Pension and Lump Sum

Normally the first 25% of the total pension pot can be taken as a tax free cash lump sum.

You can then buy an annuity or draw down cash each each year both which would be taxable.

I cannot offer any real advice except be very careful when you cash in your lump sum. I had an horrific tax bill, which thankfully got finally sorted out in my favor. It all depended on what tax year the money was cashed in.

So if I retired early before April next year I could then draw down 25% tax free, leave the rest and draw it the following year if I needed to along with the actual pension . No problem staying under the £50k tax threshold at thst point sadly!

Movkryna, this is what I am afraid of! I’ve worked very hard to build up the pension!

Guess it might be worth seeing an IFA for advice on this.!

You would normally only draw down what you need to keep you at the lowest tax bracket-and pay tax on that.

If you drew it all next tax year you would pay tax at the higher rate

That makes sense! I have some savings I could use first whilst keeping the lump sum intact maybe. We are not talking Rishi amounts here so I need to be prudent.

The 25% lump sum is tax free - savings, call it what you like, but you would only pay tax on any interest it might earn if invested - as you would with other ‘savings’. As most returns are still around 2% it’s probably hardly an issue.
I’d recommend you see an IFA to discuss what to do with the rest of your pension pot - an annuity or draw down for your income and how to invest the rest, based on your attitude to risk.

Hi , I retired early , I moved my pension into a drawdown and I take my annual tax allowance plus 25% tax free allowed on top , it's paid monthly. I have a little bit of rainy day savings for emergencies. I worked out taking my 25% tax free as a lump sum and an annuity would not give me back my pension pot in my lifetime . Although I stayed with my pension provider I still had to pay charges to switch it to a drawdown and I wasn't allowed to access it without advice from a financial advisor .. I took it 6 months after my retirement age which was set at 60 when I took it out . I won't get my State Pension until I'm nearly 67 .
I would take some advice first , I doubt anyway that you're pension provider will allow you to take it without , I know it's your money but honestly it's a long drawn out process . If you do want to take it early or not you need to start the ball rolling at least 6 months before .
I hope that helps . Good luck .

Thanks! I have to give my pension provide 3 months notice which is the same as my notice period for work. I have been paying around 4K a year for a return of £450 each year towards the pension but it doesn’t seem so worth it now! So thinking of freezing the pension anyway. It was a final Salary pension but then went to DC scheme.

Please go and see an IFA. Gransnet is surely not the place to come for such vital advice.

Ah so slightly different rules apply to DC than to a personal pension then . It's a minefield knowing what to do for the best .
Good luck , hope it works out whatever you decide on .

I wouldn’t go by what’s said on here, get proper advice.

I agree get proper advice but beware of charges from an advisor, both immediate and ongoing. I was shocked to learn how much I was being charged.

You can ring the government's Pension Line for advice.

Forgot to say - it's free.

Thanks! I will try the pensionline first but will probably pay a one off fee to an advisor re further information. I can choose to limit my lump sum and increase the pension instead. If will still be way below the 40% tax bracket but higher than the £12500 current tax free allowance. Thanks all. I agree I need to get some advice :-)

My little bit of advice is to hold off for a few months and use your savings.

I was absolutely astounded at how much I had been paying to keep myself in work 🙄 I found I could live on so much less once I retired.

Try it for a few months to get a better idea of what you’ll need.

Yes, going to work is an expensive ‘luxury’ sometimes.

The pension line people can also advise as to whether you’d be better to go now or wait until the next tax year.

Why not go to your local Citizens Advice or Age UK.

Try this Age UK Fact sheet to begin with www.ageuk.org.uk/globalassets/age-uk/documents/factsheets/large-print-factsheets/fs12-lp-planning-your-retirement-money-and-tax.pdf

Pensionwise is another place to get general advice. They wont advise you which funds to invest in, but will make sure you are made aware of what is allowed and what the consequences might be. It is government funded and is free, usually available via Citizens Advice.

www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise?gclid=EAIaIQobChMI2IzKkuW_-wIVFODtCh0X5AxyEAAYAiAAEgLpyvD_BwE&gclsrc=aw.ds

I see there is a phone number to ring for appointments.

Hi! I have just had a chat with them. Very helpful re the tax liability and, realistically, paying 40% on the amount above the limit for three months is not going to hit me too hard balanced against the threat of the retirement age shifting again next year. I’m not even sure I would have to pay the 40% anyway. The lump sum element is a little more complicated so need to have a think about that.

Thanks for all the friendly advice here . It spurred me on to take action.

Thanks for the update.