25% tax free lump sum multiple withdrawal query

bolwin1

I have a question about the 25% tax free withdrawal & how this can be applied over multiple years. I have had a dig around on the forum & can't find the answer.

Bit of background ;
I am 52 years old
I have 2 DB pensions that will provide me with an acceptable income from 60 - these are no longer being paid into & are increasing at RPI / up to 5%.
I am on track for full state pension if I work another 3 years.
Currently planning to retire at 60.
Mortgage will be paid off in 6 months - no other debts & approx £25K savings

I have a DC pension - currently has £140K in it & get around £800 pcm added through mine & my employers contributions. This pot will be used partly to change my standard of living from acceptable to good between my retirement date & when the state pension kicks in on my 67th birthday.
Assuming I keep to my plan of steadily increasing pension contributions & the pot increases at around 5% p.a, there will be around £190K in the pot on my 55th birthday & 280K on my 60th birthday. I know these numbers can go up or down a lot during those years.

My question is as follows - if I was to take the 25% tax free lump sum (to move house) on my 55th birthday, what further tax free lump sums would be allowed ?

For example, assuming the pot is worth £190K when I am 55, I could take out £45K. Would I then be able to take another one on my 60th birthday covering 25% of the difference between the value of the pot at 55 & the value of the pot at 60, or would it be based on the value of the contributions after the age of 55 + any growth that they have made ? (or is it another calculation ?).

Thanks for reading

p00hsticks

bolwin1 wrote: »

For example, assuming the pot is worth £190K when I am 55, I could take out £45K. Would I then be able to take another one on my 60th birthday covering 25% of the difference between the value of the pot at 55 & the value of the pot at 60, or would it be based on the value of the contributions after the age of 55 + any growth that they have made ? (or is it another calculation ?).

As I understand it, once you take your 25% lump sum the pot is marked as 'crystallised' and any further withdrawals will be subject to income tax at a rate dependant on the tax code you pension provider holds for you. The fact that the pot remaining may go up or down before you get around to withdrawing it is irrelevant.

If you continue to pay into the pension after making the intial withdrawal then any new payments will go into a separate 'pot' and you could then take 25% of this new pot tax free at a later date.

dunstonh

My question is as follows - if I was to take the 25% tax free lump sum (to move house) on my 55th birthday, what further tax free lump sums would be allowed ?

None in respect of that money. Regardless of what it grows to in future. You would be fully crystallising the pension and taking your 25% up front.

Only new money contributed would be in your uncrystallised pot and you could take 25% against that.

xylophone

https://www.pensionsandannuities.co.uk/Uncrystallised_funds_pension_lump_sum.htm

bolwin1

Thanks for the quick & clear responses - that seems a reasonable / fair way for the treatment of the lump sums. The example used in the pensionandannuities link is an amusing one :-)

xylophone

See also https://www.pensionsadvisoryservice.org.uk/news/the-money-purchase-annual-allowance-is-dropping-to-4000-how-does-it-affect