Pension pot taxed, please advise.

[Donny462]

Hi

I am writing on behalf of my friend. He has recently cashed in his pension. He received just over £60,000, (I`m not sure of the exact amount), he has just received notification of the tax the firm have deducted.

They have stated that £50,508.00 was taxable, and £21,107.25 has been deducted in tax. My friend has been on Jobseekers allowance for the last 8 years, which has brought him in just over £3,000 per year and this year it has been only £1300.00 as he has now signed off Jobseekers allowance.

My question is this, as my friend hasn`t earned anywhere near the tax free allowance this year or for the 8 years previous, isn`t £21,107.25 an awful lot of tax to have been deducted from his pension lump sum for one under these circumstances?

Thank you for any advice.

[atticus]

Your friend should consult a financial adviser who understands pensions and how they are taxed.

[Donny462]

atticus, thank you for your advice, it's much appreciated.

[verifiable]

Pension withdrawals are taxed as income in the financial year they are taken. So any income above the annual tax-free threshold will be liable to income tax. The tax-free threshold and tax rate payable will depend on your friend’s personal financial circumstances and will take into account all other income received.

Definitely worth taking Atticus2 advice on seeking financial advice. Pension Wise is a good place to start, make sure you use their official website to book an appointment. They will be able to advise on whether the tax calculation you presented is correct, and how much could be withdrawn each year to minimise the tax payable.

[Donny462]

Hi verifiable

Thank you so much for your post and the information contained therein. My friend has actually got his pension sorted now, but the information will be very useful to me when I'm eligible to take my own pensions in a few years.

Thank you again.