Can I gain access to my pension savings while paying as little tax as possible?

28 April 2015

Q

I have a small private pension pot of about £6,000 and would like to take it all out and put it in an Isa. What are my options? I am 57 and have chronic lymphocytic leukemia (CLL) and I would like to pay as little tax as possible. Any help would be appreciated.
From
CM/Worcestershire

A

The first question is what do you want to achieve with this money? If you take it out, it is likely that the first 25%, so about £1,500, will be tax-free but you'll be liable to income tax at your marginal rate on the remainder.

So unless you're a non-taxpayer and adding £4,500 to your income won't push you into the realms of paying income tax, then you are giving yourself an immediate tax liability.

New pension rules that were introduced in April mean you will have the same control over this money, and access to it, within a pension as you would within an Isa. Plus you won't pay income tax on the money you don't withdraw or if you withdraw it over more than one tax year, then you could end up paying less tax, depending on your circumstances.

A general rule of thumb is that if you don't need pension money, then it is probably better to leave it in the pension until you do.

I understand that those with CLL can live for many years with it. However, if you were to die before age 75 then any money left in your pension could be passed on to your beneficiary completely free of tax.

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