Can someone confirm the rules about small pension pots?

ScottyLP

Only 25% of the whole fund is Tax Free, regardless if you take it in year 1 or year 21. So if you have £100000 in your pot, £25K is tax free, but anything above that is taxable at your nominal rate of tax for that year.

kidmugsy

ScottyLP wrote: »

Only 25% of the whole fund is Tax Free, regardless if you take it in year 1 or year 21. So if you have £100000 in your pot, £25K is tax free, but anything above that is taxable at your nominal rate of tax for that year.

Roughly right, but remember that if the remaining fund grows the further TFLS available will grow too. (Or shrink, as the case may be.)

buglawton

Post 11 agrees with my initial understanding in post 10 while post 12 agrees with yesterday's Mirror, the more optimistic view. And where can I find official confirmation that if post 12 is the correct answer, one can repeat the process in year 2 for a 2nd tax free tranche equal to a full 25% of the remaining fund value?

bigadaj

buglawton wrote: »

Post 11 agrees with my initial understanding in post 10 while post 12 agrees with yesterday's Mirror, the more optimistic view. And where can I find official confirmation that if post 12 is the correct answer, one can repeat the process in year 2 for a 2nd tax free tranche equal to a full 25% of the remaining fund value?

Post 12 is wrong, or rather your interpretation of it is.

You are allowed 25% of the pot, in full or in part. So if you have £100k and crystallise £50k then £12.5k is tax free. The remaining £50k then stays invested and if that increases to £60k over the next few years, you crystallise that and £15k is tax free.

Steamer

I am no expert but a pension pot is just that a pot all your money goes into. If under the new rules if the total pot has a value less than £30,000 you can take the lot 25% of which is tax free. If it is more you can still draw 25% of the pot but the rest must be in a pension fund ie Annuity or drawdown and no more lump sums. If you have multiple pensions you have to manage the withdrawals within the 25% rules and possibly each pension fund will only allow you to withdraw 25% of the fund so the rules cannot be broken. If you can consolidate them you can take out a sum less than 25% leaving the balance to grow and you can take another lump out at a future date but the overall 25% always applies. If you take out 10% now then on a future occasion you will be allowed a further 15% of your pot tax free.

Hal17

May I add a question to this thread please. Sorry if I am being stupid. I understand that possibly after April 2015 you may be able to take money from your pension pot regardless of any limits, but of course subject to tax after the 25% has been taken.

Assume we start a new personal pension and pay in the personal allowance of £2880 for 3 years, the tax relief would be £2160 plus some small growth. So could we after 3 years take the 25% tax free and the full balance in one withdrawal.

I am trying to maximise my wife personal allowance, but if you are allowed to do this - it seems to good to be true unless i am missing something. Thanks.

kidmugsy

Hal17 wrote: »

I am trying to maximise my wife personal allowance, but if you are allowed to do this - it seems to good to be true unless i am missing something. Thanks.

But true nonetheless.

Calmag

Can someone help me with this please? When I finish work soon my small work's pension will mean I won't be due to pay any tax. I have a stakeholder pension which I am still paying into. If I continue to contribute to it when I finish work can I still get the tax relief added to it......as I will then not be a tax payer?
Hope that's clear. Thank you.

kidmugsy

Calmag wrote: »

Can someone help me with this please? When I finish work soon my small work's pension will mean I won't be due to pay any tax. I have a stakeholder pension which I am still paying into. If I continue to contribute to it when I finish work can I still get the tax relief added to it......as I will then not be a tax payer?
Hope that's clear. Thank you.

Yes it's clear. Yes you can.

As an alternative consider, if applicable, what excellent value it is to defer State Retirement Pension (old style i.e. pre-2016) , and take the reward as extra pension. It's equivalent to buying an index-linked annuity that pays 10.4%p.a. and is largely heritable by your spouse.
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/210220/DWP024.pdf

itm2

I was wondering if anyone could clarify another situation: I plan to start drawdown at age 55 next April (2015). I have 5 pensions "pots":
(a) SIPP (approx £130k)
(b) Occupational money purchase scheme worth approx £30k
(c) Occupational money purchase scheme worth approx £28k
(d) Occupational money purchase scheme worth approx £7.5k

Prior to the budget I had planned to consolidate pots (b), (c) and (d) into my SIPP, then take a 25% tax free lump sum from the resulting pot (approx £49k) before commencing drawdown.

My question is: under the revised triviality rules can I now keep the £7.5k pot (d) separate from the SIPP, then withdraw it all tax-free in April 2015 , in addition to the 25% TFLS from the consolidated SIPP? (effectively allowing me to draw down approximately 28% of my total pension pots tax-free)?