What does the Chancellors pension revolution mean for us?

rpc

paul5046 wrote: »

And she got tax relief?
I thought "gifts" were not classed as income for tax purposes,so how can you get tax relief?

A man doesn't "gift" things to his wife, they were joint to start with.

And anyone can pay in up to £3600 gross and receive tax relief even if they are not earning.

Linton

paul5046 wrote: »

And she got tax relief?
I thought "gifts" were not classed as income for tax purposes,so how can you get tax relief?

In the examples given what really happens is that the Husband gives the Wife some money that just happens to have come from his TFLS. The wife who is employed uses that money to support her paying more in pension than she was doing previously, but it's still based on her earned income.

If the Wife wasnt earning she could still pay in up to £2880/year and get the rebate on the non-existant tax to bring the total invested to £3600.

paul5046

robin61 wrote: »

Hi,

I'd really appreciate some advice here.

My wife has 2 private pension schemes currently one is with Phoenix with a transfer value of 130K and one with the Co-op with a transfer value of £10K.

She doesn't work and therefore has no income. Is aged 52 and I doubt whether she will return to work. We've not been paying into her pensions for a number of years since she stopped working to look after our family.

Phoenix tell me theydon't allow drawdown on here scheme.

So as far as I can see she either takes an annuity or takes the new option of taking the whole lot out in cash. To be honest with the crappy deal you get with an annuity I am thinking the cash option might not be a bad one. At least her pension pot would form part of her estate and if invested wisely might well perform as well or better than an annuity.

As far as I can tell she will be able to get a tax free lump sum of £35K but will then pay tax on the £105K balance and I think that counts as income so that will mean a further circa 10K tax free to use up her personal allowance 10K to circa 42K at 20% and the rest she would be paying 40% tax on so in round terms she will lose around £30K of her £140K pot to the taxman.

Have I got this right ?

I am wondering also whether it would be worthwhile consolidation her 2 pension schemes with another provider who will allow drawdown. If this facility was available to her then presumably she would have the option of taking the 25% lump sum out and then gradually drawing on the rest to avoid tax. Is this right ?

I think we can probably afford to take some reasonable risks with her pension as I am in a decent final salary scheme and am building up a pretty healthy AVC to enhance my lump sum.

She cant do anything until 55 so hold on for the time being. Take time to see how the new rules pan out. In basic terms her best bet if she wants the cash is take the 25%, then if she has no other income, take 10k a year tax free (or whatever the allowance is). You really need advice. Certainly dont withdraw all in one year, you are only helping the taxman. Dont consolidate until you know the new rules. It may cost you, and be no better off. Under new legislation Phoenix cannot stop you taking the money out.
Lots to think about.

Read this
http://www.thisismoney.co.uk/money/pensions/article-2584535/Im-cash-pension-year-following-Budget-I-do.html?ito=feeds-newsxml

It also depends on has she any other income, can you live on your salary (you must be doing so already).

OldBeanz

rpc wrote: »

A man doesn't "gift" things to his wife, they were joint to start with.

And anyone can pay in up to £3600 gross and receive tax relief even if they are not earning.

Just to clarify, the wife and I still work. I actually had to wait for her to come home to use her card to open the account(obviously I had her full permission:)). (Used HL as I am at the stage in life where I would rather spend a few bob extra for better service and know that I can drawdown from there rather than chopping and changing). She will give up work at 60 when she would have had £3.5k in pension payable at that age and another two small pensions payable at 66. By packing her contributions until she is 60 (now 51) it will allow her to draw £7.5k without tax which previously would have been funded from my flexible drawdown. Excluding the lump sum, that is 20% of 6*£7.5k = £9k in saved tax. I think she is angling to leave at 59 now!
The concept that I have any money is alien to my wife's understanding of how the world goes round but she let's me get on sorting things out.

atush

My wife has 2 private pension schemes currently one is with Phoenix with a transfer value of 130K and one with the Co-op with a transfer value of £10K.

When she is 55, she can take the 10K pension in full. 2500 tax free, then the rest tax free too if she doesn't use her 10.5K PA.

For the other 130K pot, you transfer it to one with DD a possibility. Then take the 25% TFLS, and draw down the rest (in years after the first as you have cashed in the 10K pot) at a rate that does not need tax paying (such as 10.5K or whatever the PA that year is). It stays invested in the way that she chooses, at a risk level she is comfortable with.

Monies taken out not required for living, could be put into Nisas.

kidmugsy

atush wrote: »

Monies taken out not required for living, could be put into Nisas.

Presumably one will be forbidden from adding to pensions once one has started this free-for-all drawdown (in other words, the status quo for Flexible Withdrawal would apply)?

OldBeanz

Don't believe so. The concept of flexible drawdown will disappear IMHO.

Flugelhorn

OH is 57, not working and will get NHS pension at 60 or thereabouts
Am I reading this right? If we put 2880 / year into a DC pension then it will be credited as 3600. At 60 or whatever take 25% tax free and the rest at marginal rate (ie 0%). Suppose could wait a couple of months until next tax year to take NHS pension.

Must be a catch.

kidmugsy

OldBeanz wrote: »

Don't believe so. The concept of flexible drawdown will disappear IMHO.

Crow the stones! How about anti-recycling rules: will they go into the bin too?

kidmugsy

Flugelhorn wrote: »

OH

Must be a catch.

Nope, it's a well recognised feature of the system. If you tried to stop all such funny wee tricks you'd end up with the sort of intricate, incomprehensible system that would be much worse, and all for tiny sums of money.

Just as the taxpayer should often just pay tax rather than fanny around trying to avoid trivial amounts, so the taxpayers' rep, HMG, should not fanny around trying to close every little leak from the system.