Higher Tax Free Cash Lump Sum Amounts - Higher than 25%? How so?

agarnett

1. I have a pension policy that has a 40+% Tax Free Lump Sum which I am told has to do with some kind of review conducted on "A-Day" which I believe was 6 April 2006.
2. I have just received a retirement illustration for another policy and it enclosed a form which has a section I am encouraged to complete with details of other employments and pensions because at the head of it, it says
   "Completion of this section may result in a higher tax-free amount"

I am one who feels it might be useful to be able to check how these things are worked out rather than to simply accept whatever fate the system spits out with my name on it.

Can anyone enlighten us as to the rationale behind higher tax-free sums than the standard 25%, what kind of example scenarios will have led to me having eligibility already in one plan to a higher tax -free cash sum than standard, and also give an idea of what sort of responses on the latest form I have received would set the other provider on sufficient enquiry to be able to justify paying me a higher tax-free sum?

I cannot for the life of me understand how uniting policyholders with their correct pension promises ever became such a black art.

xylophone

http://www.telegraph.co.uk/finance/personalfinance/pensions/11138058/25pc-lump-sum-Some-can-get-100pc-of-a-company-pension-tax-free.html

might be relevant to your case?

xylophone

Also http://adviser.royallondon.com/technical-central/information-guidance/pre-a-day-protection/protection-of-scheme-specific-tax-free-lump-sum/

agarnett

Thanks xylophone.

The devil is in the detail!

I may have three occupational pensions affected by this, but have thus far only had one confirmed - a DC scheme policy commenced 1989 and left in 1992 which remains with the original provider. The tax free proportion on that one is as I have said, over 40% and confirmed again recently. I have been told by the provider that indeed I must take an annuity from the balance to get at the enhanced tax free lump sum, because what would be left would be over £10,000 i.e. not "trivial". Alternatively, I must inflate that particular pot by first transfering-in some other pot(s). Then, the remainder after the enhanced TFLS is taken would be greater than a nother magic number of £30,000, which they tell me would then be eligible for new drawdown. All a bit convoluted, and in my case the tax I would be saving works out at less than £1,000, but might be worth the effort.

The other two I now wonder about are a DB scheme I left in the late 80s which still exists as such and my Section 32 Buy Out of another DB scheme which has a "leaving date" of 1999 and a wind-up date of 2003. Those are potentially much larger amounts.

I for one need help understanding what the overall intention of the A-day protection was trying to achieve. I have never been aware that any of my pensions were set up to ever entitle me to more than 25% tax free, so the extra tax-free amounts would appear to materialise out of some kind of mathematical anomaly associated with differing growth rates and in the DB scheme and Section 32 cases, the unique commutation factors employed. I need to re-read those links you have kindly found for me, xylophone. I haven't yet got my head around them.

xylophone

Why not see a Pension Specialist IFA?

You could just gather up all your information and leave him or her to sift it and then advise on your options.

agarnett

Well indeed I do have one tee'd up to advise on the wisdom of accepting a CETV or otherwise for the existing final salary one, so something may drop out of that, but it is all a matter of cost versus benefit really. The potential benefit of finding an extra 15% tax free on a £50,000 pot may be outweighed by the IFA fee for looking at it.