Should I drawdown my small work pension at 55?

[Fattings]

I will be 55 in a couple of weeks. I have a state pension which is now capped at the highest amount, and a private works pension that is worth about 20k. I am still working and earning 42k pa. I'd like to use some of my 20k pension for house improvements and dental work! Obviously I'll go back and read the paperwork, but dh says I'll be taxed immediately whereas a friend says the first 25% is tax free. I'd want to withdraw about 5k. Any advice welcome.

I would seriously consider financial advice as pesnsion drawdown is complicated. There is a free advice service funded by the government:
www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

Is the 20k & state pension all you have for retirement? Do you have a current work pension?

If that’s all you have, I’d focus on building up the pension rather than taking it early.

Is your private pension £20k total or £20k a year? It's not clear

@ThisIsStartingToBoreMe

Is your private pension £20k total or £20k a year? It's not clear

£20k pot if 25% is £5k.

Be aware that if you do this it could restrict the amount you could pay into a pension (or have paid for you) in the future without having to pay a charge

www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/money-purchase-annual-allowance-mpaa

Agree with @PiffleWiffleWoozle about getting advice / talking to PensionWise

I'm still working and paying into a pension. I own a house which I can sell to fund retirement, otherwise yes this is all I have. The house is worth a lot (and I am living elsewhere)

I will definitely look at pension wise thank you

“I own a house...”

If that is wholly yours and you don’t need it to live in whatever happens, then that does transform the situation. A bit unfair on PPs when they’re only trying to help. Seems a bit strange to say you own another house worth a lot - let’s say £400K - but you can’t afford to do up your living accommodation for less than £20K. Sounds like the tail wagging the dog

FYI - I recently went to PensionWise. They were excellent. And they were recommended to me by a Chartered Financial Planner ...

Why is that unfair? I don't need the pension to safeguard my future is what I mean.

I don’t think it’s fair to ask for advice when the most important piece of information is omitted

Having said that, you have now given us this to work on so that is helpful. I was about to reply this morning but am glad I didn’t because my answer would have looked rather foolish in retrospect

If you are planning on selling the house to pay for your pension you may want to consider how you can use any tax efficient wrapper (ie ISA and annual pension allowance) to do this as tax efficient as possible, depending on timing of sals, earnings at the time, when and whether you withdraw early etc. Worth running that by PensionWise or a good IFS too.

Sals = sale

@AnotherOldGeezer

I don’t think it’s fair to ask for advice when the most important piece of information is omitted

Having said that, you have now given us this to work on so that is helpful. I was about to reply this morning but am glad I didn’t because my answer would have looked rather foolish in retrospect

why? I didnt mention it because it is irrelevent as far as money right now is concerned

@PiffleWiffleWoozle

If you are planning on selling the house to pay for your pension you may want to consider how you can use any tax efficient wrapper (ie ISA and annual pension allowance) to do this as tax efficient as possible, depending on timing of sals, earnings at the time, when and whether you withdraw early etc. Worth running that by PensionWise or a good IFS too.

yes, I will, but that is not what I am asking atm

You don’t seem to know much about pensions OP. Planning ahead and some basic knowledge which you clearly don’t currently have could save you thousands. It would be nice if you said thank you to posters highlighting this and how you can get free reliable advice on how to do this rather than being rude or dismissive. Anyway I’m done with this thread due to this but good luck.

Not sure why people are being so grumpy

I believe you can drawdown 25% of your pension tax free

Yes, I drewdown some of my small pension and the 25% was tax free, I think your DH perhaps means that you will be taxed immediately because if you say drew out over the tax free amount for example another £5k you would be taxed on that as though it was going to be a regular payment until the tax righted itself further down the line.

Be careful that you don't go over the 40% tax bracket, though it doesn't sound as if you will if you are only taking the tax free amount, you don't want to be paying 40% tax on your pension, also it will restrict the amount you can put in each year to your pension as mentioned by PP

Have you considered re-mortgaging your property to release the £5k? Interest rates are historically low at the moment.

You may be liable for Capital Gains Tax on the difference between how much the house was worth when you acquired it e.g by inheriting it or buying it?
And when you sell it so you may not get as much money from it as you think. Worth looking into.

There are allowances if you have lived in it in the past too.

You can have the 25%, but take anymore than that and you'll not be able to save more than £4k per annum in the future.

If the £20k is in your work pension you'll need to check if you can take FAD and continue to save. Your HR department can tell you. You may need to transfer away or start a new contract