New Pension Rules 2015

[auntie-bertie]

Can someone clarify - the more I read, the more it seems to contradict itself........ if I have a pot of £100k, I can take £25k tax free at 55. This leaves £75k in the pot. Can I then draw down £10k per year until the pot has gone (assuming £10k is my tax free allowance)? Thanks

[Hymie]

Yes, but to get the money totally tax free (at £10k/year), you would have to have no other income that was taxable income.

My understanding is that most pension companies will be paying out the proceeds with the tax already deducted (otherwise they could become liable for it, if it was due, and HMRC could not get the money from you for some reason), you then have to claim it back, or wait for the following years tax adjustment to compensate you.

[auntie-bertie]

Thanks, yes, no other taxable income! A house wife......about to be ordering a new BMW from the sounds of it LOL

[auntie-bertie]

Another question - at 55 if I take the £25k I can also take the first lot of £10k as my tax free allowance too?????

[boxtops]

Surely though - if you take all the lump sum, you won't have any weekly pension at all for the future?

[Hymie]

As of 6 April, you will be able to take 25% tax free, plus your first tranche of £10k.

However, my advice is to take each of the £10k amounts close to the end of the tax year (in feb/mar) – that way, you can ensure that you have not received some other income during the tax year, which would then render the £10k pension money taxable.
You will then be able to claim the deducted tax back, soon afterwards (in the next tax year).

[Hymie]

See this interesting and informative Daily Telegraph article on pension withdraws the major players are planning to allow, come April this year:-

http://www.telegraph.co.uk/finance/personalfinance/pensions/11410544/Is-your-pension-firm-ready-to-give-you-full-access-to-your-money.html

[dzug2]

.. Surely though - if you take all the lump sum, you won't have any weekly pension at all for the future? ..

State pension??

[dzug2]

And state pension is taxable

[auntie-bertie]

.. Surely though - if you take all the lump sum, you won't have any weekly pension at all for the future? ..
Thank you for your concern but I also have a very hefty final salary pension which starts when I am 62.

I certainly do not condone or suggest my 'withdraw and spend' lifestyle for people who do not have such a back up. From what I understand the state pension will be around £145 when I reach that age and that is not enough to live on. You must make provision for yourself. I am grateful to the government for changing the rules to give this flexibility. Now where is that phone number for BMW....?!

[Peter Pedant]

I am on a pension, under 65
and I have to say I am completely confused over the new pension rules ( for the bits and pieces I have nt yet vested )

[Hymie]

As dzug2 says, the state pension is taxable income, as is your personal pension – so if you have a £100k pension pot, you will have just about taken all the £100k out by the time you reach 62.

Some other things to bear in mind; although the new ‘flat rate’ state pension is of the order of £145/week, you will only get this amount if you have sufficient NI contribution qualifying years (being a house wife does not count). Also if your personal pension was contracted out (of the state scheme), these years will not count – you could find yourself on a state pension of around £110/week.

I would also advise you to check that your pension you expect to receive at age 62 is on track to payout as expected.
I have a personal pension, the terms of which were that it would pay me a full pension at age 60 (without any reduction). Since the company scheme has fallen on hard times, the terms have been unilaterally amended such that I will not receive this pension until I am 65, and taking it early would result in swingeing reductions in the payout amount.

[auntie-bertie]

Hi Hymie, This morning I received a letter from DWP which confirms I have 32yrs of NI contributions giving me state pension of c£127 a week. I may pay some voluntary NI contributions just to get this up to £145 if I can.
I also checked my final salary pension yesterday; on course to pay a lump sum at 62 and then give an annual pension. I think I'm good. Thanks for all your advise.

[Hymie]

Let’s assume you have a pension that will pay you £10k per annum at age 62.

You will be able to give up 25% (£2.5k per annum) and take a tax free lump sum in lieu of this income. As to how much you will get will depend on the commutation rate applied by your pension scheme. This rate can be any number (normally between 10 and 20 for someone aged 65), there is no legal requirement for them to offer any particular rate – but if it is low, say around 10, then you would be better off not taking any lump sum, since over the next 10 years you would be paid that money.

For a 62 year old female, the commutation rate should be somewhere close to 20 (given the number of years you could reasonably be expected to live). Therefore by giving up £2.5k out of a £10k pension, you could reasonably expect to receive a tax free lump sum of the order of £50k (£2.5k x 20). You can factor up/down my numbers based on your actual pension at age 62.