Pension Pot Advice 6/4/15

qwerty444 · 23 October 2014 at 8:58PM

Am looking to maximise my pension pot and plan best option for next April...

Have a 'Pension Mortgage' (interest only) of £50k on property worth £320k
Have 2x pension policies worth £20k each with bonuses (different companies)
Receiving Pension Credit (tho no help with mortgage interest payments)
Want to move house within next 2 years (buy outright).

Cannot find definitive answers for the following Q's, so any advice gratefully rec'd:

1) Achieve lump sum of £36k: £10k (25%) + £10k personal allowance, + £16k (£20k taxed @ 20%) = £36k ??
(if I understand it correctly)

2) Any tax break if total pot (£40k) is drawn and immediately paid to service mortgage debt ??
(wishful thinking here !!)

3) Described as 'money in the bank', won't my PC be affected if pot not withdrawn/spent immediately ??
(considering £10k savings limit)

Thanks

xylophone · 23 October 2014 at 9:08PM

Are you/will you be receiving state pension?

qwerty444 · 23 October 2014 at 9:32PM

I don't think so...
I'm 63 and afaik will now remain on Pension Credit...

xylophone · 23 October 2014 at 10:22PM

http://www.ageuk.org.uk/Documents/EN-GB/Factsheets/FS48_Pension_Credit_fcs.pdf?dtrk=true

Surely the money taken from your pension (in excess of the 25% lump sum) will be regarded as income in the year that you take it?

https://www.moneyadviceservice.org.uk/en/articles/your-pension-lump-sum-options

"Cashing in your pension pots can also affect how much you’ll be entitled to receive in state benefits when retired. For example, if you boost your savings by taking your whole pension pot as a lump sum this may reduce your entitlement to Pension Credit."

qwerty444 · 23 October 2014 at 11:21PM

Yes, it would be regarded as income - but how much tax can be offset (in personal allowance etc) is the question

Is my calculation correct do u know (Q1) ??

I have no intention of drawing pension pot to deposit in the bank lol

I only wish to pay off my mortgage.
But it is said that pension fund will be treated as a 'bank account' - that u can draw down as much or as little as u want - whenever u want.
So will pension pot held by pension co be considered as 'savings' after 6/4/15 (Q3) ??
(in which case people on PC will need to cash in / spend it asap !!)

My apologies if my original post isn't clear

(and I suspect nobody knows the answers yet anyway !!)

kangoora · 24 October 2014 at 8:58AM

Actually this raises quite a good point. If pension pots are accessible in the same way as a bank account are they going to be treated as 'savings' in terms of means tested benefits being as any size pot will be accessible under a drawdown type arrangement?

I suppose purchasing an annuity would get around this, turning a small pension pot into a small income stream. It would then depend on if the additional income was enough to trigger loss of any means tested benefits?

I doubt purchasing an annuity would be counted as 'depriving' yourself of assets.

If this is the case I am ambivalent about it, on one hand why should anyone be getting means tested benefits when they have a substantial sum in pension pot 'savings'. On the other hand, this will hit people with small pension pots and on benefits fairly hard in that they will need to spend their pension pot until they get down to the limit for means tested benefits. (£24k?).

Is this a sneak tax that's come in under the radar?

Your_Hero · 24 October 2014 at 9:24AM

I have no intention of drawing pension pot to deposit in the bank lol
I only wish to pay off my mortgage.
But it is said that pension fund will be treated as a 'bank account' - that u can draw down as much or as little as u want - whenever u want.
So will pension pot held by pension co be considered as 'savings' after 6/4/15 (Q3) ??
(in which case people on PC will need to cash in / spend it asap !!)

The "access" of a pension is comparable to a 'bank account' in the sense that you will be able to draw whatever you wish. 75% of that is regarded as INCOME for the year. So it doesn't matter what you do with it (spend it, bank it etc.) you've still had the income. Pension credit is means tested on savings level and income level. So your PC will be affected for that year.

Calculation for Q1 seems about right.

See below regarding Q3.

kangoora wrote: »

Actually this raises quite a good point. If pension pots are accessible in the same way as a bank account are they going to be treated as 'savings' in terms of means tested benefits being as any size pot will be accessible under a drawdown type arrangement?

Possible in the future, but nothing likely in the short term.

dunstonh · 24 October 2014 at 9:54AM

Actually this raises quite a good point. If pension pots are accessible in the same way as a bank account are they going to be treated as 'savings' in terms of means tested benefits being as any size pot will be accessible under a drawdown type arrangement?

Nothing is changing on how they are currently. The "bank account" soundbite does not do anything that cannot be done already. The only difference is that phased drawdown will become more mainstream than is currently is.

Pensions can already be included in certain means tests. i.e. the income taken if taken, or income chosen not to be taken but could be taken. Typically the means test does not include sub age 60 pensions unless the person has already started to take an income from it. The capital is not included in the means test and there is no reason to believe that would be any different going forward in the same way the life assurance tax wrapper is also not included (until you draw an income).

qwerty444 · 24 October 2014 at 1:53PM

Your_Hero wrote: »

The "access" of a pension is comparable to a 'bank account' in the sense that you will be able to draw whatever you wish. 75% of that is regarded as INCOME for the year. So it doesn't matter what you do with it (spend it, bank it etc.) you've still had the income. Pension credit is means tested on savings level and income level. So your PC will be affected for that year.

Calculation for Q1 seems about right.

See below regarding Q3.

Possible in the future, but nothing likely in the short term.

dunstonh wrote: »

Nothing is changing on how they are currently. The "bank account" soundbite does not do anything that cannot be done already. The only difference is that phased drawdown will become more mainstream than is currently is.

Pensions can already be included in certain means tests. i.e. the income taken if taken, or income chosen not to be taken but could be taken. Typically the means test does not include sub age 60 pensions unless the person has already started to take an income from it. The capital is not included in the means test and there is no reason to believe that would be any different going forward in the same way the life assurance tax wrapper is also not included (until you draw an income).

Many thx for the replies...

(tho regret I've never heard of a 'life assurance tax wrapper' - not by Eminem is it !!??)

So just to make it clear:
I'm over 60 (on PC) and not currently being means tested/penalised because of my pension fund 'pot'.
The 'bank account' narrative is more of a 'soundbite' than (what I thought might be) an actual change in the rules on 6/4/15 ??
The capital amount will not be means tested - only if an amount withdrawn takes u over the £10k PC savings limit ?? (and is of course 75% taxable according to your nominal rate).

Hope I've understood and got that right

dunstonh · 24 October 2014 at 3:11PM

(tho regret I've never heard of a 'life assurance tax wrapper' - not by Eminem is it !!??)

Investments can be invested in directly (unwrapped) or held inside a tax wrapper. An ISA is a wrapper, as is a pension and there is a life assurance wrapper as well (endowments and investment bonds).

I'm over 60 (on PC) and not currently being means tested/penalised because of my pension fund 'pot'.

And in most cases that will continue to be the case until the scheme retirement age. The income it generates or can generate (if not taken) can be used in the means tests. The capital cannot.

The 'bank account' narrative is more of a 'soundbite' than (what I thought might be) an actual change in the rules on 6/4/15 ??
The capital amount will not be means tested - only if an amount withdrawn takes u over the £10k PC savings limit ?? (and is of course 75% taxable according to your nominal rate).

Hope I've understood and got that right

Correct. Although do remember that the 75% taxable income from the pension is treated as income. Even if it is paid as an ad-hoc or one off amount. So, it could impact on both income related means test and capital.

qwerty444 · 24 October 2014 at 5:22PM

Thanks dunstonh - thats all my Q's answered... :beer:

Pension Pot Advice 6/4/15

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