Pension Question

[jonwm]

Hi All

Really basic one this ( I think)

Wife's uncle popped round last night and had a pension statement and letter as he has asked to release the money from it.

He is 58 still working but left this company some years ago and wants to take the money out of it, he asked me as i still work at this company and thought i may know the answer to this.....

His statement says he has £40k in it, this is from his contribution and his employers at the time, they have said he can take 25% of it as a cash lump come then the rest as a pension of about £1k a year, he was under the impression with the new rules you can take all of it out as "cash" and just pay tax on it?

Just wandered from my own curiosity too if this is possible or you have to do as they have said and take as 25%.

Thanks for any input.

BR

[SantaBarbara]

He should not put himself in the position of getting ripped off by HMRC. Which may happen

[DeepFriedMarsBar]

jonwm said:

Hi All

Really basic one this ( I think)

Wife's uncle popped round last night and had a pension statement and letter as he has asked to release the money from it.

He is 58 still working but left this company some years ago and wants to take the money out of it, he asked me as i still work at this company and thought i may know the answer to this.....

His statement says he has £40k in it, this is from his contribution and his employers at the time, they have said he can take 25% of it as a cash lump come then the rest as a pension of about £1k a year, he was under the impression with the new rules you can take all of it out as "cash" and just pay tax on it?

Just wandered from my own curiosity too if this is possible or you have to do as they have said and take as 25%.

Thanks for any input.

BR

Not while it is within the company scheme, he would need to transfer it out to a Personal Pension or SIPP to have that option. But a rather wasteful way of accessing the funds, not recommended unless he was really desperate for the cash.

If it's a DC scheme then it's relatively easy to transfer; if he does he will have the option to take the 25% tax free lump sum, and then he could choose to drawdown the rest as and when he wanted, but that would be taxable at his current highest marginal rate. Still a lot cheaper than taking it all out though !

[PurpleMoonlight]

The legislation allows this, it's called an Uncrystallised Fund Pension Lump Sum (UFPLS). 25% is tax free and 75% subject to emergency tax. At the end of the tax year more tax may be liable or maybe a tax refund depending total income for the year.

However, as an earlier poster mentioned pension arrangements are not obliged to facilitate this. If they don't it will be necessary to transfer to one that does.

[JulianPH]

As purple has already said, yes, he can. But it is not a good idea for tax reasons. Is it a final salary or money purchase scheme?

[jonwm]

Thanks for all the feedback...

[jonwm]

JulianPH said:

As purple has already said, yes, he can. But it is not a good idea for tax reasons. Is it a final salary or money purchase scheme?

Hiya
Money Purchase Scheme

[JulianPH]

jonwm said:

JulianPH said:

As purple has already said, yes, he can. But it is not a good idea for tax reasons. Is it a final salary or money purchase scheme?

Hiya
Money Purchase Scheme

OK, so that makes it simpler. He would need to transfer it to a SIPP (or pension provider that can do this). He can take the whole lot out but 75% of it will be taxed as income at whatever rate applies when added to his other income in the the tax year.

If he is not a higher rate tax payer then it is more sensible to withdraw whatever he can each year without putting himself into the higher rate band.

This will save him 20% on the £30k balance (after the tax free cash is taken), so £6k will be paid in tax rather than £12k.

He needs to also remember that in doing this he will be restricted to £4k a year in future pension contributions. If he is, or wants to, make more that this he should wait before taking the cash out.

Cheers.