confused about pension reforms

jamesd

It's useful to take the 25% tax free lump sum as early as possible because:

1. This eliminates the risk that the law will be changed to cap or otherwise restrict it.

2. Your father's pension pot is large enough that lifetime allowance planning is sensible. Taking any benefit including the 25% tax free lump sum triggers a lifetime allowance calculation at the current lifetime allowance, which is higher than likely future allowances. It also excludes all future growth from being included until a second test at age 75. the age 75 test is usually easy enough to avoid by just drawing the money from the pension.

3. Diversifying into assets like P2P or VCTs can be done with the lump sum, as can moving it into ISA investments or, after two tax years' of delay or otherwise within the limits, recycling it into new pension contributions.

The main disadvantage of this is loss of the pension tax wrapper for the lump sum, which will matter until the money is reinvested elsewhere.

jamesd

flexingh wrote: »

Forgot to ask are there any drawbacks due to the new changes?

Just intemperance if they are viewed in isolation.

Comparing to the situation before 6 April 2015 it was possible to put money into capped income drawdown and recycle income from the pension. It is is still possible in theory to do this with flexi-access drawdown but taking any money beyond the 25% tax free lump sum will trigger a reduction in the pension money purchase annual allowance from £40k to £10k.