What is included in your "Total Pension Pot"?

dog_nanny

I'm struggling to get my head around the new rules coming into effect in April.
If your total pension pot is under £30k you can take it in cash. Is this just personal pensions or does it include employer pensions? I have two small pots amounting to about £18k but I also have a Civil Service pension relating to employment in the 1980's. Do I include this? If so how do I value it?

Elaine.

jem16

erbriggs wrote: »

but I also have a Civil Service pension relating to employment in the 1980's. Do I include this? If so how do I value it?

Elaine.

It's normally valued at 20 times the annual pension. However do you have an up-to-date value?

Yes you would have to include that for trivial commutation. You also have to be age 60.

Might be best just to wait until April.

dog_nanny

Thanks Jem. I don't have an up-to-date valuation although I've requested one. The last valuation I had (in 2000) gave an annual pension of £900 so that's going to add £18k to my pot, putting it well over £30k.
So I'll have to be content with my 25% lump sum.

gadgetmind

erbriggs wrote: »

So I'll have to be content with my 25% lump sum.

Under the current rules, yes, but after April you can take those pots as fast or as slow as you like, but anything other than the 25% PCLS will be subject to tax. You'll therefore probably want to time when you take this to minimise the tax hit.

dog_nanny

Ok, now I'm totally confused! Are you saying the £30k limit doesn't apply after April?

gadgetmind

erbriggs wrote: »

Ok, now I'm totally confused! Are you saying the £30k limit doesn't apply after April?

Yes. The triviality rules used to be that you had to be 60 and with <+£18k in your pot. In the latest budget, this was hiked to £30k, but they also announced the new pension freedoms that will (from April) allow anyone aged 55+ to take whatever they want from any size of pension pot.

dunstonh

If your total pension pot is under £30k you can take it in cash.

That is before April. After april it doesnt matter.

It will just be the tax you need to worry about then.

jamesd

There is no £30,000 rule from 6 April 2015. You can use "flexi-access drawdown" to take out as much as you like, whenever you like. Any amounts above the 25% tax free lump sum will that are taken will be added to your normal taxable income for the year.

If you take a lump sum beyond the 25% the HMRC taxation rules are currently still not clear, it's possible that they will assume that a lump sum taken in month 1 will be taken in the remaining 11 months of the year as well, meaning it could be taxed well above the correct tax rate. It currently appears that delaying until the pension firm gets a notice of your tax code from HMRC may solve this issue but the certain workaround is to arrange for regular monthly drawings from the 75% portion instead of all at the start of the year.

dog_nanny

Ok thanks everyone I see where my confusion was. So if I take one of my pensions in April 2015 and the other in 2016 that should keep me within my tax allowance. Let's hope the tax situation is clarified by April.

jem16

erbriggs wrote: »

Ok thanks everyone I see where my confusion was. So if I take one of my pensions in April 2015 and the other in 2016 that should keep me within my tax allowance. Let's hope the tax situation is clarified by April.

Provided you have no other income, yes.

SnowMan

jamesd wrote: »

If you take a lump sum beyond the 25% the HMRC taxation rules are currently still not clear, it's possible that they will assume that a lump sum taken in month 1 will be taken in the remaining 11 months of the year as well, meaning it could be taxed well above the correct tax rate. It currently appears that delaying until the pension firm gets a notice of your tax code from HMRC may solve this issue but the certain workaround is to arrange for regular monthly drawings from the 75% portion instead of all at the start of the year.

That's right. You may have already seen it but if not the HMRC tax note on this from December 2014 is here

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/388351/Newsletter_66_-_december_2014.pdf

The month 1 emergency code treatment used in many cases is going to result in huge overpayments of tax 'in year', which will require the investor to fill in forms P50 or P53 to reclaim. Worse still if the lump sum doesn't fully extinguish the pension fund it is not clear that you can fill in P50 or P53, and have to wait until the end of the tax year to get your tax back (although there may be work arounds by arranging a second token payment but that will no doubt involve un-necessary charges).

You can predict the stories: I took my tax free cash and the remaining £10,000 lump sum from my pension on 6th April to live on for the rest of the tax year before my state pension and final salary pension kicked in the following tax year (knowing that the amount was within my personal allowance) but the pension provider have only paid me just over £6,000 of my £10,000 lump sum. What do I do?