Taking part of the tax free lump sum and continuing to pay in to a DC pot

ALTSELGREEN

Just wanted to run something past everyone as I can't seem to find an exact answer. I have a DC pension pot worth around £500k. I am just coming up to 55 and want to take a proportion of the tax free lump sum to invest in a property. Putting this into figures - 25% of the pot would be £125k.
I want to release £80k at 55 and leave the rest invested and still pay into my fund as normal until I retire which could be another 10 years away.
So if we say that £420k stays invested and I continue contributing and after 8 years the pot is say worth
£700k would I still be entitled to the £45k tax free left over from the original withdrawal plus £70k which would be 25% of the £280k contributed subsequently?
I also believe that if you only take the tax free element of your pot-you do not lose your annual contribution allowance ie £40K down to £10K -is that so?
Also my provider is examining whether I have protected rights which allow more than 25% available as a tax free lump sum and I have provided yearly income details up until 2006. Someone had mentioned that if this is the case, you would have to take the WHOLE tax free lump sum in one go-ie the full 25% plus whatever extra % is available-is that true?
I hope that all makes sense. I have checked with my pension provider and they offer all flexibilities with the pension plan I have.
Bit of a pension dummy -so want to make sure I've got the rules correct!!

xylophone

Your provider is the best position to advise but I would have thought that it might make life simpler to take the full PCLS and either buy a better property or use the balance to invest in ISAs for you and your wife/make PETS/treat yourself to the new car/holiday etc while you are young and fit enough to enjoy it?

You seem to be in a financial position to make any of this feasible?

atush

It all depends on your provider. But it is possible to take some of your PCLS and leave the rest and all of the taxed pot.

But you may have to transfer your pension to do this?

dunstonh

I want to release £80k at 55 and leave the rest invested and still pay into my fund as normal until I retire which could be another 10 years away.

Ok. So, you wish to part crystallise the pension to take income drawdown on part of it (with 25% TFC and nil income).

Also my provider is examining whether I have protected rights which allow more than 25% available as a tax free lump sum and I have provided yearly income details up until 2006. Someone had mentioned that if this is the case, you would have to take the WHOLE tax free lump sum in one go-ie the full 25% plus whatever extra % is available-is that true?

If that exists, it would make this pension a hybrid scheme and its unlikely it would support income drawdown. Transitional relief did not apply to protected rights exclusively. Plus, protected rights were abolished and reclassified as non-protected rights a few years ago.

So, whilst it is possible to have greater than 25% TFC, it tends to apply only to hybrid schemes and section 32 buy out bonds. Most of these schemes no longer get paid into (but a small minority could still exist for regular premiums). The increased tax free cash payment is typically set at a certain age.

ALTSELGREEN

Thanks for your replies.

Perhaps this will make things clearer??? What do I know!
I have been told that I was in a Company group pension scheme in which the rights were held on 5 April 2006 and benefits were transferred as part of a block transfer. Since 2006, until March 2014, where members had the right to a protected tax-free lump sum (from before 2006), these protections could continue in a new scheme if transferred as part of a block transfer (Happened in 2012) . My providor asked me to provide salary information up to 2006 for as many years as I could so that they could work this out.

So I'm still not clear on a couple things -notwithstanding the above, would there still be TFC available from the pot over and above the £45k left over from the original withdrawal? That is, the amount of money paid in from continuing to contribute from 55years old until retirement which hypothetically could be another £280K -would I be entitled to 25% of THAT amount as a tax free lump sum?

And does the annual allowance remain at £40K if one only takes tax free cash, leaving the rest of the pot invested?
Thanks for you patience -I'm just trying to clear things up!!

dunstonh

I have been told that I was in a Company group pension scheme in which the rights were held on 5 April 2006 and benefits were transferred as part of a block transfer. Since 2006, until March 2014, where members had the right to a protected tax-free lump sum (from before 2006), these protections could continue in a new scheme if transferred as part of a block transfer (Happened in 2012) . My providor asked me to provide salary information up to 2006 for as many years as I could so that they could work this out.

That would likely make it a section 32 buy out bond. They automatically obtained transitional relief with the A day changes in 2006. You didnt need to apply for the transitional relief.

So I'm still not clear on a couple things -notwithstanding the above, would there still be TFC available from the pot over and above the £45k left over from the original withdrawal?

The fund would be split into crystallised (the part of the pension you have taken benefits from) and uncrystallised (the part of the pension you have not taken any benefits from). Whatever the crystallised pot grows to in future, you will not be allowed a tax free lump sum payment from it again. Whatever the uncrystallised pot grows to, you will be allowed your 25% from that.

It is rare for section 32 buy out bonds to allow drawdown. There may also be GMP in there which could complicate matters. If you transfer out of a section 32 into a personal pension (to allow earlier access or allow drawdown) then you would normally lose the transitional relief.

The annual allowance is only reduced if you exceed the tax free allowance.

ALTSELGREEN

I have no idea whether this is the case -I was surprised when the pension provider asked for all the salary information pre 2006 and mentioned that I could be entitled to more. I was asked to complete an "earnings history and other benefits form" and am waiting to hear from them.

xylophone

But is this a S32? it would be rather strange for the provider not to mention this if it were as the terms of these products are so specific.

http://adviser.royallondon.com/technical-central/information-guidance/pre-a-day-protection/tax-free-cash-protection-on-transfer/

might be relevant to the situation?

xylophone

http://www.pruadviser.co.uk/content/knowledge/technical-centre/section_32/

might be worth a look.

dunstonh

I have no idea whether this is the case -I was surprised when the pension provider asked for all the salary information pre 2006 and mentioned that I could be entitled to more.

Makes it sound more like an EPP. (which also allowed higher tax free entitlement based on earnings). There are some hybrid schemes that could do similar.

xylophone

According to RL link in my post above

"The member is in a one man EPP can they block transfer to a Personal Pension Plan?

No, again there isn't a buddy - they'd have to wind-up the EPP and transfer to a s.32 or transfer to a personal pension and accept that tax-free cash will drop to 25%."