smart pension. new pension rules

jamesd

cameo4 wrote: »

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%

Only if you were to use the new uncrystallised funds pension lump sum option and you should not do that because it's not the most efficient way.

The capped drawdown amount is a percentage of the pot that has been placed into drawdown. It is not a percentage of all pension pots, just each one in drawdown calculated individually.

Instead you should take benefits from £50,000 and take a 25% tax free lump sum of £12,500 from that, then taking the maximum GAD limit income of 6.45% (for 57 year old at 2% gilt yield), £2,418.75, from the £37,599 crystallised pot. That's in this tax year, in the next, take another £2,418.75, evenly divided monthly probably being the cheapest way. In 12 months and one day you could take another £50,000 from the uncrystallised pot with another £12,500 from that being a 25% tax free lump sum.

With two years worth in the crystallised 75% pot the GAD limit would let you take out about £4,837.50 a year taxable income. More if the gilt yield was to increase and gradually as you get older, less if the pot size decreases.

To go beyond that you'd need to use flexi-access drawdown and accept the cap on contributions to £10,000, so it's best to use the GAD limit amount and top up with the lump sum to reach the income target.

zagfles

jamesd wrote: »

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.

Being reduced to £7500 from April.

cameo4

thank you all for all comments and explanations.
just to be clear if i enter a capped drawdown this year with one pension pot of £50000 i can take a tax free lump sum of max £12500 and a taxable pension of approx £2,418. then move my other pension pot into drawdown and wait minimum 1 year and take the same again not taking into account ( at the moment) the last post from Zagfles.
i have read the HMRC triggers myself and i should still be able to increase my smart pension contributions substantially without breaking all the triggers which need to be met .
please correct me if i have misunderstood anything.

jamesd

Yes, though do take that post into account because it would really be £12,500, £7,500, £the rest if you want to preserve the £40k contribution limit. That rule happens to be the easiest one to check but the others certainly can make much more recycling fine.

cameo4

Zagfles, i have just found and read the reduced lump sum for next year, thank you for that info, that is the first time i had seen that, that could catch a few people out.
jamesd i have now got all the facts downloaded for reference and will keep inside my limits.
thank you all for your help.