Tax treatment of 2 pensions

Stumped123

Hello,
Hoping some knowledgeable person can provide some clarity on how a 2nd pension is taxed when it comes time to “take it”.

I already have pension (Pension 1) built up with a previous employer that if/when I take it (55) will put me straight into the high tax bracket (with full lump sum taken).

I’m exploring the pros/cons of starting another separate pension plan (Pension 2) and taking it at 55 (leaving Pension 1 until later) but am trying to understand the following:

1/. Is the maximum amount of lump sum that can be taken out of the 2 Pension funds 25% of each, or does some other rule apply?

2/. Can the complete Pension 2 fund be taken as a lump sum and if so what taxation would be applied?

Thanks for any help/guidance on this
Stpd

Linton

1) The maximum is 25%, though particularly if its a final salary or some other guaranteed company scheme there may be other rules.

2) You cant take the money all from scheme 2 (unless you were dying) - the 25% is applied separately to each pension. Sometimes if its a final salary scheme with linked AVC you may be able to take all the 25% from the AVC depending on the scheme rules.

jem16

Stumped123 wrote: »

2/. Can the complete Pension 2 fund be taken as a lump sum and if so what taxation would be applied?

Assuming Pension 1 is giving you at least £20k ( sounds like it as you said it took you into higher rate tax) then you could use Flexible Drawdown for Pension 2 which would allow you to take as much income as you wanted from it.

Tax wise it would be treated as normal income.

Info here;

http://www.ft.com/cms/s/2/d22a4392-7d87-11e0-b418-00144feabdc0.html#axzz1oGR83bDc

Stumped123

Thanks for your feedback so far.

St