Using Drawdown to be Tax Efficient

 
Pension Annuity Phone Number : 0845 83 87 811
Best Pension Annuity Home Seperator Free Quotes Seperator Pension annuity seperator Tax Free Cash Seperator income drawdown seperator pension lump sum seperator annuities abroad seperator
Annuties and Retirement Products for Customers Overseas
Best Pension Annuity Social Media Visit the Best Pension Annuity page on Facebook Best Pension Annuity on Google+ Learn about Annuities and Drawdown on our YouTube Channel Business Connections
 
Best Pension Annuity is a trading style of Platinum Financial Consulting    
AUTHORISED & REGULATED BY THE FINANCIAL CONDUCT AUTHORITY    
 
Income Drawdown Customer Protection  
 
Check us now on the FCA Register. Number 227014
   
Pension Fraud Protection  

Why use your pension fund like a bank account and pay tax on it if you could get all you want tax free ?

     

Among many of the pension changes announced by the Government, and intended to come into force in April 2015, is the ability to use your private pension like a bank account. In other words if you have a need for say £15,000, then you could go to your existing pension provider and ask them to take this amount from your pension fund and pay it to you – assuming they are willing to provide the service.

Sounds good ? !! Well possibly – but it will definitely be good for the Government who stand to gain a tax windfall from the transaction.

As we will soon explain, based on the scenario above, it is likely that from the £15,000 you requested, you will only receive £12,750, with £2,250 going to Her Majesty’s Revenue and Customs (HMRC). This is just one of the hidden tax bombshells in the new pension legislation.

Among many of the pension changes announced by the Government, and intended to come into force in April 2015, is the ability to use your private pension like a bank account. In other words if you have a need for say £15,000, then you could go to your existing pension provider and ask them to take this amount from your pension fund and pay it to you – assuming they are willing to provide the service.

Sounds good ? !! Well possibly – but it will definitely be good for the Government who stand to gain a tax windfall from the transaction. As we will soon explain, based on the scenario above, it is likely that from the £15,000 you requested, you will only receive £12,750, with £2,250 going to Her Majesty’s Revenue and Customs (HMRC). This is just one of the hidden tax bombshells in the new pension legislation.

What many customers may not know is that it could very well be possible to receive the full £15,000 without paying a penny in tax. This is something we have been helping customers achieve for many years.

It is likely to be more tax efficient for many customers to transfer to, and take advantage of flexi-access-drawdown than to stick with their more rigid pension policy where part of every withdrawal is liable to at least a 20% tax charge. This is due to what we call the Golden Rule of pension planning, which should be at the front of every customer’s mind when they are making decisions on their pension.

The Golden Rule

Despite the many changes announced to the use of pensions, the one thing that hasn’t changed is how the money you take is taxed. In virtually every instance, you can take the first 25% of your pension fund tax free, but the remaining 75% is subject to income tax – even if you take it all as a lump sum. Anything you take from the remaining 75% of your pension fund is added to any other income you take and taxed at your ‘marginal’ rate. If you are a basic rate tax payer you will pay 20% tax on the sum, however if when added to other income the sum taken pushes you into a higher tax band you could end up paying 40% or even 45% on all or part of it.

The problem is that when you ask your personal pension provider to pay you a lump sum they will pay you the first quarter tax free, but the remaining three quarters will be subject to income tax. 

So wouldn’t it be good if you could take the sum you need from the tax free part of your pension only?

Well guess what ?   You can !! In fact it has been available to customers for many years – many of the customers on our books have done exactly that. For a quote and more information click here.

Using Drawdown to achieve your objectives

Income Drawdown (and flexi-access-drawdown from April 2015) are very flexible pension policies that allows you to do many things. It combines the features of a pension savings plan whilst allowing you to take benefits in the form of a tax free lump sum and or an income.

One of the additional benefits of Drawdown is that you can just take the tax free cash only (or part of it), and leave the remaining taxable 75% until later, when you may be paying a lower rate of tax.

To take advantage of this approach, customers who currently have private pensions need to switch to a Drawdown contract. That is exactly what we do. Click here for a free quote and information pack.

Once a customer’s fund is in drawdown, we can then help them take lump sums from their fund as efficiently as possible - certainly making sure they don’t give money to HMRC when they don’t need to. Of course there may come a time when the customer has used up all their tax free entitlement and any further lump sums will be subject to tax, but at least they have delayed paying unnecessary tax before they had to.

To understand this situation better, let’s revisit the example discussed earlier in this article. We will assume that the customer has at least £60,000 in their pension fund and that they are aged 55 or over. The table below shows the difference between the customer taking a lump sum from their existing personal pension fund, or transferring their fund to Income Drawdown before taking a lump sum.

 

Customer aged 55 or over with £60,000 or more in pension savings.
  Stays in Existing Pension Transfers to Income Drawdown
Amount Requested                   £15,000 £15,000
Paid to Tax Man                     £2,250 £0
Paid to Customer                   £12,750 £15,000
 

Besides the welcome pension changes announced by the Government, they have been particularly silent on the tax consequences of taking advantage of some of these changes. If you want to understand how flexible Income Drawdown can help you be more tax efficient and make use of your pension to meet your needs, call us on 020 33 55 4827 or click here for a free no obligation information pack.

By Bob Cook
Published : 18th February 2015
Nothing in this article should be taken as personal advice and recommendation. UK tax rates and pension legislation are liable to change and concepts, rates, legislation and rules referred to may not be current at the time you read this article.
 

 

 
Pension News and FAQ's
Pension News and Updates FAQ's drawdown and annuities
Get pension news and information now
 
Pension Lump Sum Tax Sting
How a pension lump sum is taxed Get Quotes to take a Tax Free Lump Sum Tax on Lump Sums Divider Ask a question about taxation of your pension Tax Free Cash Only
quote and callback spacer
question and guide divider
Get a free call back ger a free guide to Pension Lump Sums
Beech Left good old fashioned personal service via the interest
 
Pension Testimonial
 

My wife used Platinum to set-up her annuity and everything went very well. She was very pleased with the result. I also went to them

Bob and his team produced terrific help under difficult circumstances. I worked for a very large international company who had outsourced the management of their pension schemes to a 3rd party. The process of getting my DC funds made available to Platinum was a total shambles on behalf of my old company and there pension management company. Platinum hung in there however and helped me through this.

I would reassumed Platinum to anybody looking to get the best pension deal. They say on their website that they offer 'good old fashioned personal service'

I couldn't agree more

10 out of 10

 
 
Mr. B. Manzi - Montrose
 
 
January 2014
 
Pension Feedback
 
Click here for a quote on taking a Lump Sum from your Pension
 
 
 
 
Annuity or Tax Free Cash Footer
ABOUT US | INITIAL DISCLOSUREFREE ANNUITY GUIDE | TERMS & CONDITIONS | PRIVACY POLICY | CONTACT US | SITEMAP | NEWS |  BLOG

Cookies Policy : The website does not use cookies and nothing is downloaded to your PC or Device

The information contained on this website is for information purposes only.

This website DOES NOT contain personal advice based on your circumstances.

Platinum Financial Consulting
The Old School House, East End Road
Bradwell-on-Sea, Essex, CM0 7PY

Telephone : 020 33 55 4827           Fax : 0871 277 1422           Email : info@platinumifa.co.uk

AUTHORISED AND REGULATED BY THE FINANCIAL CONDUCT AUTHORITY

Copyright © 2009 & 2017 Platinum Financial Consulting

FCA Registration Number : 227014

Keep up to date with annuity rate changes and other retirement issues  
If you are nearing retirement keep up to date with annuity rate changes by subscribing to our news feed

Pension Annuity Specialists