New pension reforms not so good for small pots?

kidmugsy

matty17r wrote: »

Update on my case. I have rung HLansdown. They do not have any costs associated with flexible drawndown as from April as these are still being discussed. No charges for transferring in to HL or out of Aviva. If we wish to consider flexible drawndown Aviva said we will need an IFA which on such a small pot is it worth it? .... LG employment april, may and june plus some self employed earnings that I could put 100% of this into my stakeholder pension not to exceed £40k. ... Not sure if I need an IFA for HL.

I suspect it's fairly straightforward, it's just that you are unfamiliar with this stuff. In your shoes I'd transfer from Aviva to HL (or one of their competitors): not the remotest need for an IFA - I've done several such transfers myself. It's easy peasy: you complete a form for HL (or whomever) and they do the rest.

Then I'd calculate how much I can add to HL tax-efficiently, to wit "some earnings from my LG LG employment april, may and june plus some self employed earnings", minus the pension contributions you made to the LGPS in those months, as shown on your payslips. [If those earnings were anywhere near £40k, give a shout so that people can go into more detail here.] I'd then make that contribution, so that there's ample time before the new tax year for HMRC to send the tax relief to HL.

Then in the new tax year just do the drawdown that you want to, with the detail chosen to minimise tax paid and charges. Just remember that HL (or whoever) will pay out your withdrawal with tax subtracted as instructed to them by HMRC (apart from on the 25% tax free), and it will be up to you to get your rebate from HMRC. Which, in my experience, happens but can take a few months.

matty17r

Thank you kidsmugsy for your very detailed reply. Sorry, should I being topping my pension up while it it still with Aviva or wait until it's transferred to HL?

jamesd

matty17r wrote: »

If we wish to consider flexible drawndown Aviva said we will need an IFA which on such a small pot is it worth it?

No. Smallish pots like yours are a classic case where just taking out the money as rapidly as practical without paying excessive income tax is the way to go, to reduce costs. Aviva are saying what they want, not what the law requires.

matty17r wrote: »

I also discussed topping up my pot to leave in £30k which Avivia told me this morning I needed to have for flexible drawndown.

The law imposes no requirement of £30k for using Flexible Drawdown, Capped Income Drawdown or the new from 6 April 2015 Flexi-access drawdown. There is a 30k maximum [STRIKE] in the pot to use the current small pots rule[/STRIKE] in all pots combined to withdraw all of the money under current triviality rules - before 6 April - if you're over 60 years old.

matty17r wrote: »

I have some earnings from my LG employment april, may and june plus some self employed earnings and was told that I could put 100% of this into my stakeholder pension not to exceed £40k.

Yes, that's the usual annual limit pair, the small of those two is permitted.

The guidance from kidmugsy is good.

kidmugsy

matty17r wrote: »

Thank you kidsmugsy for your very detailed reply. Sorry, should I being topping my pension up while it it still with Aviva or wait until it's transferred to HL?

I'd do it to HL so that you don't find Aviva delaying things until they've received the tax rebate for you.

gadgetmind

jamesd wrote: »

There is a 30k maximum in the pot to use the current small pots rule

£30k for trivial commutation, and 3 x £10k for stranded pots, but you knew that. :-)

jamesd

Thanks. Right. I was trying to work out how something could have been used to get a £30,000 number somehow and that was one possibility. I've reworded that portion of my reply, though. But I have no really good idea how someone could come up with a £30,000 minimum requirement unless it's a product-specific rule.

gadgetmind

My guess is exactly what you say, and product specific.

Daniel_Elkington

Well, taking £30,000 or less into a drawdown contract may not be to your benefit, after April of course.

There is the Uncrystallised Fund Pension Lump Sum (a bit of a mouthful).

Using this you can take what you like from your pension, with 25% tax-free and 75% taxed at your marginal rate. This will trigger the lower annual allowance, which means your annual allowance on defined contribution pensions drops to £10,000 a year (although you still have £30,000 AA for defined benefit accruals).

This may or may not affect you.

I'd also mention that the relationship between you and your money is not as absolute as if it were in a bank account when we're discussing pensions. Aviva are the trustees of the Master Trust and therefore set the scheme rules in the trust deed.

The long and the short of it is, that the Aviva MT Trustees can decide to add rules on top of those that HMRC, TPR, FCA and DWP allow.

Pensions are not straightforward and I'd recommend paying for an hour or two with an IFA (probably about £500) to make sure that you've got it absolutely spot-on.

matty17r

In the telegraph today it says exactly what this thread is all about with only about 2 per cent of providers offering flexible drawdown. I am considering transferring to HL but any other competitive firms I should be considering please? I read somewhere just because there are no charges to transfer in, the sting might be in the tail when I try to withdraw my money out with flexible drawdown with high charges.

kidmugsy

matty17r wrote: »

In the telegraph today it says exactly what this thread is all about with only about 2 per cent of providers offering flexible drawdown. I am considering transferring to HL but any other competitive firms I should be considering please? I read somewhere just because there are no charges to transfer in, the sting might be in the tail when I try to withdraw my money out with flexible drawdown with high charges.

I thought the Tel over-egged the pudding there. Many of the pension providers who won't provide flexible drawdown turn out to be employer DC schemes. Well, of course; why on earth would they go to the expense and hassle of introducing FD when the alternative is just that members transfer out to providers who have the necessary software, or can produce it with decent economies of scale?

As for alternatives, people here often recommend Cavendish Online. We have found HL's costs for FD perfectly tolerable. If the market next year is as competitive as I'd expect, I'd say that prices are likelier to fall than to rise.

You could always hedge your bets and transfer to a Stakeholder Pension in the first instance because they aren't allowed charges for transferring out (to anyone expert - have I got this right?).
Then when the main providers have published their price lists for April '15, transfer on again to whomever you fancy.