.
Restricting tax relief on personal contributions to basic rate could easily happen. I have always thought it was unfair that one person gets more tax relief than another simply because they earn more.
I could easily see the MLA reducing to £1M soon. Relatively few people get anywhere near that.
PurpleMoonlight said:
The limiting of the tax free lump comes up shortly before the budget every couple of years. It's not going to happen.
The main, and arguably only, tax break for a basic rate tax payer is the tax free cash. The pension in retirement is taxable. If they remove or start tinkering with the tax free cash for basic rate tax payers then large numbers will likely stop making pension provision and that is the last thing the government wants.
Restricting tax relief on personal contributions to basic rate could easily happen. I have always thought it was unfair that one person gets more tax relief than another simply because they earn more.
I could easily see the MLA reducing to £1M soon. Relatively few people get anywhere near that.
Really gold plated final salary public sector springs to mindThe main, and arguably only, tax break for a basic rate tax payer is the tax free cash. The pension in retirement is taxable. If they remove or start tinkering with the tax free cash for basic rate tax payers then large numbers will likely stop making pension provision and that is the last thing the government wants.
Restricting tax relief on personal contributions to basic rate could easily happen. I have always thought it was unfair that one person gets more tax relief than another simply because they earn more.
I could easily see the MLA reducing to £1M soon. Relatively few people get anywhere near that.
Welshbeef said:
Really gold plated final salary public sector springs to mind
Indeed, I'd have thought there are plenty. It's an utter disgrace to change the goalposts on sensible, retirement conscious (relatively) high earners who made sacrifices and contributions under one set of rules, only to be refused a large chunk of the benefit, just for having earned more and contributed accordingly. I'd suggest they would have made alternative plans.
I'm delighted to be out of the country for good.
Indeed, many are giving up on saving as it is. That will be the final nail in the coffin. The state will be having to pay for everyone.
Allowing the tax free lump benefits the economy.
On the plus side, they do usually allow grandparenting of terms if you stop contributions. (eg) Life time allowance changes..
Allowing the tax free lump benefits the economy.
On the plus side, they do usually allow grandparenting of terms if you stop contributions. (eg) Life time allowance changes..
Welshbeef said:
If you wanted a £50k a year pension excluding state pension and only defined contribution what size pot roughly would you need ?
How long is a piece of string, I suspect..I'd suggest a return of 5% to be sensible. I'll be receiving my retirement pot as 100% cash lump sum, so I can happily choose where it goes. Therefore with a pot of 1m, a 5% yield would enable me to receive 50k per annum, whilst maintaining the capital. Of course yield may suffer, but I have the option of expending the capital too. Inflation is the biggest concern to me, given time to retirement. I've seen what I'll need, to make the equivalent of what I think is a decent retirement income nowadays, extrapolated to 25 years from now!
In the UK, at this level, I believe you're out of mandatory annuity territory. May be wrong, though. So after your 25% drawdown (for as long as that lasts), I'd say 1m at 5% if you're planning on preserving the pot, substantially less if you're planning to expend it, which would be a ballsy plan in my opinion - considering you may outlive your money!
It's an eye opener really. Most peoples retirement incomes are pretty meagre. Of course, the logic is that ones outgoings are far lower in retirement - home paid off, kids out of education, etc, but I wholly intend to do a lot more than 'get by'! I'd go so far as to say that I expect my retirement living costs to match my current ones, and that would be after my mortgage is paid!
PurpleMoonlight said:
At age 65, about £700,000 for a level pension, £1M if you want an escalating one.
Optimistic!!Best buy tables suggest a £100k fund would purchase an RPI-escalating annuity of just £3k (at age 60) and £3.5k at age 65, so you'd need a fund of more like £1.4 - £1.5m for your £50k 'public sector final salary' style pension....
Testaburger said:
How long is a piece of string, I suspect..
I'd suggest a return of 5% to be sensible. I'll be receiving my retirement pot as 100% cash lump sum, so I can happily choose where it goes. Therefore with a pot of 1m, a 5% yield would enable me to receive 50k per annum, whilst maintaining the capital. Of course yield may suffer, but I have the option of expending the capital too. Inflation is the biggest concern to me, given time to retirement. I've seen what I'll need, to make the equivalent of what I think is a decent retirement income nowadays, extrapolated to 25 years from now!
Obviously if you can achieve 5% yield risk free (cash) then annuity rates will be materially higher than they are now, so you're not comparing like with like...I'd suggest a return of 5% to be sensible. I'll be receiving my retirement pot as 100% cash lump sum, so I can happily choose where it goes. Therefore with a pot of 1m, a 5% yield would enable me to receive 50k per annum, whilst maintaining the capital. Of course yield may suffer, but I have the option of expending the capital too. Inflation is the biggest concern to me, given time to retirement. I've seen what I'll need, to make the equivalent of what I think is a decent retirement income nowadays, extrapolated to 25 years from now!
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