New Flexible Drawdown Rules

andy1222

Hi Aegis,

Thanks for the quick reply. Yes, I am over the age of 60. I have two pensions both within the same company one is 12.6k and the other 5.8k. Is this a problem for trivially commuting the pension?

How would be the best way to effectively "lose" the extra £400 ish pounds. Transfer the pension and incur charges this way ?

I think this will be beneficial as I will never get the money back out again at my age.

Again, thanks very much.

andy1222

Hi,

Can anyone help me with this please ?

Thanks very much

jamesd

Do you have any other pensions at all? Really no final salary or similar pension and no other personal or work pensions? Just the state pensions and this 12.6k and 5.8k pair? Every pension you have except the state pension counts at its capital value.

Yes, doing something that incurs charges is one way. Say transfer to a SIPP and do some buying and selling of say £250 worth of ETFs so that the dealing costs take you predictably just below the trivial commutation limit. £250 or some lower amount is just so that the rest of the money remains in cash and can't vary in value, so you can hit the target more precisely.

andy1222

Hi James,

Thanks very much for the reply. That gives me something to work on.

Daniel_Elkington

By the way, the lifetime allowance has dropped to 1.5M, so trivial commutation is now £15,000 or less.

andy1222

Hi,

When did the change take place? I cant think of anyway around this. Did this come in on the new tax year ?

Thanks.

jamesd

Daniel_Elkington wrote: »

By the way, the lifetime allowance has dropped to 1.5M, so trivial commutation is now £15,000 or less.

The trivial commutation limit was decoupled from the lifetime allowance from 6 April 2012 and is now fixed at £18,000 (also see this). So the reduced lifetime allowance has not affected it.

There's also a new rule that allows commutation of personal pension pots up to £2,000, capped at doing this twice so you can't just split one big pot into lots of smaller ones and use the £2,000 limit on them all. This is in addition to the existing ability to take trivial commutation of occupational pensions (occupational effectively means not defined contribution) up to £2,000.

The combination of £18,000 plus two lots of £2,000 seems to have effectively raised the trivial commutation limit.

The upper age limit of 75 was removed in April 2011.

andy1222, this means that you could check whether your provider allows trivial commutation. If yes, transfer all but £2,000 from one pot to another, use the £2,000 rule on that one and the £18,000 rule on the other. This may not be permitted where both are with the same pension provider, don't know either way, remedy is easy enough, just transferring to another. I didn't remember the new £2k rule until I went looking for a reference to the fixed £18k limit.

More discussion and example calculations is in a Pensions Advisory Service paper.

andy1222

Hi Jamesd

Thanks very much that post has definitely set me on the right track. Thanks for the attachments. I will be starting to take this further tomorrow now with this information.