Pension Pot From 06 April

[icecreamicecream]

I have a pension with Prudential with approx.50000 pounds in the pot.will I be able to just phone them up and ask for my entire 50 grand.I sure need the money.

[Peter Pedant]

Nichty nochty
you need to wait

You will certainly ( depending on your age ) get 25% tax free but the offer I had a few weeks ago involved taxing the rest at 55%

The rules I agree have changed but you need to wait to see what they are.... such as if you have a limited retirement income, by drawing down a few thou every year you save even more.... ( not available to me: I pay a lot of tax, lucky me )

[icecreamicecream]

I pay quite a lot of tax too,Peter,but have another pension with the company I work for.So by your reckoning I would get £12500 in my hand,and only get approx. £16000 of the rest of my £37500.Something wrong there?

[Buenchico]

A possible typo from PP, perhaps? There's no 55% band on taxable income, so I assume that he must have meant 45% tax (leaving him with the other 55%).

See this page, ICIC, taking particular note of Section 2:
http://www.theguardian.com/money/2015/mar/02/ten-things-you-will-or-will-not-be-able-to-do-under-the-new-pension-rules

[fiction-factory]

I'm not sure what is wrong there, icecreamicecream.
Tax relief is given at the highest marginal rate on pension contributions so it doesn't seem unfair to have to pay tax on some if if it's taken out as a lump sum.
I would wait until the tax implications are clear.

[icecreamicecream]

"have to pay sme tax",FF.But surely 50% tax is getting into the realms of usury or rock and roll stars kind of status?

[New Judge]

As I understand it you can take the whole lot but only 25% (£12.5k in your case) will be tax free. The other £37.5k will be considered as income in the tax year that you receive it and will be added to your taxable income in the usual way. If you are already paying tax at 40% it will all be taxed at thatrate so you'll lose £15k of it. Of course if you're really lucky it may push you into the 45% band and you'll lose even more !!!

[fiction-factory]

You won't lose 50%- I think 45% will be the most but that's only if the total amount pushes your total income for the year into the highest tax bracket, as must have been the case for PeterP. It's more likely to be 40% though.

[icecreamicecream]

...and George Osbourne is hoping people will vote for the Tories on this kind of scam.Will Ed Balls be any more generous with the poor (relatively)working man?

[fiction-factory]

Sorry NewJudge- I started typing that a while ago but had to sort the cooking out

[icecreamicecream]

...(relatively speaking)...

[fiction-factory]

I assume you preferred the old system where you'd only get 25% tax freehave have to take an annuity.

[Buenchico]

It could have been worse, ICIC. There have been times when tax on income has exceeded 100%!

Quote:
"Special rates have been introduced twice within the post-war years, causing income tax in certain circumstances to exceed 100%.

For 1947-48 a special contribution was payable when a person’s total income exceeded £2,000. For investment income over £5,000 it was 50%. So with income tax at 45% and surtax at 52.5%, the effective rate was 147.5%.

In 1967-68, the special charge was imposed. For investment income over £8,000, the rate was 45% which - with income tax at 41.25% and surtax at 50% - meant a total rate of 136.25%."

Source:
http://webarchive.nationalarchives.gov.uk/+/http://www.hmrc.gov.uk/history/taxhis7.htm

[icecreamicecream]

So what your saying,NJ,is that of all the money I have punted into my pension for my penurious old age a third will go to some non-deserving government cause.Makes me wonder why I bothered in the first place.

[icecreamicecream]

I don't believe you,Chico....If you was taxed at 147% you would be paid(say)£50 and have to £73.50 in tax.How were you supposed to live?

[Buenchico]

>>>I don't believe you,Chico

My quote is from a page on the HMRC website, as archived by the National Archives. (They're both .gov.uk websites and as about as 'official' or 'authoritative' as it's possible to be).

It wasn't a person's entire income that was taxed at greater than 100%; it was only specific parts of it. (e.g. from the first example, income of over £5000 received from investments. So investors had to ensure that such income didn't exceed £5000 in any tax year as they'd then be worse off. However other income, including investment income below £5000, would be taxed at lower rates, so they'd still have other money left over).

[bhg481]

When you paid into your pension fund you did it on the understanding that you were saving to protect your future and, as a reward, you were allowed to pay no income tax on the savings. Now you've changed your mind and the pension pot is "just another savings account", so we'd like you to pay the income tax you should have paid all those years ago. Seems fair to me.

[ubasses]

Don't forget that 20% of your pot (40% if you are higher rate tax payer) was tax relief paid in by the government. They are allowing you to take 25% tax free, then you pay tax on the remainder as you would on normal income.

[Peter Pedant]

and in the days of surtax - 98%
there was the £18,000 suit - well you got 2% and 2% of 18k is £360 which was the cost of a suit ( actually Savile Row bespoke, as £360 was a helluva lot of money )

[icecreamicecream]

Blooming hell,so back in 1947-48 anyone making any more money than the government decreed was basically shafted up the fundament.

[Peter Pedant]

// I don't believe you,Chico //

I believe you Chico - !
It is common for people to talk about marginal rates of tax ( tax on the last bit ) as their tax rate. I think I can probably recollect my parents complain from the late fifties....

The overall rate for the toffs is 25%. I remember calculating it myself, [ all tax paid over all income and taxed capital gains was 1/4 ] and it came up in the budget yesterday. so the current tax system is "meant to be like that"