The Lemon Fool

Much to my surprise the 2 frozen pensions that I thought were going to amount to only £100s actually amount to £1,000s. One much bigger than the other.

They are both telling me that I can draw a tax free lump sum but, it that I can just take it out of the pension fund without paying tax, or is it income tax free also?

And could I take both tax free lump sums without penalty?


I've tried a bit of a search, but I'm not doing that well in finding clarity.

Slarti

Slarti wrote:They are both telling me that I can draw a tax free lump sum but, it that I can just take it out of the pension fund without paying tax, or is it income tax free also?

You can take 25% tax free, but the balance would be taxed at your marginal rate. That's zero only when you don't have sufficient taxable income to reach the personal allowance. You could also consolidate them into something else, a SIPP if you have one. No tax on the transfer, but income tax when you take money out.

Alaric wrote:You can take 25% tax free, but the balance would be taxed at your marginal rate. That's zero only when you don't have sufficient taxable income to reach the personal allowance. You could also consolidate them into something else, a SIPP if you have one. No tax on the transfer, but income tax when you take money out.

Why would the balance be taxed if I'm not taking it?

Slarti

Slarti wrote:

Alaric wrote:You can take 25% tax free, but the balance would be taxed at your marginal rate. That's zero only when you don't have sufficient taxable income to reach the personal allowance. You could also consolidate them into something else, a SIPP if you have one. No tax on the transfer, but income tax when you take money out.

Why would the balance be taxed if I'm not taking it?

Slarti

The balance is only taxed when you draw it as income. You enjoyed tax relief when you contributed, but suffer income tax when you take money out.

TJH

tjh290633 wrote:

Slarti wrote:

Alaric wrote:You can take 25% tax free, but the balance would be taxed at your marginal rate. That's zero only when you don't have sufficient taxable income to reach the personal allowance. You could also consolidate them into something else, a SIPP if you have one. No tax on the transfer, but income tax when you take money out.

Why would the balance be taxed if I'm not taking it?

Slarti

The balance is only taxed when you draw it as income. You enjoyed tax relief when you contributed, but suffer income tax when you take money out.

TJH

Right, got it.

I never expected to have a big enough pension pot for tax to be an issue on it, having moved over to Self Select ISA as my main savings vehicle, long ago, and so I'm not up on pensions.

Slarti

Have a look at the pensionwise.gov.uk website for an outline of what you can do with the pensions.