How much will it cost me if I cash in all of my pension?

#1
YOU CAN'T CASH IN AN AFPS PENSION.

Two things; first; you won't have a pension any more, and secondly, you'll pay quite a chunk of it as tax as 3/4 of the amount you take will be added to your income and taxed accordingly.

If you have a pension fund of £100,000 and are aged 55 or over, you can take 25% free of income tax.

You'll have £25,000 paid to you, and the remaining £75,000 will be treated as your income.

Now, that sounds fair enough, until you realise that HMRC will view this £75,000 as income for one month, rather than adding it to one year's income, so you'll be taxed on a "Month One" basis - which will be painful. The figures below assume a standard Personal Allowance of £11850 and no other income.

I've shown how much of the £75,000 falls into each Income Tax band

Personal Allowance £987.50 tax rate 0% tax due £0

Basic Rate £2874.91 tax rate 20% tax due £574.98

Higher rate £9625.09 (£2874.91 to £12500) tax rate 40% tax due £3850.03

Additional Rate £61512.50 tax rate 45% tax due £27680.62

Total income tax deducted: £32105.63

This means you'll pay an effective rate of tax of 32105.63 / 75000 = 42.8%.

You can reclaim this overpaid tax, but unless the pension provider has an up to date tax code for you, you'll have to pay the tax first.

Don't forget that if you're earnings take you into the higher rate tax band, the whole £75,000 will be added to your income and taxed at 45%.

This means that you should consider splitting the encashment over two tax years - which will reduce the amount subject to 45% tax.

Its also worth remembering that accessing your pension fund in this manner will trigger the Money Purchase Annual Allowance. This restricts the amount that can be contributed to your pension to £4,000 a year.

If in doubt - as always - seek professional advice.
 
#2
Forces Pension Society Walt.
 

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#3
YOU CAN'T CASH IN AN AFPS PENSION.

Two things; first; you won't have a pension any more, and secondly, you'll pay quite a chunk of it as tax as 3/4 of the amount you take will be added to your income and taxed accordingly.

If you have a pension fund of £100,000 and are aged 55 or over, you can take 25% free of income tax.

You'll have £25,000 paid to you, and the remaining £75,000 will be treated as your income.

Now, that sounds fair enough, until you realise that HMRC will view this £75,000 as income for one month, rather than adding it to one year's income, so you'll be taxed on a "Month One" basis - which will be painful. The figures below assume a standard Personal Allowance of £11850 and no other income.

I've shown how much of the £75,000 falls into each Income Tax band

Personal Allowance £987.50 tax rate 0% tax due £0

Basic Rate £2874.91 tax rate 20% tax due £574.98

Higher rate £9625.09 (£2874.91 to £12500) tax rate 40% tax due £3850.03

Additional Rate £61512.50 tax rate 45% tax due £27680.62

Total income tax deducted: £32105.63

This means you'll pay an effective rate of tax of 32105.63 / 75000 = 42.8%.

You can reclaim this overpaid tax, but unless the pension provider has an up to date tax code for you, you'll have to pay the tax first.

Don't forget that if you're earnings take you into the higher rate tax band, the whole £75,000 will be added to your income and taxed at 45%.

This means that you should consider splitting the encashment over two tax years - which will reduce the amount subject to 45% tax.

Its also worth remembering that accessing your pension fund in this manner will trigger the Money Purchase Annual Allowance. This restricts the amount that can be contributed to your pension to £4,000 a year.

If in doubt - as always - seek professional advice.
What’s the triviality ceiling these days?
 
#6
YOU CAN'T CASH IN AN AFPS PENSION.

Two things; first; you won't have a pension any more, and secondly, you'll pay quite a chunk of it as tax as 3/4 of the amount you take will be added to your income and taxed accordingly.

If you have a pension fund of £100,000 and are aged 55 or over, you can take 25% free of income tax.

You'll have £25,000 paid to you, and the remaining £75,000 will be treated as your income.

Now, that sounds fair enough, until you realise that HMRC will view this £75,000 as income for one month, rather than adding it to one year's income, so you'll be taxed on a "Month One" basis - which will be painful. The figures below assume a standard Personal Allowance of £11850 and no other income.

I've shown how much of the £75,000 falls into each Income Tax band

Personal Allowance £987.50 tax rate 0% tax due £0

Basic Rate £2874.91 tax rate 20% tax due £574.98

Higher rate £9625.09 (£2874.91 to £12500) tax rate 40% tax due £3850.03

Additional Rate £61512.50 tax rate 45% tax due £27680.62

Total income tax deducted: £32105.63

This means you'll pay an effective rate of tax of 32105.63 / 75000 = 42.8%.

You can reclaim this overpaid tax, but unless the pension provider has an up to date tax code for you, you'll have to pay the tax first.

Don't forget that if you're earnings take you into the higher rate tax band, the whole £75,000 will be added to your income and taxed at 45%.

This means that you should consider splitting the encashment over two tax years - which will reduce the amount subject to 45% tax.

Its also worth remembering that accessing your pension fund in this manner will trigger the Money Purchase Annual Allowance. This restricts the amount that can be contributed to your pension to £4,000 a year.

If in doubt - as always - seek professional advice.
Can’t you transfer the 75k to a draw down pension ?
 
#7
Can’t you transfer the 75k to a draw down pension ?
There is no point, it's tax free as it is. You could use some of it as a personal pension contribution but would risk falling foul of anti recycling rules.

Just spend it on Chang and hookers
 
#8
Can’t you transfer the 75k to a draw down pension ?
AFAIK ,having looked into Pension Transfer Value for my ex-ICI pension ,along with a dozen or so people who work with me ,income tax only gets charged on the sums you take as income if it's below the £11500 tax limit you pay nothing .As you are re-investing the 'pot' after your 25% lump sum is deducted you don't pay tax on the 'Pot' . There is a calculator I tried here
Drawdown Calculator | Tideway's Guide to Final Salary Pension Transfers
I did find a good one with Prudential but can't seem to locate it now, Pru seems to be the choice of most of those who work with me. If your on Teesside ,these seem to be the guys of choice for advice and set up
Money Matters | Independent Financial Advisers | Redcar
I think they are a National company so there may be an office near you.0 There are fees to set up your investment portfolio and ongoing charges for administration but they explain it all upfront. Be careful there have been a lot of cases of miss selling of these products so get good advice first.
 
#9
There is no point, it's tax free as it is. You could use some of it as a personal pension contribution but would risk falling foul of anti recycling rules.

Just spend it on Chang and hookers
Is that your professional advice? Retirement is going to be a blast:p
 

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