Two pensions - lump sum on retirement

ashfor

I have two pension schemes with the same employer. Most of my pension is in a final salary scheme but this was closed last year and replaced with a money-purchase scheme operated by an insurance company. I'm 62 and planning to retire in a year or so, possibly earlier.

I have the opportunity to make a lump sum AVC before the end of the current financial year equal to all my salary in the year less the personal allowance, so I'll avoid paying any income tax. The AVC would go into the money-purchase scheme and would be worth about 5 times the contributions to this scheme in the 10 months since it started.

Both of these pension schemes allow 25% as a tax-free lump sum on retirement but I don't really want to take a lump-sum from the final salary scheme - I'd rather maximise my monthly pension. So I'd like, if possible, to take the value of this lump-sum AVC as a tax-free lump sum from the money purchase scheme.

Does anyone know whether the 25% limit applies to each pension fund individually or to the combined value of both funds? Taking all the AVC as a lump sum would be much less than 25% of the value of both schemes but very much more than 25% of the value of the money-purchase scheme.

I'd appreciate advice on this point from anyone who understands the rules. If I can take the AVC as a lump sum on retirement, I'll go ahead with making the lump-sum AVC in the next couple of days; if I can't and have to buy an annuity with the AVC, I probably won't!

Many thanks for any advice.

jem16

ashfor wrote: »

Does anyone know whether the 25% limit applies to each pension fund individually or to the combined value of both funds? Taking all the AVC as a lump sum would be much less than 25% of the value of both schemes but very much more than 25% of the value of the money-purchase scheme.

The only rules that apply are the rules of your final salary scheme and how it allows the lump sums to be taken in relation to the main scheme.

Some, but not many, allow the 25% tax-free lump sum to be taken from the AVC pot only. Most it's 25% from each.

You really need to ask your pension scheme as no-one here can tell you for sure.

EDIT : having read your post more thoroughly I see it's not really an AVC pot but that a money purchase scheme has replaced a final salary scheme. In this case there really is no connection and it is more than likely that each will be treated separately. However check with your pension scheme to be sure.