Tax on pension?

TheStrangler · Post by **TheStrangler** » 13 Jan 2018, 09:35

I've just received my pension estimate.
5k a year Pension and lump sum of 32k. Would I be taxed on either/all of this?

Post by **RobertT** » 13 Jan 2018, 10:27

The £5k pension would be classed as income in the same way as your wages are now. So if you have a total income of more than the Personal Tax Allowance in any one tax year, you will pay tax on the amount above it.

The PTA for this tax year is £11,500, going up to £11,850 for 2018/19.

The £32k lump sum is tax free and doesn’t come under the tax system.

NWpostie · Post by **NWpostie** » 13 Jan 2018, 13:00

5k is not much, thats like £96 a week.

NWpostie · Post by **NWpostie** » 18 Jan 2018, 14:38

Further to my last. If you had held on til 60 your £5k would become £6,250 or £120 a week today, this is without the 25% cut for retirement at 55.

However if you hold on a little longer your pension value would increase the more you contribute to it including RM contribution (free money !) and not taking a lump sum, your final pension figure can easily be £210 - £250 depending.

The earlier you retire the more you will lose long term.

I would suggest getting independent financial advice before making a life changing decision.

mags999 · Post by **mags999** » 18 Jan 2018, 15:15

yes I agree but you are receiving it 5years earlier if you do the maths it would probably take you well in your seventees to feel any benefit of not taking it now I think to have the benefit of that money now far outweighs the waiting but everyone has different circumstances . im 55 now and have decided to take it now as not getting or feeling any younger .

Post by **RobertT** » 18 Jan 2018, 15:46

The break even age is likely to be in the early to mid 70’s for most people, although a lot will depend on circumstances. Plus if you’re taking you pension and still working, that will reduce it even more because of income tax.

But the average life expectancy of a 55 year old in the UK is the mid 80’s, so as a general rule, it does make sense to take your pension at NRA.

There is no benefit to deferring your RM pension beyond NRA!

Personally I see taking your pension and carrying on working as a decision as to whether you want to make your working life easier in return for a harder retirement. Or vice versa.

I would always advise people to take their pension at NRA unless there are genuine health reasons not to, but ultimately it’s a personal choice.

NWpostie · Post by **NWpostie** » 18 Jan 2018, 17:39

I agree, NRA 60 and NRA 65 are the best options, you need to think long term, any later means you will have less time to enjoy the benefits.

As Robert T said if you retire early "easier work but harder retirement".

I would choose "work steady and easy long retirement" every time.

mags999 · Post by **mags999** » 18 Jan 2018, 17:45

agree all fair points but sadly there are no guarantees in this life appreciate all your advice though keep up the good work

linntroika · Post by **linntroika** » 18 Jan 2018, 22:45

Is it possible to take your AVCs and the new pension scheme(April 2018 onwards) at 55 ? ( probably as a tax free lump sum )and then take NRA 60 & NRA 65 when you have reached the appropriate age ?(preferably as a pension with no lump sum )

Post by **RobertT** » 19 Jan 2018, 04:45

linntroika wrote:Is it possible to take your AVCs and the new pension scheme(April 2018 onwards) at 55 ? ( probably as a tax free lump sum )and then take NRA 60 & NRA 65 when you have reached the appropriate age ?(preferably as a pension with no lump sum )

AVC's are normally used to fund your tax free lump sum when taking your RMPP. But you can take your AVC’s as a separate pot anytime after 55 independently of your main benefits if you chose. However as they are DC pension pots, DC rules will apply. So in simple terms only the first 25% is guaranteed to be tax free, with the remainder being treated as income and taxed in the normal way. But whether you’re actually taxed in practice will depend on how you access it and any other income you have.

It seems likely we will have a transitional Cash Balance(& possibly a DC alternative?) scheme from 1st April 2018. The idea of that is to provide a lump sum in a similar way to AVC’s, so I would say it would also be possible to take that separately from 55 with similar provisos to the above.

As there is currently no legislation allowing a CDC pension scheme to be introduced in the UK, we don’t yet know exactly how it will work in practice, or whether the transitional CB scheme will be a separate entity or if it will be transferred into the CDC scheme when that is introduced. so that's a difficult one to answer.