Can someone confirm the rules about small pension pots?

poorbutcontent

I read this statement in an article about the changes to pension rules:

We’re increasing the size of a small pension pot that you can take as a lump sum,
regardless of your total pension wealth, from £2k to £10k.
We’re also increasing the number of personal pension pots you can take as a lump
sum under the small pot rules, from two to three.

I think I understand what they are saying, but I'm not totally sure.
For example:
someone who is 60+ has 4 pension funds from previous jobs that have not received any contributions for some time. The funds have values of £2,000, £8,000, £15,000 and £45,000, and the retirement ages for each of them was set at 55 or over.

Am I correct in thinking that this means that now the £2,000 and £8,000 funds can be taken as a lump sum, leaving the £15,000 and £45,000 funds until a later time - such as after April 2015 - before deciding what to do with them?

Or am I misunderstanding this.

Linton

Your understanding is correct. You can get cash for a fund < £2K now. In theory you can get cash for the £8K pension from Thursday this week, whether your provider has the systems in place to do it that soon may be another matter.

williama

Hi Can anyone clear this up for me please as I am a bit unsure as to the new regulations?
I had a pension pot form which I withdrew the allowable 25% as a cash sum around three years ago. I was then told I had to buy an annuity.
Does the new rule mean I can now access the remaining amount in the pot or do I have to wait for retirement age?
The amount put in to the annuity has increased as I have not been taking a draw down
I am now 61 years old so not retirement age yet
Any help appreciated

poorbutcontent

Thanks Linton.
That is what I was hoping for. (Need a couple of grand for an emergency that has cropped up).

I was a bit unsure as there is also the 'Trivial Pension' rule, but that, I believe, allows you to take all your pots (over 3 if there are that many) up to a TOTAL value of £18k (£30K after this week).

Linton

poorbutcontent wrote: »

Thanks Linton.
That is what I was hoping for. (Need a couple of grand for an emergency that has cropped up).

I was a bit unsure as there is also the 'Trivial Pension' rule, but that, I believe, allows you to take all your pots (over 3 if there are that many) up to a TOTAL value of £18k (£30K after this week).

There are two rules. One is triviality under which you could cash in all your pensions if the total was less than £18K, now £30K. The other is "stranded pots" which allowed you to cash in 2 X £2K pensions with no limit on the total value of all your pensions, from Thursday this goes up to 3X£10K. Its the second rule which gives you what you want.

poorbutcontent

Thanks :beer:

SailorSam

Don't forget to check the tax implicatioms of getting your money back out.

poorbutcontent

SailorSam wrote: »

Don't forget to check the tax implicatioms of getting your money back out.

Yup - done that

DonM

williama wrote: »

Hi Can anyone clear this up for me please as I am a bit unsure as to the new regulations?
I had a pension pot form which I withdrew the allowable 25% as a cash sum around three years ago. I was then told I had to buy an annuity.
Does the new rule mean I can now access the remaining amount in the pot or do I have to wait for retirement age?
The amount put in to the annuity has increased as I have not been taking a draw down
I am now 61 years old so not retirement age yet
Any help appreciated

Not 100% sure I understand you correctly. If you bought an annuity you will have foregone a lump sum of money and receive an income instead on an ongoing basis. The new rules will therefore not affect you.

If, however, you invested the money for future draw down and did not buy an annuity (which I think you've done) then...
You can withdraw 150% of the annuity rate (either from tomorrow or from your pension anniversary - need to check this - when you took the 25% tax free). The limit is currently 120% just now.
Potentially from next April you can withdraw as much or as little income from the remaining pension pot as and when suits depending on the rules (currently being consulted upon)

The retirement age is not applicable for you so you can take money from your pension pot, subject to limits above, as and when you need it. You will pay income tax on the amount at the highest rate i.e. if your salary is £50,000 then you'll pay 40% and if it is £20,000 you'll pay 20% assuming the amount you withdraw doesn't take you into the next tax bracket.

buglawton

I'd like to tag a question on.
I found this "take out 25% tax free" wording quite confusing.

e.g. here:
http://www.bbc.co.uk/news/business-26653312
"The first 25% of the money you take out is tax-free, and the rest is taxed"

Initially I thought this meant 25% of the amount you take out in one go in one tax year is tax free. So for example if you had £50,000 in the fund, took out £25,000, 25% or £6150 of that would be tax free, the remaining £18,750 would be taxable.

However, today's Mirror gives the example that if you had £50,000 on your pension fund (and not bought annuity), in year 1 from Apr 2015 you can take 25% (£12,500) of it out tax free and any extra would be subject to income tax at your highest rate.

So that would leave £37,500 in.
So now to the real point: What about year 2 - can you take another 25% out in year 2 tax free?

kidmugsy

You can do what's called "phased drawdown". Of your £50k you could "crystallise", say, £20k in one year: you get £5k tax-free and £15k is exposed to income tax. Then the next year you could, if you wanted to, "crystallise" the rest, taking £7.5k tax-free and the balance tax-exposed.