Pension Pot

kidmugsy

Ceres1 wrote: »

Yeah I’m just going to wait until next April when things will hopefully be more straightforward.

If I may say so, that's a good decision. The new laws that the government wants passed have been published but Parliament hasn't approved them yet. They might yet be changed.

I suggest that you use the next few months to check whether either of these pensions has any advantage that makes it worth keeping. For instance, is the "the pension linked to work" a Final Salary pension? If so (i) you won't be able to draw out the 75% left after the lump sum, and (ii) that's just as well as final salary pensions are often very valuable.

One other point: when you start drawing down from the 75% next tax year, be careful not to draw so much that you end up paying higher rate income tax. In other words, be resigned to the idea that it may be best to draw the capital down over the course of a few years, depending on your other income.

jamesd

The requirement to buy an annuity was first abolished from 6 April 2006 when Alternatively Secured Pensions were introduced. The current equivalent is "income drawdown" and that comes in two varieties "capped income drawdown" and "flexible income drawdown". Capped restricts initial drawing to 25% of the capital value and has a restriction on how much income you can take - ask if you need to know the limits, use 6% as a rough guide. Flexible has a requirement of having already in payment income of £12,000 a year from annuities, the state pensions or workplace defined benefit pensions and allows unlimited drawing. If you don't have the £12,000 just wait until the new rules are introduced early next year to eliminate the £12,000 requirement.

Various providers may not offer all of the available options and because their customer service people can only guide on what they sell they may wrongly tell you that you can't do something when you could do it if you transferred to a place that did allow it.

Please spread the word. Lots of people still think that you have to buy an annuity even though that changed almost ten years ago now.

Ceres1

'Atush: TBH, having an IO mtg wasn't the worst idea ever- your problem was you didn't have anything in place (such as a S&S isa etc) to pay it off when it came due.'


Yeah it didn’t work out for me Atush. I had a plan in mind but my work / financial situation changed. I'm in a fortunate position in that I know I'll be able to sell my house. It's not my first choice I have to say as I've done a lot of work on it and love the area. I also had a look at equity release but that seemed like another financial rip off. Some unfortunate people must have this potential loss of house looming up for them and it'll be a real worry. I know Not exactly what you need in retirement years. This news about releasing money from pension pots will, for some, be like having your prayers answered :T



'Kidmugsy: If I may say so, that's a good decision. The new laws that the government wants passed have been published but Parliament hasn't approved them yet. They might yet be changed.

I suggest that you use the next few months to check whether either of these pensions has any advantage that makes it worth keeping. For instance, is the "the pension linked to work" a Final Salary pension? If so (i) you won't be able to draw out the 75% left after the lump sum, and (ii) that's just as well as final salary pensions are often very valuable.

One other point: when you start drawing down from the 75% next tax year, be careful not to draw so much that you end up paying higher rate income tax. In other words, be resigned to the idea that it may be best to draw the capital down over the course of a few years, depending on your other income.'


Hi Kidsmugsy I know that the pension I have ‘linked to work’ is not a final salary pension. I am going to wait until next year and have been doing my homework with regard to annual income (minus tax relief) plus pension pot money. The tax paid then seems to jump from 20% to 40% (unless things change) over a certain amount so you are right I’ll have to work out how much to withdraw over say 2 / 3 years. You just worry that if there's a change in Government next year they’ll change the rules again :eek:


'James d: The requirement to buy an annuity was first abolished from 6 April 2006 when Alternatively Secured Pensions were introduced. The current equivalent is "income drawdown" and that comes in two varieties "capped income drawdown" and "flexible income drawdown". Capped restricts initial drawing to 25% of the capital value and has a restriction on how much income you can take - ask if you need to know the limits, use 6% as a rough guide. Flexible has a requirement of having already in payment income of £12,000 a year from annuities, the state pensions or workplace defined benefit pensions and allows unlimited drawing. If you don't have the £12,000 just wait until the new rules are introduced early next year to eliminate the £12,000 requirement.

Various providers may not offer all of the available options and because their customer service people can only guide on what they sell they may wrongly tell you that you can't do something when you could do it if you transferred to a place that did allow it.

Please spread the word. Lots of people still think that you have to buy an annuity even though that changed almost ten years ago now.'


Hi Jamesd this has been a real learning curve for me and hopefully some of the information on here will be helping others to make some sense of the present situation and future changes (April 2015).

James I will be waiting until next year but would like to ask you a couple of questions about income drawdown.

1) Is it the provider of the scheme that decides the type of drawdown a person may have or does the person himself (herself) make that decision?

2) Flexible drawdown .. Are you saying that someone would have to have £12,000 a year (as things stand this year) coming in from other pension sources before you’d be allowed to remove money from your pension pot? Taking it that the state pension is well under £12,000 a year many people will be losing out. I presume earnings don’t count?

3) I’m asking this question on behalf of someone else. I’ve read that if you have a number of small pots that amount to less that £30,000 you can lift that money just now. If that is the case do you have any idea how much tax one would have to pay (this year)?

I can see that customers would have to ask a great many questions and ‘shop around’ to get the best deal and even then you might not know what you were getting in to. Hopefully next years changes should simplify things for many pensioners who don’t have a clue as to how to surmount the ‘obstacles’ :doh:

I'm sure the word is spreading Sites like this are fantastic :j

Many thanks to you all for your help

atush

1, you and your financial circumstances decide

2, until april 2015 you have to have 12K per year Secured pension income such as Final salary or another annuity. Earning do not count. but this changes next april, when all DC pensions can use flex DD. But your provider needs to offer this, if they don't you need to transfer

3, this person would have to be over 60, and these 3 pots their only pensions. 25% will be Tax free, the other 75% taxed. After april this too will change.

Tax paid would be calculated by adding the 75% to all other income received in the tax year and of over 42K approx, 40% tax would be charged

kidmugsy

atush wrote: »

3, this person would have to be over 60, and these 3 pots their only pensions.

Are you quite sure Atush? My impression was that you can take a small pensions commutation on up to three pots of £10k or less each, irrespective of other pensions.

jamesd

1. Up to you but they don't have to offer all options so you may need to transfer to
2. Yes, to use flexible drawdown. Or you can use capped income drawdown instead. That has no minimum income requirement but limits how much income can be taken. Or you can wait until next year's new rules abolish the minimum income requirement for flexible drawdown.
3. This changed on 5 April when that limit increased to the £30,000 you mentioned. Here's a summary of what changed. This £30,000 includes a calculation for an equivalent value of a workplace final salary or similar pension scheme, valued at 20 times the annual income. All of this must be done within one calendar year of taking the first of these lump sums, after that the ability to use triviality again ends for the rest of a person's life. This £30,000 can be in any way, could be £29,000 in one pension and £1,000 in another.
3b. There is also the stranded pots or small pots rule, same rule, just two different names. This is independent of the triviality £30,000 limit and can be done at any time from age 60, no time restrictions. The personal pension small pots rule is up to £10,000 per arrangement (normally this means per pension but a single pension can sometimes contain more than one arrangement). It's just chance that you can do this three times and three times ten thousand is the same as the thirty thousand triviality limit.
3c. There is another small/stranded rule for occupational and public service schemes. Same £10,000 per arrangement limit as the personal pot one.

Combine all of those and it's possible to use triviality and small pot rules for at least £80,000 if you happen to have the right combination: three personal small pots, two occupational or public service (I'm not sure there is now a cap of two of these, might be more) and the triviality £30,000 for the rest. You can actually go higher than £80,000 because you can use triviality or the small pot rules after taking a lump sum.

From April 2015 it's likely, subject to Parliament passing the necessary law, that triviality will cease to matter because of the planned rule change to let people take out any amount as a lump sum. Still 25% tax free and the rest taxable income. Easiest is to wait until those new rules start unless it's too urgent to wait.

kidmugsy

jamesd wrote: »

3. This changed on 5 April when that limit increased to the £30,000 you mentioned. Here's a summary of what changed.

By God it's badly written. What on earth is this passage meant to mean?

"You may qualify to take all of your pension pot as a lump sum if:
[bullet] one of your pension pots is worth £10,000 or less
[bullet] your total pension pots under all the schemes you belong to are worth £30,000 or less."

Appalling: I blame the teachers.

jamesd wrote: »

... All of this must be done within one calendar year of taking the first of these lump sums, after that the ability to use triviality again ends for the rest of a person's life.

James, for clarification: what must be done within one calendar year of taking the first? Are you referring to the £30k-or-less rule, or the three-or-fewer-small-pensions rule?

RickyC_IFSWP

kidmugsy wrote: »

Are you quite sure Atush? My impression was that you can take a small pensions commutation on up to three pots of £10k or less each, irrespective of other pensions.

Yes, my understanding is this also. The 3 small pension pots rules can be used even if there are other pots. So in theory, one can also use Triviality Commutation rule after the small pension pot rules and take up to £60k (before tax) during this transitional period until the new pension proposals kick in.

xylophone

Yes, my understanding is this also. The 3 small pension pots rules can be used even if there are other pots

http://www.scottishlife.co.uk/scotlife/Web/Site/Adviser/TechnicalCentralArea/FAQsArea/2014_Budget.asp

jamesd

kidmugsy wrote: »

James, for clarification: what must be done within one calendar year of taking the first? Are you referring to the £30k-or-less rule, or the three-or-fewer-small-pensions rule?

Good question. I've edited my post to clarify the various triviality and small pot cases that could apply.