Pension lump sum and income tax question

[Homer67]

Hi All, I have a question about taking a pension lump sum as follows:

 

I will be 55 in the Autumn of this year and I have 3 pensions, two are long term and one is a short 5 year private pension that has performed badly and will pay very little monthly income.

 

I could take them all early, but as my plan is to work for a few years more yet, I won't be taking the two long term ones.

 

I don't intend to take the others for a few years yet but I need to make a large purchase around March 2020 and I could use the capital that is invested in the 5 year pension.

 

There is a total of around £9k in the 5 year pension and I have asked if I can take the maximum lump sum which will leave nothing per month and apprantly that's ok.

 

The lump sum will be subject to tax as I'm taking it early but it's better being used than sitting in their pockets doing nothing for me.

 

The problem I think I'm going to get is that it may push me into the next income tax bracket which starts at £50k per annum.

 

With that in mind would I be better to wait until February 2020 to apply for the lump sum so I only get a month at the higher tax bracket or does it make no difference?

[ericsbrother]

when you take an entire pot as a lump sum you get the first 25% tax free then pay your normal tax on the remainder. so with your £9k you get £2.75k tax free then pay tax on the rest but it is treated as income for that tax year so you might end up paying  the higher rate tax for the rest of the year on all of your income until their computer realises it was a one off and adjusts things about 3 months after the end of the tax year.

My suggestion is to (1)wait until either the very beginning of the tax year to take it so you dont get clobbered straight away for the higher rate tax or (2) take it when the term finishes or (3) move the money into one of your other pension pts as you can do this without touching it and that means no tax liability occurs.

Soe schemes threaten penalties for transferring out but often they are against the current rules so avoidable if you say you are going to make a complaint.

 

Yopu are only 55, you cnat be forced to take any pension until you are 70 so dont feel pressured to hurry your decision