New Flexible Drawdown Rules

mudman

Aged 65 in Feb I will exceed the MIR and have a dormant 25k in a stakeholder fund. I have contacted my provider and they say they will have a scheme running early next year. I understand I can take 25% tax free and if I draw on the rest it will be taxed within my Annual entitlements. So far so good. In the items I have read it mentions "dependants". My wife has a similar dormant amount with the same stakeholder, can she do the same as me as mentioned above using my MIR?

CannySaver_2

Hi

I don't believe she can.

I may be corrected by others but as far as I know a wife cannot use he husband's income to satisfy the MIR and then enter Flexible Drawdown. After all there is no guarantee that any income payable to the husband would continue to the wife after his death.

The Canny Saver

SippTechie

Definitely not possible to use a spouse's income to satisfy the MIR for flexible drawdown.

If your wife has less than £21k in her stakeholder and no other pension benefits then it is possible to use trivial commutation.

The limit is £18k but there is a legitimate method to make use of trivial commutation with up to £21k in a fund for approx the next 6 months.

CannySaver_2

SippTechie wrote: »

The limit is £18k but there is a legitimate method to make use of trivial commutation with up to £21k in a fund for approx the next 6 months.

Care to tell us more?

SippTechie

Sorry if this is a little number heavy.

The trivial commutation limit is currently 1% of lifetime allowance, so the limit happens to be £18,000.

From 6 April 2012 the trivial commutation will no longer be linked to the lifetime allowance, it will just be £18,000.

First stage is our person with £21,000 in a pension takes benefits from £18,000 before 6 April 2012. This uses 1% of the current lifetime allowance.

From 6 April 2012, in order to be eligible for trivial commutation someone will need to declare that their pension benefits are worth less than £18,000 for trivial commutation purposes.

Ignoring investment change, we'll assume that the bit of their pension that they have not started taking benefits from is still worth £3,000.

Now for the interesting bit. For trivial commutation purposes, the crystallised bit of the fund (the bit you've started taking benefits from) is valued on the basis of the % of the lifetime allowance that was used up when you went into benefits. The lifetime allowance has now dropped to £1.5 million, so the 1% which was worth £18,000 before the lifetime allowance dropped is now only valued for trivial commutation purposes at £15,000.

Add the other £3,000 to this £15,000 and your benefits are only treated as being worth £18,000 for trivial commutation purposes.

You're right at the trivial commutation limit.

mudman

Thanks All for quick response, I thought it "too good to be true" that My wife came under my MIR, the "dependant" reference in write ups probably confused me.
Sipp Techie, your second post is a bit number heavy as you say, so let me give my wife's scenario. Aged 63 she takes a state pension of £370 per month (Only pension income), she has a dormant stakeholder pension worth about £24k. I assume this precludes her from a trivial commutation and that she will be allowed 25% tax free and have to purchase an annuity with the remainder.

kidmugsy

"...she will be allowed 25% tax free and have to purchase an annuity with the remainder": she needn't buy an annuity if she'd rather do a conventional "capped" drawdown.

mudman

Thanks All, the above advice keeps my OH out of the equation.
So back to myself. When I take my state pension in Feb 2012 my annual gross income (state & occupational pensions) will be £24700. Q? Does the 20% income limit of £34,000 include the £9940 tax allowance? If so I assume my tax allowance will be reduced by one pound for each two pound over £24000 ie minus £350 giving me a tax allowance of £9590.
So far so good - now back to "Flexible Drawdown" & my dormant stakeholder pension of about £25,000. Assuming that a scheme is up and running from my provider in the New Year I realise I can take 25% tax free. Because I am in excess of the MIR, how much of the remaining sum can I take in the first year so as to stay within the 20% tax bracket? Also how will the "£1 for every £2" over £24K income affect it.

gadgetmind

mudman wrote: »

When I take my state pension in Feb 2012

You might want to consider not drawing this straight away. If you defer it for a few years, it accumulates with (low) interest but what's important is that when you draw it, it gets taxed at your marginal rate and *doesn't* push you up brackets or affect age related allowance. If you "turn down" your other income during this year, you can get your state pension backlog at basic rate and without losing age related allowance.

andy1222

Hi,

Apologies for digging up an old thread!

Just with reference to the post Sipp Techie made about reducing the fund below 18k in order to cash the whole lot in.

I currently have a pension that I would like to cash in and it is sitting at £18,400. I understand that this is above the 18k limit. Is there anyway around this at all? What options are open to me? Is there a way of reducing the pension below the limit?

Many thanks for any help.

Aegis

andy1222 wrote: »

Hi,

Apologies for digging up an old thread!

Just with reference to the post Sipp Techie made about reducing the fund below 18k in order to cash the whole lot in.

I currently have a pension that I would like to cash in and it is sitting at £18,400. I understand that this is above the 18k limit. Is there anyway around this at all? What options are open to me? Is there a way of reducing the pension below the limit?

Many thanks for any help.

Is it your only pension? If so and you're over the age of 60, then you can trivially commute the pension if its value drops under £18k. That could be achieved by switching investments and incurring charges or simply by making some poor investment choices and losing money.

Whether it's sensible to do so is another matter entirely, of course...