Pension pots and tax

jamesd

He's way too young to be buying an annuity. It is not required and anyone who tells you that it is is either lying to you or doesn't know the rules. He should simply be able to transfer the AVC to another pension firm then do whatever he wants with the money.

binnie

He worked at Rolls Royce aerospace and when he rang them on friday, they just said this one can't be cashed in.
Without paying a fortune to a financial advisor, we don't know how to find out.
Will that free helpline be able to advise?

zagfles

binnie wrote: »

Since I started this thread, my husband has been told he can't cash in the £5,000 (AVC). But he can get £1,172.93 tax free and has to put the rest in an Annuity with someone of our choice. We are going for Hargreaves Lansdown. Thing is it only brings in £100 ish a year, we really wanted to cash in the lot but it doesn't look like it.

The other £19,088.98 we can cash in, but the figures quoted are
£917.42 Tax Free Personal allowance
£2,666.67 Basic rate tax 20%
£9,833.33 Higher rate 40%
£899.32 Additonal rate tax 45%

We are confused why he is paying the higher rates as he only has a private pension income besides this of £692 a month

If they take the money, will he get the tax back. Why do they take that higher amount in the first place assuming all people earn lots of money

Have you spoken to Pension Wise as per link above? They're a free govt helpline for people in exactly your situation.

Re the AVC - it might just be that the employer's scheme doesn't offer the full cash in option, but you might be able to transfer it eg to a HL SIPP instead of buying an annuity. You could transfer the other one as well and have them all in the same pot.

If you do that with HL - don't take it all out within a year as they charge a few hundred IIRC - leave some of it in. They don't charge for a SIPP in cash except a closure fee of something like £30 IIRC (as long as you leave it open a year in which case it's a lot higher). But you could take most of it out and leave a little for next year.

Have a chat with HL as well, they tend to be very helpful and can explain stuff.

xylophone

Since I started this thread, my husband has been told he can't cash in the £5,000 (AVC).

Who told him this and why does he have to buy an annuity?


The other £19,088.98 we can cash in, but the figures quoted are
£917.42 Tax Free Personal allowance
£2,666.67 Basic rate tax 20%
£9,833.33 Higher rate 40%
£899.32 Additonal rate tax 45%

When a pension is taken in full, an overpayment situation almost always arises.

Have a look at this

http://adviser.royallondon.com/pensions/technical-central/information-guidance/benefit-options/emergency-tax-and-lump-sum-withdrawals/


More here http://www.litrg.org.uk/tax-guides/pensioners-and-tax/what-tax-position-when-i-take-money-my-pension-flexibly

See also this, particularly the section How will I be taxed when taking money out of my pension

Did your husband book an appointment with Pension wise - the tax situation will be explained.

https://www.pensionwise.gov.uk/appointments

As your own income is so low, had you thought of using the Marriage Allowance concession so that he would benefit from a higher tax allowance?

https://www.gov.uk/marriage-allowance/how-it-works

binnie

Hi THanks for all replies again. Seems Rolls people don't know the right answers.
We will definetly have to ring Pension wise now.
Thanks again for all your help. Be glad when it's all over.

jamesd

binnie wrote: »

The other £19,088.98 we can cash in, but the figures quoted are
£917.42 Tax Free Personal allowance
£2,666.67 Basic rate tax 20%
£9,833.33 Higher rate 40%
£899.32 Additonal rate tax 45%

If they take the money, will he get the tax back. Why do they take that higher amount in the first place assuming all people earn lots of money

No need for him to pay any income tax on it if he spreads out taking it over many tax years.

The reason he's getting quotes like that is that if a pension company doesn't have a notice of coding from HMRC they have to treat the lump sum as if it was going to be taken every month of the tax year. Which means a ridiculously high amount of income tax has to be deducted. So instead of having tax deducted at a rate suitable for a person taking £19k he's getting tax deducted for an income of more like £171k. That extra tax can be reclaimed using his Personal Tax Account.

But there's a better way that saves him even more tax, all of it in fact.

With an income of 692 a month that's £8,304 a year. His income tax personal allowance is £11,000 this year so he can take out taxable £11,000 - £8,304 = £2,696 a year.

So what he could do is say transfer to Hargreaves Lansdown and tell them to pay him £2,696 / 8 = £337 a month from August through March inclusive. For the first month they would deduct extra income tax but he can then tell HMRC about his actual income and they will send him and HL a notice of coding and HL will repay the deducted tax over the rest of this tax year.

Then from next April he can tell them to pay him £2696 / 12 = £224.67 a month and that'll get him the £2,696 tax free. But he can take a bit more because the personal allowance is currently expected to go up by £500 in 2017-18 so he can add £500 / 12 = £41.67 a month. So £266.34 a month.

He can continue to do this until the money runs out.

jamesd

binnie wrote: »

He worked at Rolls Royce aerospace and when he rang them on friday, they just said this one can't be cashed in.

Just ask them about transferring it to another pension provider.

Rolls Royce don't have to provide an option to cash it in but a transfer should be no problem.

binnie

I've also forgotten to mention which may change things, when he got made redundant he got redundancy and took a lump sum pension and a monthly payment pension. This was 2 years in January, he left Dec 2014. We have spent the £50,000 (lump sum) and redundancy money on a property so that has gone. He gets the monthly amount of £692 as mentioned before.

Will they include this as the lifetime amount you can take out.
This pension is seperate to the others.

The £19,000 is what they call a Money Purchase scheme, the £5,000 is AVC;s

binnie

I've just clicked on the pension wise link and saw that it said about a defined contribution pension.
The one he is getting every month is a final salary, but not sure what the Money purchase one is.

xylophone

Your husband worked for RR - he was made redundant.

Under the terms of his redundancy he received a redundancy payment (no doubt tax on this was sorted out at the time), and under the terms of the redundancy, he was able to access his Final Salary (Defined Benefit) pension before Normal Scheme Retirement Age.

He chose to commute a certain portion of his pension (possibly the maximum possible) so as to take a Pension Commencement Lump Sum.

At some point during his service with Rolls, he opted to contribute to an AVC?

How did the Money Purchase Pension arise? Was it because the DB scheme was closed to future accrual? Or is this a pension unconnected with Rolls?

Why was the AVC left behind when he drew his pension? I should have thought it might have been possible to take this at the same time as the main pension?

At all events, it should be possible to transfer the AVC and the Money Purchase to Hargreaves?

You could discuss your options with HL - I have found them very helpful with explanations.