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Agreed, except the “free of CGT”, the payout was taxed at source at 24% CGT, that was a significant reason the pension didn’t perform.

Tax free pensions, refer to the input, not the output tax.

Be very careful of this, Pensions are NOT tax free.

beefbitcoinliberty 7mo ago

In the UK at least you may get tax reductions for paying in but, as you say, when drawing down your pension it is all subject to income tax (except the 25% tax-free lump sum, up to a limit of £268,275).

Gains in most pensions are free from CGT though:

> The disposal of an investment held for the purposes of a registered pension scheme is not a chargeable gain. It is therefore exempt from capital gains tax.

There are some exemptions for atypical situations, such as overseas pensions schemes, which may explain having to pay CGT.

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg67650

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Discussion

mike 7mo ago

I'm not going to declare the actual numbers, but this is the actual reality.

My wife contributed £0.45p

The employer contributed £0.45p

At maturity, after 25 years, the pension pot was £1

After tax, we received £0.76p

The amount was not even close to £268,275.

beefbitcoinliberty 7mo ago

Pension pot: £1

25% tax-free lump sum: £0.25

Higher income tax of 40% on remaining £0.75: £0.30

Pension pot after income tax: £0.25 + £0.75 - £0.30 = £0.70

Effective tax rate: 30%

This would be reduced a bit if taking into account personal allowance. For example if the pension pot was £100k and the personal allowance £12,500 the effective tax rate would be 25%.

mike 7mo ago

Thanks, that clears it up 🫡