25% tax free & HPAA

Coolhandluke62

Hello, I am 56 and thinking about taking 25% tax free lump sum from a no guarantees no benefits pot with 33k in it and using it to pay off some expensive credit card debt. I am still working and paying into an employer's pension, and would actually be able to increase my contributions if I pay off the debt I get tax relief at 40% on my contributions.
Can anyone tell me if taking just the 25% tax free will reduce my HPAA to 4k annually as this is a big factor in my decision.

dunstonh

The 25% does not activate the MPAA.

You may need to move your pension to one that supports that option though.

xylophone

This pension arrangement permits you just to take the lump sum and leave the balance?

Or you are transferring it to an arrangement that does?

See

https://www.aegon.co.uk/support/faq/pension-technical/MPAA.html


The MPAA will not apply in the following circumstances:

Taking income from an existing capped drawdown arrangement which is within the GAD limit.

Taking a pension commencement lump sum, and
buying a lifetime annuity (i.e. not accessing new flexible annuity options), or
moving to a flexi-access drawdown arrangement and taking NO income.


Taking a small pots lump sum.

Taking income from a beneficiary’s flexi-access drawdown.

Coolhandluke62

Thanks for answering the big question. If I transfer the balance into my employer's pension I lose their contributions. Can I not just leave the 25k balance with Phoenix Life after I take the tax free sum?

dunstonh

Coolhandluke62 wrote: »

Thanks for answering the big question. If I transfer the balance into my employer's pension I lose their contributions. Can I not just leave the 25k balance with Phoenix Life after I take the tax free sum?

Only if the Phoenix plan supports that drawdown option. Otherwise, it will need transferring to a plan that does.

xylophone

Can I not just leave the 25k balance with Phoenix Life after I take the tax free sum?

See first question in my post above.

If the existing arrangement does not permit the option, you will need to transfer out to one that does.

https://www.hl.co.uk/pensions/sipp might be worth a look.

Coolhandluke62

Thanks again. I will check with Phoenix and go to a flexi-drawdown with the balance if required to without taking anything above the initial 25%.