Tax on pension

TheStrangler · Post by **TheStrangler** » 23 Sep 2019, 08:18

If I take maximum lump sum on my pension do I pay tax on all of the monthly pension or just on everything over the 12,500 threshold?

heapsy · Post by **heapsy** » 23 Sep 2019, 09:04

TheStrangler wrote:If I take maximum lump sum on my pension do I pay tax on all of the monthly pension or just on everything over the 12,500 threshold?

That's right. Lump sum is tax free. Tax will be paid on anything over £12500, including state pension when due.

Post by **RobertT** » 23 Sep 2019, 14:55

TheStrangler wrote:If I take maximum lump sum on my pension do I pay tax on all of the monthly pension or just on everything over the 12,500 threshold?

I think you've asked about both VR and IHR in recent threads too?

The first £30k of an VR payment is tax free with everything over being classed as taxable income.
The 34 weeks payment with IHR is tax free, with the PILON being classed as taxable income.

The move from employment to retirement or from one job to another can mess your tax around a bit, so you will also need to factor in whatever you've earned from RM and/or any other employer in the financial year you take your pension.

Any over payment of income tax should be refunded by HMRC, which is done either via you asking for it using a R38 form, or they'll adjust your tax code accordingly.
Any under payment will also have to be paid, if that applies.

TheStrangler · Post by **TheStrangler** » 24 Sep 2019, 20:36

What is Pilon? I've heard of it but can't remember what it is!
Also something about "crystalised" or "uncrystalised" to do with lump sum? Does this let you draw out lump sum bit at a time and can you do this even if you leave Royal mail?
Fair to say I've been looking into finances quite a lot lately!

heapsy · Post by **heapsy** » 24 Sep 2019, 21:30

TheStrangler wrote:What is Pilon? I've heard of it but can't remember what it is!
Also something about "crystalised" or "uncrystalised" to do with lump sum? Does this let you draw out lump sum bit at a time and can you do this even if you leave Royal mail?
Fair to say I've been looking into finances quite a lot lately!

Pay In Lieu Of Notice. In other words, holiday pay etc that the company owe you.

Post by **RobertT** » 25 Sep 2019, 04:29

TheStrangler wrote:What is Pilon? I've heard of it but can't remember what it is!

PILON is as heapsy says, pay in lieu of notice.
RM are supposed to give you notice when they want to get rid of you, but instead of you staying employed for that notice period, they just pay you the money in a taxable lump sum instead. I believe it's either 9 or 12 weeks depending on service in the case of IHR.

You may also get a payment for any unused holiday entitlement, which would be worked out on a pro rata basis depending on how long through the holiday year you leave. But you could of course owe them if you've used too much!

Also something about "crystalised" or "uncrystalised" to do with lump sum? Does this let you draw out lump sum bit at a time and can you do this even if you leave Royal mail?
Fair to say I've been looking into finances quite a lot lately!

Crystallising a pension only relates to defined contribution schemes – when you access your money it becomes crystallised. Up to that point it's un-crystallised! This will tell you a bit more: https://www.pensionbee.com/pensions-exp ... ed-pension" onclick="window.open(this.href);return false;

If you have NRA60 & NRA65 benefits via the RMPP/RMSPS then crystallisation doesn't apply because they are defined benefit pension schemes. But it would if:

You're in the RM Defined Contribution Plan;
Have a personal pension set up by yourself or while with another employer; or
You chose to transfer your AVC funds(if you have them) into a DC pension and take them independently of your main NRA60 & NRA65 benefits.

If you don't know the difference between defined benefit and defined contribution, this will give you a quick and simple explanation: https://www.pensionlite.co.uk/defined-b ... -pensions/" onclick="window.open(this.href);return false;

TheStrangler · Post by **TheStrangler** » 25 Sep 2019, 06:55

Thanks for the advice guys.

Post by **rogersh** » 25 Sep 2019, 16:59

DC Scheme. An option. Scottish Widows.

You can take your entire pension pot in cash from age 55.
You could opt to take one-off lump sums from your retirement savings. HMRC refer to this as an Uncrystallised fund pension lump sum. If you choose this option, 25% of the sum you take is tax free and 75% is treated as an earned income, therefore it is subject to tax.

TAKING YOUR MONEY. DC Scheme
This page introduces the main pension options once you reach 55 years old.
Option 2 • Partial Pension Encashment (PPE) (Edit)
25% of the slice will be tax-free the rest will be subject to tax.

Post by **RobertT** » 25 Sep 2019, 18:56

For those posties in the RMDCP and / or those who have DC pensions elsewhere, this link gives a good guide to what you can do with your money: https://www.moneyadviceservice.org.uk/e ... on-schemes" onclick="window.open(this.href);return false;

Janet Brum · Post by **Janet Brum** » 25 Sep 2019, 20:10

I don`t really understand why we have to pay tax on pension if we already paid our income tax when we accrued that money towards pensions?
Seems very strange to me, at least it should be a lower tax bracket for pensions?

Post by **rogersh** » 25 Sep 2019, 20:48

RobertT wrote:For those posties in the RMDCP and / or those who have DC pensions elsewhere, this link gives a good guide to what you can do with your money: https://www.moneyadviceservice.org.uk/e ... on-schemes" onclick="window.open(this.href);return false;

Robert, this link was helpful to me being specific to Scottish Widows who, as you are aware, administer for RMDCP members.
https://www.scottishwidows.co.uk/retire ... n-options/" onclick="window.open(this.href);return false;

deltaforce · Post by **deltaforce** » 26 Sep 2019, 09:50

Janet Brum wrote:I don`t really understand why we have to pay tax on pension if we already paid our income tax when we accrued that money towards pensions?
Seems very strange to me, at least it should be a lower tax bracket for pensions?

Pension contributions are normally tax free. In reality the tax is deferred until you draw on your pension sometime in the future ,if your income is greater than your tax free allowance of course.

Jefferson Starfish · Post by **Jefferson Starfish** » 26 Sep 2019, 17:02

rogersh wrote:
RobertT wrote:For those posties in the RMDCP and / or those who have DC pensions elsewhere, this link gives a good guide to what you can do with your money: https://www.moneyadviceservice.org.uk/e ... on-schemes" onclick="window.open(this.href);return false;
Robert, this link was helpful to me being specific to Scottish Widows who, as you are aware, administer for RMDCP members.
https://www.scottishwidows.co.uk/retire ... n-options/" onclick="window.open(this.href);return false;

Both links say basically the same!