Taxing the tax free pension lump sum

[Omadon2001]

I'm coming up to an age where retirement is fast approaching.

There have been many rumours that the chancellor could tax the tax free lump sum you can take with your pension.

What are your thoughts ?

Will it happen ? How much notice will they give ? Still it be tapered ( 5% for the first £50000, 10% for the next £50000 and 20% after that)?

[RandomGuy99]

I think they'll have to give people many years notice as people will have planned their retirement dates around being able to get the £250,000 lump sum tax free.

[PilotMan]

Currently 25% tax free up to £250k limit.

[RedKettle]

Insiders say it will not happen, but hey they have been wrong before.

They have already shafted pensions by including in estate for IHT, changing decades of public policy encouraging pensions to provide for your family. This gives a double tax rate on children of around 65%, I forget the exact number but it is 40% IHt and then up to 45% income tax on what is left.

So who knows.

[southcoastpunter]

People in the industry that I have spoke to, think no, not at this stage! Apart from anything else, there are a lot of labour voters with public sector and private sector pensions!

[Omadon2001]

3 years notice would do me 😊

[RandomGuy99]

3 years notice would do me 😊

You can take it out once you're over 55.

[Omadon2001]

You can take it out once you're over 55.

I've been taking it out for years - that's why I'm on here 😁

[Pillowtalk]

I think they'll have to give people many years notice as people will have planned their retirement dates around being able to get the £250,000 lump sum tax free.

Major changes to pension policy usually come with 10 years notice, minimum.

[timsussex]

looks a bit like politics to me so a mod may be along to administer a spanking however until then

IMHO it would be a very unpopular move to remove it  and wouldnt suit the flavour of the current government so unlikely
However a reduction in the max amount (currently £268,275) or even a reduction from 25%  might be on the cards but even those would cost votes so  think you are safe

but I've taken mine so I dont care 

[RandomGuy99]

I think you could be taking £20,000 pa tax free up to the maximum from your pension and sticking it in a cash ISA where it can earning interest tax free. 

[Blackpool Rock]

Surely better on the Finance & Investments thread 

https://www.ukpunting.com/index.php?topic=397904.msg4494698#new

[PilotMan]

I think you could be taking £20,000 pa tax free up to the maximum from your pension and sticking it in a cash ISA where it can earning interest tax free.

Are you sure about £20k pa tax free? I didn't think that you could withdraw any more tax free, once you've withdrawn your 25% tax free.

[RandomGuy99]

Are you sure about £20k pa tax free? I didn't think that you could withdraw any more tax free, once you've withdrawn your 25% tax free.

I meant withdrawing the £250k in chunks of £20K over many years instead of £250K in one go that you then need to put in savings somewhere where the interest would be taxable

[PilotMan]

I meant withdrawing the £250k in chunks of £20K over many years instead of £250K in one go that you then need to put in savings somewhere where the interest would be taxable

OK, makes sense.

Left in the pot, it's growing tax free, whereas if you took more than £20k in any one tax year you would not be able to easily find a tax free home outside of your annual ISA allowance.

[Adoniron]

This rumour appears in the media every year in the run up to the budget without any credible evidence that its going to happen.  As a result people have withdrawn their lump sum and then regretted it because you can't pay it back in. It would really help if the government could rule it out but they won't because they will then be asked to rule other things out and they'll be drip feeding announcements for weeks.

[Malvolio]

If there were changes to the current situation, it would have to take place with effect from the next tax year, rather than immediate effect.  Think about how many people are taking benefits from a pension at any given time, having made decisions based on current allowances.

[Moby Dick]

Currently 25% tax free up to £250k limit.

I think they'll have to give people many years notice as people will have planned their retirement dates around being able to get the £250,000 lump sum tax free.

Lump sum allowance is Currently limited to  £268,275 (or 25%) across all pension arrangements. Unless you have protected allowances / enhanced protection
 
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So depends on personal circumstances.

[myothernameis]

You can take it out once you're over 55.

From 2028 the age goes up to 57

[Stevelondon]

I’m glad I sneaked most of my cash out of the country …….. oh bugger. Forget that.

[Blackpool Rock]

I’m glad I sneaked most of my cash out of the country …….. oh bugger. Forget that.

Quite a bit of mine has gone overseas back to Thailand 

[Moby Dick]

Major changes to pension policy usually come with 10 years notice, minimum.

How much notice did the “Waspi Women” get?
12 to 18 months in some cases?

[southcoastpunter]

And is this a potential change to pension policy or a change to taxation? A change to taxation is usually anything from “with immediate effect “ to beginning next tax year “ and occasionally a bit longer! So don’t count on it being 10 years notice!!

[Malvolio]

How much notice did the “Waspi Women” get?
12 to 18 months in some cases?

The change to equalising state pension ages was announced in 1995, and took place between 2010 and 2020. 

[cunningman]

OK, makes sense.

Left in the pot, it's growing tax free, whereas if you took more than £20k in any one tax year you would not be able to easily find a tax free home outside of your annual ISA allowance.

If you're happy with 4%ish, capital gains on UK gilts is not subject to CGT.

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TN28 won't pay much interest, most of it will be CG and it has less term risk.

I am not a financial adviser.

[GreyDave]

OK, makes sense.

Left in the pot, it's growing tax free, whereas if you took more than £20k in any one tax year you would not be able to easily find a tax free home outside of your annual ISA allowance.

Ive worked for a couple of clients who have boosted theyve Isa income and State Pension after topping up those instead of a pension as Pension above the basic is Taxable but income from Isa , Premium bonds and Govenment bonds ( no Fn Idea what they are but I got told they had them ) One old guy had started in the 80`s with Tessa scheme and transfered to the Isa he has a S & P 500 which pays div quarterly ...I just dont see myself or my mates having enough capital to get a tax free income I was never able to build it being selfemployed or subb for most of my working life 

[GreyDave]

I’m glad I sneaked most of my cash out of the country …….. oh bugger. Forget that.

I converted it in to fluids before pumping it all to be invested in Chinese holding bushes?hedges 

[clittielicker]

You can take it out once you're over 55.

You can do this however there is restrictions on contributing to any other pension fund, I believe it is not in your favour, surprise surprise.

[Adoniron]

You can do this however there is restrictions on contributing to any other pension fund, I believe it is not in your favour, surprise surprise.

Taking your tax free lump sum and then reinvesting it in a pension to get tax relief on the contributions is called pension recycling and if HMRC find out about it you'll be in bother.