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Ill health retirement pension and tax

(13 Posts)
Smarty26 Wed 07-Feb-18 12:25:58

Hello. Im 41 and about to retire on medical grounds (MS) in april (after the tax year for 2017/2018 closes) from a job ive had for 20years. I have 2 teenage children and a husband!
My pension allows me to take a lump sum and an annual pension. But HMRC want to tax me which would equate to just over £58k. I can get the pension provider to pay HMRC which would mean i receive £7k less in a pay out and also my annual pension would be reduced by about £1k per year. I could pay HMRC myself which would mean i receive £7k more as a lump sum and over £1k more per year annual pension.
What i would like to know is if i opt for the pension provider to pay HMRC am i still liable to pay tax to HMRC on my lump sum?
Which option would you choose?
I am a 40% tax payer currently but will only be a 20% tax payer once I start to receive my annual pension.

Pleasebeafleabite Wed 07-Feb-18 19:47:46

What type of pension scheme do you have?

How is the £58k tax being worked out?

ClashCityRocker Wed 07-Feb-18 20:04:35

DB scheme with an annual allowance tax charge?

Laska5772 Wed 07-Feb-18 20:12:20

You can take up to 25% of your pot tax free. Are you taking more than this?

Guide to tax in retirement

Winebottle Wed 07-Feb-18 20:31:51

You need to find out what the tax is. It sounds to me like an lifetime allowance charge.

Viviennemary Thu 08-Feb-18 23:25:31

You are allowed to take 25% of your pension pot as a tax free lump sum. As another poster says. This is just the rule for everyone. AFAIK. I don't think there's any way round it. I think most people take the maximum tax free amount whatever that amount is (25% of the whole pot) that is and then the rest as their pension.

ClashCityRocker Fri 09-Feb-18 08:38:38

I suspect its not the lump sum that's the problem, but either annual allowance or lifetime allowance tax.

If it's a DB scheme, because of the way pension growth is calculated for tax purposes it can mean ill health early retirement generates a whopping great tax charge.

In that case, I'd go scheme pays I think. If you paid it up front and got hit by a bus the next day you'd be down £58k.

You'd have to live another 51 years to be down by the same amount.

But it would be helpful if op came back to clarify.

Viviennemary Fri 09-Feb-18 12:00:26

You could try contacting these Pensionwise people. Which is a government run scheme AFAIK. They aren't allowed to give advice on best investments for pensions and so on but I think they might help you decide what's best financially in your position as regards this tax issue.

Sunseed Fri 09-Feb-18 17:35:26

You're only 41 - the tax charge will probably be to do with the fact that you are accessing benefits before age 55.

Smarty26 Wed 14-Feb-18 19:52:29

Thanks everyone
I can confirm that the lump sum will be tax free if the pension provider pay the tax, resulting in me receiving £7k ish less in lump sum and less than 1k per annum pension.
So im sorted now.
Thanks again

Smarty26 Wed 14-Feb-18 19:54:05

thanks - the link was very helpful

TalkinPeace Wed 14-Feb-18 19:57:11

If there is a lump sum its a DB scheme

could you not get the lump sum deferred into the next tax year so its not assessed in the same year as your last salary
or can you spread the lump sum over a couple of years

each scheme has its own rules : chat to HR

ZBIsabella Wed 14-Feb-18 21:31:25

Yes that sounds wise. I cashed mine in at 55 and paid tax on 75% of it but that was special circumstances.

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