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Pension lump sum - Page 2 - Carers UK Forum

Pension lump sum

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Thank you very much for all your help this is the reply from Carers uk advice

Thank you for your email enquiry to Carers UK.

Any private or occupational pension payments that you receive (whether as a lump sum, a weekly amount, or both) will not affect your Carer’s Allowance.
This is because you are not entitled to Carer’s Allowance if you have earned income over the threshold of £120 per week. However, income from private/occupational pensions does not count as earned income, so would not be taken into account under this rule. Carer’s Allowance is not means-tested, so overall household income and level of savings does not affect entitlement to Carer’s Allowance in any way.
Yep , as expected.

Will have an impact on any income related benefits which are claimed.

Hundreds of thousands of carers have , over the years , drawdown private pensions early to starve off insolvency during caring days ... I did precisely that ... only to find themselves facing hardships later on in life ... by which time , it is far too late.
That's reassuring for you at least in respect of Carers Allowance.
Now to phone HMRC and find out tax situation
The tax free lump sum, up to a quarter of the total pot, can be taken 'in one bite' or in 'several bites' - it's still part of that tax free 25%.

Any draw down above that 25% will be taxed. There have been several reports in the press that the Inland Revenue's IT system can't cope, however, with 'one off'' taxable draw downs! It can only cope with 'regular same sum monthly draw downs'.

So, if say, you take ALL your 25% 'in one bite', and then ALSO take another 10% as a 'lump sum taxable draw down' of, say, £5k, I'm afraid HMRC's computer think you are going to be taking £5000 out of your pension EVERY MONTH!

So, instead of simply taxing you at whatever marginal tax rate you pay (eg, 20% of that £5k non-tax-free one-off-sum), it will give you a a tax code that assumes your monthly income is whatever it is currently PLUS £5k A MONTH!!!!!

So you will hit by a MASSIVE tax bill!!!!!

The news reports say that the HMRC DOES eventually sort things out, and you get a rebate, (ie, to adjust the tax bill so you are only paying 20% of that £5k for the WHOLE year) (not monthly!), BUT, as ever with HMRC not only do they take their tax up front and leave you to 'claw back' any rebate, but actually GETTING that rebate can take ages! Leavig you BADLY out of pocket in the meantime.

All this boils down to it being much wiser for you to take a real 'monthly income' s draw down, say £500 extra income a month, and then the tax code will actually be correct, and you'll just pay the extra 20% tax on that extra £500 income.

I suppose one fine day that glitch in the IT will be fixed, but I wouldn't count on it happening any time soon!

Good luck with it all!