Withdrawing money from a pension

[Chris S]

I can withdraw 25% of my pension each year without paying tax. Is that 25% of the original amount or 25% of the remaining amount each year?

 

[Sharky]

Suspect not

Can I take 25% of my pension tax-free every year?
Googling, comes up with ....

No, you cannot take 25% of your pension tax-free every year indefinitely. While you can typically take up to 25% of your pension pot as a tax-free lump sum when you first access your pension, any further withdrawals, including those in subsequent years, will be taxed as income.

 

[roubaixtuesday]

Never trust AI for anything important. It's designed to be convincing, not accurate.

Always find a reputable source, so you know where the information has come from.

eg

https://www.legalandgeneral.com/retirement/pension-drawdown/

 

[Alex321]

I can withdraw 25% of my pension each year without paying tax. Is that 25% of the original amount or 25% of the remaining amount each year?

No you can't.

You can take 25% ONCE without paying tax.
https://www.legalandgeneral.com/retirement/pension-drawdown/

Before choosing pension drawdown, it's important to understand the main taxation rules:

The first 25% of your pension pot is usually tax-free. To be able to access any tax-free cash, you'll need to do this at outset as you can't take any tax-free cash after you've moved your pension pot into drawdown.

All income or subsequent drawdowns will be subject to income tax. This means that if you take large amounts out in a single tax year, you could end up in a higher tax bracket, and pay a higher rate of tax, than you would otherwise.

 

[PaulSB]

I can withdraw 25% of my pension each year without paying tax. Is that 25% of the original amount or 25% of the remaining amount each year?

Please don't misunderstand me but if you need to ask this question you need to find a financial adviser.

 

[PeteXXX]

Pensionwise is be a free place to start.. They don't recommend what you should do but tell you what options are open.

 

[PaulSB]

As an aside on this. If you kicked off with a £100,000 pension fund after taking 25% pa for five years your value, without growth, would be slightly less than £24k.

 

[Glyno]

I can withdraw 25% of my pension each year without paying tax.

That’s incorrect.

25% of your pension pot is not subject to tax, the remaining 75% is, regardless of when you choose to take it, and how much of it you choose to take.

 

[Drago]

That’s incorrect.

25% of your pension pot is not subject to tax...

Up to a certain limit that changes from time to time.

And then only for up to three pensions.

Some proper advice from a qualified pension type person is what the OP needs.

 

[Glyno]

Some proper advice from a qualified pension type person is what the OP needs.

I agree.

 

[gbb]

That’s incorrect.

25% of your pension pot is not subject to tax, the remaining 75% is, regardless of when you choose to take it, and how much of it you choose to take.

Tbf, when i was looking at minr and you read the blurb casually, I assumed it was 25% of the pot each year...I soon realised otherwise ...

 

[Chris S]

Please don't misunderstand me but if you need to ask this question you need to find a financial adviser.

There's so little in my pension pot then there is no point in buying an annuity, etc. It's just a case of taking it all out in the most tax efficient way possible. I'll take out 25% this year and the rest next year.

Does the pension provider deduct the tax when I withdraw the money or is it added to my taxable income for the year?

 

[Bonefish Blues]

There's so little in my pension pot then there is no point in buying an annuity, etc. It's just a case of taking it all out in the most tax efficient way possible. I'll take out 25% this year and the rest next year.

Does the pension provider deduct the tax when I withdraw the money or is it added to my taxable income for the year?

Already mentioned, but to repeat this source - book an appointment and go armed with a list of Qs

https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise?source=pw

 

[PaulSB]

That’s incorrect.

25% of your pension pot is not subject to tax, the remaining 75% is, regardless of when you choose to take it, and how much of it you choose to take.

This isn't entirely accurate. One's income is subject to tax, not the source of the income. Whether or not one pays tax on the 75% depends on one's total annual, taxable, income.

In my direct experience one can take:

A tax free sum up to 25% of the fund value.

Annually one can drawdown, take an income, which is free of tax (note phrase, this is NOT tax free) up to the Personal Allowance for that year. This payment is classed as PAYE and tax is deducted at source. The payee then reclaims the tax from HMRC.

This is precisely how I have funded my retirement without paying any income tax. When I began to receive the State Pension I reduced the drawdown to the balance between the State Pension and the tax threshold. My State Pension is now above the threshold so I've stopped the drawdown.

In other words any payment taken from the 75% is added to one's taxable income. It's one's threshold that determines if that income is taxed or not.

 

[Drago]

Does the pension provider deduct the tax when I withdraw the money or is it added to my taxable income for the year?

Pension provider will tax it at source, quite possibly emergency tax. They'll likely then send you a partially filled form to sign and submit to HMRC to claims the excess tax back.