Pension Withdrawal

[auntie-bertie]

If I have £100,000 in my pension pot, and I know I can take 25% tax free. However I then also want to take £10,000 per year out if the pot as a salary. I do not work and this is under the tax threshold.

Can I take this as a lump sum or does it have to be in monthly pension-like payments. Someone has also told me that I have to pay tax on this and then claim it back?

[fiction-factory]

I think it's taxed at 40 or 45% initially, since if you take £10000 in one go the taxman assumes you will get that every month, but you will get it back eventually. Some schemes still don't let you take more than the 25% and/or may insist you take paid financial advice first

[Milvus]

Assuming you also will receive State Pension, taking £10,000 a year will take you over the tax threshold of £10,600. You must add State Pension to your total income.

[maggiebee]

Perhaps best to approach your pension provider in the first instance for advice, but agree with Milvus that taking £10,000 per annum on top of State Pension will put you into the tax bracket.

[bednobs]

perhaps the poster is under the state pension age?

[fiction-factory]

Yes, auntie-bertie is well below state pension age

[Milvus]

I think that if you have taken out your tax free sum, the rest is taxable in any case

[dasherman]

Under the new pension rules that came into force in April 2015, you should be able to take the initial 25% tax free and then drawdown the rest. As long as your total income is equal to or less than the personal tax allowance, you shouldn't pay any tax.

However you will need to check whether your pension provider actually lets you do this, if not you may need to transfer to one that does.

[fiction-factory]

Drawdown providers are required to deduct tax, where applicable, before the withdrawals are paid out.

Withdrawals will be added to your income in that tax year and subject to any further income tax. Large withdrawals could result in you being pushed into a higher tax bracket.

When you first take a taxable lump sum or income from a pension, it is likely that emergency tax will be deducted, unless your retirement provider has been supplied with a current original P45. If they are not provided with this, emergency tax will be deducted until HMRC send your correct tax code directly to your pension provider. More tax may be deducted than you owe, in which case you will need to reclaim this from HMRC directly. The tax you pay will depend on your circumstances and tax rules can change in the future.

taken from Hargreaves Lansdown site

[fiction-factory]

http://www.telegraph.co.uk/finance/personalfinance/pensions/11181454/Savers-who-cash-in-pensions-clobbered-with-45-per-cent-tax.html
Details here of why initially tax can be higher than expected

[fiction-factory]

More info here
http://www.thisismoney.co.uk/money/pensions/article-2919917/How-avoid-overpaying-tax-pension-cash-April.html

[auntie-bertie]

Thank you fiction factory! It looks like I must get myself a PAYE code as the starting point.
It then looks as if my original plan of taking lump sums once a year is not going to work....... What do you think of taking, £3000pm for Jan/Feb/Mar2016 - to account for the 2015/16 tax year. Then taking approx. £800pm for the 2016/17 tax year......would that work??

[fiction-factory]

I think so, provided you had no other income from any other sources.
But you need to check your pension company allows this- some don't and some will require you to take paid financial advice

[ubasses]

You are effectively trying to use your pension as a Bank Account, making withdrawals as required. This is permissible under the new rules but not many Companies have agreed to provide this service so far from what I have seen in the papers. First thing is to contact them and ask.
Do you actually need the 25% Tax free up front, it is much more cost effective to draw down annual sums receiving 25% of each payment Tax Free.
Have a read of this link, someone has done the calculations.
http://www.thisismoney.co.uk/money/pensionfree/article-3020427/Why-SHOULDN-T-lump-sum-pension-amid-revolution.html.
HMRC have said they will be levying an emergency tax rate on all drawdowns at source, if they go ahead whichever way you draw it out, it looks like you will have to claim back any tax.