Tax on pension

A question about : Tax on pension

My husband has a defined contribution pension fund of Ј78,000 and has asked me to ask this question.

If he decides to take the whole pension in one lump how much tax would he pay? He gets Ј9,360 a year SP and has no other income.

He is not necessarily planning to do this but wanted to know how it was taxed. I know that 25% of the pension is tax free and the first 10,600 of the SP and residue of the pension added together is also free of tax, that leaves Ј57.260 is that total taxed at 40%?

Best answers:

• Many thanks I thought that was the case but he thought they taxed the whole lot at 40%.
• Mazzy
  It appears that if you take the lump sum at the begging of the tax year say May 2015, a larger proportion may well be taxed at 40% and that will be refunded, I believe April 2016.
  I would phone up HMRC and ask to get the correct answer.
• Note that he could avoid the 40% tax band altogether by withdrawing the money across two tax years. Another trick is to defer his State Retirement Pension until he's safely pocketed the DC money: the reward for that is, for old-style state pensions, an extra 10.4% onto the state pension for each year of deferral. I note that after the hubbub of the withdrawal is past, he'd get some or all of this Extra Pension tax-free (depending how long he deferred for).
• His pension is with Friends Life, I don't think they have made their minds up about Drawdown yet. Is that possible then to take a drawdown of the complete amount over two years.
  He is pondering the SP deferral, how does one do that as he is already drawing it.
• Thank you that is very helpful.