Pension tax question?

[DampDog]

Please forgive my ignorance but I have a stupidly basic question that I don't know the answer to, and as yet I've not take any advice.

Due to ill health I may need to take my pension early (56) Now I know I can access my pension at 55 and take up to 25% of it tax free. I probably won't take any of the tax free portion as having some form of income long term would be more important. (though I'm not sure that is even the correct choice) Anything above and in addition to that initial 25% would be liable to tax. Would that be taxed at source or fall under my yearly tax allowance? I can't see it even coming close to the current £11,500 single mans allowance, as I'm taking it early and the pot simply hasn't had time to accrue it's predicted value.

 

[KingOfTheDaves]

If you choose not to take the 25% lump sum then your pension (whether pension, annuity, drawdown or whatever) is treated the same as any other earnings.

The 1st £11.5k is tax free as part of your personal allowance, followed by the 20, 40 and 45% tax rates if applicable.

Only thing to note would be that we are in January so you've probably already used up this tax years personal allowance through your wages. If you want to minimise tax, wait till April.

 

[DampDog]

If you choose not to take the 25% lump sum then your pension (whether pension, annuity, drawdown or whatever) is treated the same as any other earnings.

The 1st £11.5k is tax free as part of your personal allowance, followed by the 20, 40 and 45% tax rates if applicable.

Only thing to note would be that we are in January so you've probably already used up this tax years personal allowance through your wages. If you want to minimise tax, wait till April.

Thank you.

I had a quick go with an on-line annuity calculator and I'm not going to get near my annual tax allowance, so if as you say it falls under my personal allowance what income I get will be tax exempt.

I'm embarrassing ignorant of what options I have re my pension fund. (I thought it would be another decade before I needed to get clued up, and things change budget to budget anyway) I've made an appointment to see a financial adviser in a couple of weeks time. I used to get free advise via my employer but am no longer with them. I suspect I'm going to struggle with what it yields as its not run it's full term and my contributions have been minimal the past couple of years due to poor health. Plus on my earnings it was only ever going to be a modest pension anyway.

 

[Slam62]

Annuities seen out of favour these days. I would think your focus should investing it as a lump sum in a sipp, self invested personal pension.
You would need to be aware of the risk/return ratio of different funds and you will have to consider different investments.
But you can control how much you take out and if the worst should happen the whole fund goes into your estate.

 

[DampDog]

Annuities seen out of favour these days. I would think your focus should investing it as a lump sum in a sipp, self invested personal pension.
You would need to be aware of the risk/return ratio of different funds and you will have to consider different investments.
But you can control how much you take out and if the worst should happen the whole fund goes into your estate.

I was thinking about looking at a SIPP. (but I found the annuity calculator first!) As you say there are risks but just looking at a some shares that I have, even in these times of financial uncertainty they have been doing OK. (up to now anyway) But spreading the risk would be high on my list of priorities. Being able to vary what I withdraw from year to year appeals to me rather than a fixed annual payment.

If I'm honest I was a bit embarrassed to post for fear of looking foolish, but I'm glad I did.

Another thing I need to consider is what effect that would have on my state pension (Assuming I live long enough to be eligible) I think you can ring and get a prediction on your state pot?

Cheers.

 

[Slam62]

I was thinking about looking at a SIPP. (but I found the annuity calculator first!) As you say there are risks but just looking at a some shares that I have, even in these times of financial uncertainty they have been doing OK. (up to now anyway) But spreading the risk would be high on my list of priorities. Being able to vary what I withdraw from year to year appeals to me rather than a fixed annual payment.

If I'm honest I was a bit embarrassed to post for fear of looking foolish, but I'm glad I did.

Cheers.

I've only been looking into it because I've reached a similar age.

I've got a defined benefit scheme which further complicates things, the equivalent lump sum is tempting but has its risks.
In 5 years it could have been a good decision or a really bad one.