£2880>£3600

jamesd

Did she already take some of the taxable 75% of any other pension pot, except for buying an annuity? If she did she might as well use choice a since it makes no difference to her.

Same thing if she has no prospect of paying in more than 10k in a year in the future.

The reason I'd prefer a in those cases is because the small pots rule might sometime in the future be changed in some way that does get her a benefit. Purely speculative and it may well never happen. Just preserving the possibility if it makes no difference to her today.

uk1

Thanks again James,

She has not taken any cash lump sums out of any pensions ever and I do not plan she has any other new pensions in the future except this maneuovre each year for as long as the opportunity lasts.

Does this mean that from her position there is effectively no difference between (a) and (b) from a practical and tax viewpoint except that by choosing (a )she may reserve a currently unknown but possible opportunity in the future ie no difference between them but (a) preferable solely for that reason?

Have I understood you correctly?

Thanks

Jeff

jamesd

Yes, you understand correctly.

uk1

Thanks again James,

I am expecting my own tax injectionto my plan in the next few weeks or so and I have no tax free band remaining, so I will be paying tax. I also have not received any lump sums from other pensions and plan no other further pension payments except this scheme for as long as it continues.

Does the same option (a) seem sensible for me as well and have no other repurcussions?

(For others reading this and "doing the same" ..... receiving the final payment from Virgin closes your scheme ie you cannot leave it open for further easy annual payments by say leaving a pound in. So you have to open a new plan each year. )

Jeff

neilvw

jamesd wrote: »

The small pot lump sum rule allows taking of the pot without triggering a reduction in the money purchase annual allowance for pension contributions from £40k a year to £10k a year. Available for up to three pots of this type per person's lifetime, up to £10k per pot and the amount taken must be all of the money in the pot. You can use transfers to combine pots to get close to but not over 10k if desired.

If she has already taken any taxable money from any money purchase pension - meaning things like personal pensions and the SIPP version or a workplace money purchase pension of some sort - then there is no difference between the two because she already has the lower 10k limit. One exception to this is if she had a pension that she put into capped drawdown under the rules that were in place before 6 April 2015 and has not taken more than the GAD limit amount out, which is allowed without triggering the reduction.

Waiting until closer to 10k then using the small pots rule is something that a person who is still working and may make contributions above 10k in a year might want to do.

Slightly off-topic but I think interesting: AEGON will allow policyholders with more then £10k but no more than £30k to make use of the 3 X small pots rule. Behind the scenes they will split the pot into more than one arrangement, each no higher than £10k. They gave two quotes (full cash in/UFPLS & small pots) to one of my firm's clients who was in this position recently. Not sure who else has this facility.

Small pots is generally better because the PAYE is always a flat 20% rather than emergency tax. Plus no impact on annual allowance and lifetime allowance as mentioned.

jamesd

uk1, yes, so long as you're sure that you won't be doing more than 10k a year in the future and there's no lifetime allowance issue that's the way I'd go.

neilvw, yes, I've heard of a few places that will do that, since it is strictly per arrangement rather than per pot. Handy way to avoid transfers as a workaround.

uk1

Just to clarify!

We can only do this three times in a lifetime?

Thanks

Jeff

jamesd

There is a lifetime limit of 3 small pots. No limit on the non-small pot rule alternative way.

uk1

Thanks again James,

So choosing option a leaves the option of repeating this every year?

Jeff