I fancy consolidating all my pensions into one & then taking 40-50% tax free! Can I?

agarnett

I have been told (not by any FA I might add!) that one of my old pension policies:

• Still accepts transfers in
• Has a guaranteed growth rate of 4% less annual charges
• Has a preserved enhanced Tax Free cash limit of something over 40% (apparently that was a unique percentage set at A-day for yours truly - whatever that was ).

If I wanted to get my hands on cash from my other much bigger pension pots, and as much as possible on a tax free basis, are you thinking what I am thinking?

Too good to be true?

greenglide

Just because it still allows transfers in doesnt mean that the funds transferred in get the same benefits?

You certainly wont get the enhanced tax free sum unless the transfer in had that originally which would make the transfer fairly pointless.

agarnett

greenglide wrote: »

Just because it still allows transfers in doesnt mean that the funds transferred in get the same benefits?

You certainly wont get the enhanced tax free sum unless the transfer in had that originally which would make the transfer fairly pointless.

Well you say that, and I understand why you might think it, but I have been expressly told that the opposite is the case!

Can you point to the law or rule that says it isn't? I have not misunderstood what I have been told - I specifically asked if this is what it would mean, but I may have been misled by someone that should know better.

TH1878

agarnett wrote: »

Well you say that, and I understand why you might think it, but I have been expressly told that the opposite is the case!

Can you point to the law or rule that says it isn't? I have not misunderstood what I have been told - I specifically asked if this is what it would mean, but I may have been misled by someone that should know better.

Yep, he should have known better.

Your tax free cash entitlement was calculated as at 05/04/2006 in £ terms, not percentage terms.

Your maximum TFC (and nominal fund value) has increased by 20% since then and you also get 25% on the excess. An example might be better:

Your fund value at 05/04/06 was £100,000
Your protected TFC at 05/04/06 was £40,000


Let's say the value of your pension is now £150,000. Both of the above figures are first uplifted by 20% so your nominal values are now:

Fund Value £120,000
Protected TFC £48,000

Your TFC entitlement will be £48,000 plus 25% of the difference between your actual fund value and nominal fund value

(£150,000 - £120,000)*25% = £7,500

Therefore TFC equals £48,000 + £7,500 = £55,500

If you transfer a new plan in, you will increase the actual fund value of the current pension but you will only be entitled to 25% TFC on the part you transferred in.

Should have seen an FA!

greenglide

Since the PCLS was restricted to 25% (in 2006?) then, logically any money that wasnt already in such a scheme cannot now get into one.

But, of course, the legislation may be flawed?

TH1878

greenglide wrote: »

Since the PCLS was restricted to 25% (in 2006?) then, logically any money that wasnt already in such a scheme cannot now get into one.

But, of course, the legislation may be flawed?

It's not. See above example.

agarnett

TH1878 wrote: »

It's not. See above example.

The intention demonstrated in your example is perfectly understood, but do we really think that pension providers can be trusted to uphold legislation that so few of their staff understand? I didn't need to see an FA, as I am lucky enough usually to interpret what is likely and what is not in what I hear, and what is interestingly different!

Coupled with the knowledge that providers' legacy systems are often worse than hand-cranked, i.e. computerised - often by numpties (witness the errors so frequently found retrospectively to have been made in wrong calculations and in wrong charging and in issuing wrong types of policies, and even in giving commissions to unknown third parties or losing existing policyholder addresses and in forgetting bonuses etc) then I tend towards assessing the chances are that greenglide may well have a point!

Maybe I should test it with a large sum of dosh and report back! My understanding is that the plan accepts new single or regular contributions as well as transfers in. But it is also a plan which has not been computerised enough yet for it to be one I can view online. It was suggested that they wouldn't be much interested in where the dosh came from. I have other plans where transfers in are accepted but an IFA has to sign of on transfers in.

I do however believe that the raw data they keep stored reflecting the A-Day enhanced tax free cash calculation on the plan in question, is indeed the amounts involved and not the percentage. Obviously if the plan is untouched by me, then the both amounts involved in the calculation vary proportionately with performance. So with no additional contributions for a couple of decades, that means the A-day tax free cash percentage will not have varied since it was calculated in 2006. But it would be quite interesting to see if the system has any way of separating different tranches of new cash. I suppose it must do, and that I was just badly advised about it.

Nice idea while it lasted though!

The first I ever heard of a pension product being exploited successfully to give two fingers to the taxman was in the early eighties - a 74½ year old controlling director put £10K of his own company money into some kind of pension contract for his own benefit and then received it into his own personal bank account on his 75th birthday, tax free! Don't ask me what rule or loophole it exploited, but I do very much remember the two fingers and the smile at his "I beat the taxman" themed birthday party!