Pension cash

koolpc · 10 Feb 2020 at 09:43

My workmate has a couple of pensions. One is quite good of which he has decided to leave in situ until he retires.

The other is not and was valued at only £30k apparently.

He decided to take £10k out last year as it was tax free.

Now, he wants to take another £10k out as he needs cash to sort out issues on his house. This time he will be taxed. He is a low income earner. Of the £10k, he believes he will pay £2k in tax.

The question he has been asking in work is, will it affect his wages? He been told he may be put on emergency tax?

Plus, if it does, surely it will only affect them up until the end of march as april is start of new tax year?

I told him i would ask on a forum i use but he is arranging to see a financial advisor which work provide free of charge.

Thanks

koolpc · 10 Feb 2020 at 18:57

He is older than me, approx 58 i believe. He has a separate pension which has a good pot in it as he used to work in a university. The one he has with £20k left in it is like a draw down? He can take from it. He earns about £11k a year so low income. He not bothered about paying into a pension anymore as the uni one is good he said.

Talking in work today he said he has arranged an appointment with an FA.

The £20k is with Scottish widows i think he said. They told him that the tax would be taken out before it goes to him. So from £10k he would get £8k. What confuses him is whether or not his tax from his wages would be affected? Surely it cant be if Scottish widows take out tax from the £10k?

koolpc · 10 Feb 2020 at 20:23

£20k in a pension is peanuts when pension date comes, especially as he is approx 58. If it were me, i would be tempted to draw it all out.

koolpc · 10 Feb 2020 at 21:03

Uther said:
Yeah it wouldn't buy much of an annuity. If he's got a decent pension coming when he retires I see no reason why he shouldn't enjoy this one now while he is relatively young enough too.
I'm taking 25% in March, and leaving the rest in flexi access drawdown, I've got a defined benefit pension for when I retire at 67 but it's quite possible I won't live that long.

Yea, that seems logical.

With him i think he is more concerned about the emergency tax.

If Scottish Widows are deducting the tax at source, why would he be getting an emergency tax code?

Or, is it possible he wont get an emergency tax code?

My retirement is 67 too. Cant see me making that either! Lol

koolpc · 11 Feb 2020 at 17:15

booyaka said:
The pension company taking the tax do not know what other income you have so can only base it on the income you are drawing from them. Once they inform HMRC of the income level etc - they can then set the correct tax code.

So, mate contacted Scottish widows and for him to get a net £5k, the tax would be approx £1600, 24% he said. As he is a low income earner, under £12k a year, would the tax office automatically adjust if he has paid too much tax on that withdrawl or would he need to contact them? (I am thinking of charging him for trying to get general advice for him! Lol)

He has an appointment with an FE on monday which is provided free with our company.

koolpc · 11 Feb 2020 at 23:27

The_Abyss said:
The continued lack of knowledge on the basics of pension in the UK is shocking. Yes, the fringes of pension legislation, especially historic stuff, is complex. But the majority is pretty basic. People pay thousands of pounds a year into them, and accumulate funds of hundreds of thousands of pounds, yet have a fraction of the understanding compared to much smaller amounts saved in ISA or other investments.

By all means ask, but please, just try and educate yourself a little and take some responsibility for your money that you are saving. As @booyaka says, no IFA will touch a small fund, or even a collection of them. But an IFA shouldn't be needed with some basic knowledge (and it is basic).

Like i said, its not my pension. Just trying to gather as much help as possible. Not everyone is an expert like you. Thanks for your input.

I dont see any help from you being that you are so knowledgeable on the subject.

Ok, i know he is seeing an FA on monday but all is asked is some general advice..

koolpc · 11 Feb 2020 at 23:34

The_Abyss said:
I'm not having a go at you, it is just an observation.

These threads pop up every week or so. As I said, people save a good chunk of their monthly income into their pensions, often rivalling their mortgage repayments, yet have little understanding on what they can do with their money. Not the money - THEIR money - pension freedoms changed the narrative. The rules take a bit of getting used to for 90% of pension savings, but are very comprehensible. The other 10% - if they've got decent savings - need people like booyaka.

Ok, thanks.

Thing is, what this guy has is only £30k. He has a bigger pension set aside for when he retires. He just wants to draw from it to use now.

koolpc · 11 Feb 2020 at 23:42

The_Abyss said:
I think the answers have already been given.

An annuity is near pointless, as it'll probably pay out only quarterly or annually at that size, and at any frequency it'll be peanuts. It sounds like he's already fully crystallised the fund and taken all available tax free cash, so the aim now is to look at all his available sources of income in any single tax year and draw on the other sources in the most tax efficient manner. The income from this specific pension now will be treated as earned income, i.e. subject to income tax alongside any other income in that tax year. What he shouldn't do is just take it all out to 'make it easy', as he may well pay a fair bit more tax for doing so. HMRC will very likely levy tax at the emergency rate if he does, and while this is reclaimable it is also very inconvenient and a hassle for a relatively small amount.

Yea, they quoted him 25% tax as he wants £5k net so approx £1600 in tax. Emergency tax apparently.

koolpc · 11 Feb 2020 at 23:57

The_Abyss said:
Just don't blame the pension provider for this. HMRC are not able to keep up. MTD won't help enough either - it just isn't sufficiently connected.

Would HMRC adjust the tax accordingly automatically if wrong?

As the tax is taken at source, his monthly wages wont be affected i presume?

koolpc · 12 Feb 2020 at 00:09

The_Abyss said:
No.

https://www.moneywise.co.uk/news/2019-05-02‌‌/pension-freedoms-tax-trap-catches-out-150000-each-quarter-heres-how-claim-your

Thanks.

Will his tax code change in his wages?

koolpc · 12 Feb 2020 at 04:47

The_Abyss said:
Not immediately, but yes, HMRC will mess it up eventually.

I dont understand how so?

If the tax is taken at source, surely then, there is no need to change the tax for the guys income as the cash wirhdrawn from his pension would have already been taxed?

koolpc · 12 Feb 2020 at 17:36

As the tax is taken at source, his monthly wages wont be affected i presume?

This is the one he is most concerned with. As i said, he has an appointment on monday with an FA. Just trying to help him as much i can. He been through a rocky few years. He has nobody else to turn to and is naff with internet!