Advice on the 25% drawdown option ... please

macca64

Can someone confirm that I understand this correctly.

Person A is now over 50, and has a few pension plans with different providers, can you take 25% tax free lump some from say 2 of the plans, and leave the 75% to grow until he is 65, and then leave the other plans fully invested? I beleive he can.

I assume the answer to this one is no, but I'll ask anyway. If Person A takes the 25%, can he give this to Spouse to invest so that the income from this can be used to use up Spouse's tax allowance in retirement? I assume that this 25% can not be invested in a pension for Person A's spouse??

EdInvestor

You can't just take the 25% out and leave the money where it is.

You have to set up a new income drawdown plan (usually in a SIPP) move the money from the pension(s) over to the SIPP and then reinvest it in the SIPP.This is called "vesting" the pension.

You can amalgamate several pensions in the SIPP, or just move one over.You can keep some of the pensions in the SIPP "unvested" (ie you haven't taken the 25% cash out yet).

You can do whatever you like with the tax free cash, including giving it to a spouse. There is a rule that you can't reinvest TFC over 15k in a new pension for yourself, not sure if this affects spouses.

if it does put it in her ISA and invest it later.

jamesd

macca64, the tax authorities are not keen on you putting the 25% straight back into a pension. If it happens that it leaves you sufficient income to continue making regular pension contributions it's effectively the same result. However, anyone with enough money to do this might well be better off using the money in ISA inveting anyway.

macca64

James, Ed - Thanks for the replies.

James, yes thought as much about the 25% TFC. However if the spouse invests monthly from current income, the 25% TFC can be used to supplement income rather than being invested as a lump sum, as you say same end result.

Also advantage of the pension over the ISA would be where the spouse is a non tax payer now and in retirement as then the fund is boosted by the tax relief, although access to the capital is lost!

Given me something to think about! Cheers :beer:

jamesd

Yes, a pension for the spouse is a good idea where the spouse will not be paying tax in retirement.