smart pension. new pension rules

cameo4

i am a 57 year old man with 2 pension pots worth approx £100,000.
i currently pay into a third, smart pension which is from the same company who i paid into a standard defined contribution scheme until redundancy in 2011.
is it worth my while taking one of the pensions worth about £44,000 as income drawdown where i would get tax relief on the first 25% per year and putting that money in increased contributions into my current smart pension where i do not pay NI contributions.
i have read from next April if you draw a pension you can put a maximum of £10,000 per year into a pension.
between me and my employer, ( i pay additional AVCs) my yearly contributions are £6865. therefore i could pay another £3135. After tax and ni differences i would only have to draw approx £2500 to
make up my take home pay
if i start taking a pension in income drawdown does it mean if i am ever unemployed i would not be able to claim any state benefit ie income based jobseekers allowance.
i know it is long winded but hopefully someone could point me in the right direction.

regards

kidmugsy

cameo4 wrote: »

is it worth my while taking one of the pensions worth about £44,000 as income drawdown where i would get tax relief on the first 25% per year and putting that money in increased contributions into my current smart pension where i do not pay NI contributions.
i have read from next April if you draw a pension you can put a maximum of £10,000 per year into a pension.
between me and my employer, ( i pay additional AVCs) my yearly contributions are £6865. therefore i could pay another £3135.
regards

The frequent commenter jamesd has explained that if you put your money purchase pension(s) into "capped drawdown" this tax year (i.e. before April 6th) and never draw out of them more than the TFLS and the capped tax-exposed annual amount, you will have preserved your £40k p.a. annual allowance for pension contributions. That might be of interest to you if you want to contribute more than £10k p.a. for a few years.

jamesd

You can draw the 25% tax free lump sums without triggering a reduction in the annual contribution allowance from £40k to £10k after 6 April 2015. Take a penny more than that using either the new flexi-access drawdown or uncrystallised funds pension lump sum and you will trigger the reduction.

The workaround is to put at least some money into capped income drawdown before then. After that you can transfer other pensions to the same provider, take a 25% lump sum and have the 75% join the existing capped pot. No new capped drawdown schemes can be created from 6 April 2015 so you need to get the first one done before then. Capped drawdown lets you take out that 25% tax free lump sum but then also take out the GAD limit amount each year from the 75% without triggering the reduction to £10k. The GAD limit amount tends to be in the 6-8% a year range at typical retirement ages at current 15 year gilt yields.

The new pension freedoms make it desirable for those near to or older than 55 to shift other savings and investments, including ISA money, into pensions to benefit from the pension tax relief. You get the tax relief without the long term pension lock-in. If you have the money I suggest that you consider salary sacrifice all the way down to minimum wage if your employer will let you.

Pension income that you're receiving would reduce your entitlement to contribution-based Jobseeker's Allowance. I don't think that just having taken the 25% would affect this but I don't know the rules so you should check. After the first six months it switches to income-based Jobseeker's Allowance, which uses Income Support savings limits under which £6,000 of capital will reduce entitlement and £16,000 will be enough to eliminate it all. If you have a good emergency fund you may find that this will limit your ability to ever get the income-based JSA.

cameo4

thank you both kidmugsy and jamesd for your replies.
it looks like capped drawdown would probably be the best bet for me.
i would have to switch my pensions as i am sure Equitable life and Friends life do not offer this service.
i only started looking into this a few weeks ago and the further i look, more questions are raised.
now i will have to find a drawdown provider and compare services and costs.

kidmugsy

cameo4 wrote: »

thank you both kidmugsy and jamesd for your replies.
it looks like capped drawdown would probably be the best bet for me.
i would have to switch my pensions as i am sure Equitable life and Friends life do not offer this service.
i only started looking into this a few weeks ago and the further i look, more questions are raised.
now i will have to find a drawdown provider and compare services and costs.

My wife and I have used only Hargreaves Lansdown, whose service has been excellent. People complain about their fees, but they weren't too heavy for us - but then our "pots" were much smaller than your £100k. The "Monevator" and "The Lang Cat" blogs have a lot to say on cost comparisons.

woolly_wombat

cameo4 wrote: »

i would have to switch my pensions as i am sure Equitable life and Friends life do not offer this service.

Is your Equitable Life pension with-profits? If so then don't be surprised if the transfer value is less than the guaranteed value if you are tempted to flee before your policy matures at age 60.

There was an article in ftadvisor highlighting this last year:
http://www.ftadviser.com/2015/01/14/investments/equitable-life-criticised-over-letters-to-exiting-clients-wEUN5nuBOFUvhmtIrVfPlJ/article.html

Equitable Life has failed to communicate fairly and clearly to with profits policyholders who want to leave, Laurence Sanderson, financial consultant at Essex-based Sterling & Law, has claimed......

Right to reply

A spokesman for Equitable Life said: “The annual benefit statement issued to members last May and the flyer provided to trustees for inclusion with the benefit statement were explicit on when the guarantees applied to members of this scheme. As the savings are being transferred prior to retirement and not on death, there is no guaranteed benefit. Last November, we were asked to provide transfer values, which we calculated in accordance with the policy rules, consistent with the benefit statements, which we reissued.”

Equitable sent out another letter to policyholders last month with a subtle change of wording. Evidently they have still failed to make it immediately clear to a lay reader that a noncontractual exit means loss of guaranteed value for the policy concerned.

X-post attempting to alert other ELAS with-profits policyholders:
https://forums.moneysavingexpert.com/discussion/5152886

WW

cameo4

only part of my Equitable life pension is with profits approx £8000.
I think i will transfer my friends life policy to sippdeal to start capped drawdown.
can i transfer my Equitable life pension at a later date?
i have just read the form on sippdeal about taking a capped drawdown pension and some of it goes above my head. i think i will need some help to fill it out.

PensionTech

Just weighing in becuase nobody's mentioned it yet but as you are planning to use your 25% tax-free cash to pay tax-relieved contributions back into a different pension plan, you might fall foul of the "recycling" rules - where HMRC try to prevent people from benefitting doubly from the tax relief on pensions by using this method. Others on here know more about the practicalities of the recycling limits, so I will leave this open to them.

jamesd

The "HMRC triggers" part of this document summarises the recycling of lump sum limits. There's no limit on recycling pension income. There's no limit on recycling lump sums into the pension of a different person. One limit that's often easy to stay within is keeping the lump sum amounts taken within a rolling twelve month period below 1% of the lifetime allowance, £12,500 of lump sum at the moment. In your case that would mean taking the 25% tax free lump sum over two tax years, with perhaps a week of extra safety margin beyond exactly twelve months.

cameo4

i have a lot more reading to do on this and was aware of the recycling rules but not sure when they apply.
i was thinking of taking approx £6500 per annum. if i took it monthly instead. would i still get tax relief on the first 25%
contributions to my current scheme are £6865 and hopefully i would increase that figure by £8000 to nearly £15000
is it more beneficial to take the 25% lump sum then monthly drawdown.
is the drawdown figure calculated on money in the drawdown pot only, or with all pensions taken into account.
i should have started this process a while ago because there is a lot more to this then i first thought and i don't want to fall foul of HMRC

cameo4

jamesd, i have read your last post a few times and the link to HRRC triggers a few times trying to make sure i understand it. i think that could be the way forward.
also, i could pay off something i did not originally intend to
pay off therefore freeing up further cash which in effect would account for the tax free lump sum.