Did George Osborne ever mention the threat of a massive tax bill for people who are planning to draw a sizeable amount of money from their pension pots?
This Writer doesn’t recall any such warning – but the threat is real, all the same, and apparently one in 10 of us may discover it when we try to raid our Self-Invested Personal Pensions.
We should be clear that this blog places no blame on anyone for wanting early access to their pension money, rather than using it as intended – to be paid out over the course of their retirement. Times have been hard, due to five years of Conservative and Liberal Democrat misrule; of course people will want access to money that is theirs, if they can get it.
According to the BBC, this year’s pension changes mean:
- People aged 55 and over can withdraw any amount from a Defined Contribution (DC) scheme, subject to income tax
- Tax changes make it easier to pass pension savings on to descendants
- Many people with Defined Benefits (DB) schemes will be allowed to transfer to DC plans
- All retirees will have access to free guidance from the government’s Pension Wise service
- Existing annuity holders are unaffected for the time being, but there are plans for them to be able to sell their annuity
If George Osborne said anything about how it would be taxed, This Writer hasn’t seen it – but the Treasury says it has consistently stated that 25 per cent of people’s pensions is tax free and the rest is taxed at the marginal rate.
What does this mean?
According to SIPP Club, it means the more money you take out, the more you give to the government – and to George Osborne’s Treasury. What a nice present for him, on the eve of an election!
The first 25 per cent of year pension is tax free. With the rest taxed at the marginal rate, we see the following contributions to the Treasury:
Up to £10,600 – no contribution.
£10,601-£42,385 – 20 per cent (one-fifth of the total withdrawn).
£42,386-£150,000 – 40 per cent (two-fifths of the total withdrawn).
More than £150,000 – 45 per cent (nine-twentieths of the total withdrawn).
Put simply, it will be taxed in exactly the same way as any normal income – from employment, for example.
In addition, if you take out your pension pot, this blog has been told it will reduce your entitlement to any benefits once you retire. Any further information on this would be welcome.
As Facebook commenter Julia Smith pointed out: “It’s the equivalent of having paid into [your personal pension] for 10 years [of your working life] – for nothing!
“[George Osborne] must be wringing his hands in glee.”
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