Tax Free lump sum moving pension

moedeeb

I am 55 in April and considering taking the PCLS tax free from my company money purchase scheme.


Still employed and therefore I don't want to jeopardise either my own contributions or generous employer contributions (14%) to the company money purchase scheme.


So to maintain up to 40K yearly pension savings and take the PCLS I have been told by my employer that I can transfer the current pension to a more flexible scheme. This means leaving the current employer scheme. Setting up a pension with the relevant flexibility, taking the lump sum. Then re-joining the workplace scheme and starting again to take advantage of the employee contributions.


All this seems a real pain and probably highlights why pensions are so complicated and misunderstood. The provisions in law are clear but my employee scheme isn't flexible enough to allow me to do what I want without some fairly complex transfers etc.


The employee scheme does allow FLUMPS which would mean me taking a tax hit on anything I take out (75% taxable at marginal rate) but this would presumably trigger the lower annual savings allowance and defeat the tax free advantages.


I cant be alone in this position? what have others done in this situation? - ironically my employer is a pension provider but provides a staff scheme that seems fairly old-fashioned.


I do need a little cash from somewhere and want to take it in the most tax efficient way I can.

Paul_Herring

I do need a little cash from somewhere and want to take it in the most tax efficient way I can.

I would suggest looking somewhere else for the money, and leave the pension alone for when you're actually retired.

Part time job? Cut back on things (maybe have a mooch round the Debt-Free wannabe or Budgeting forum?)

dunstonh

All this seems a real pain and probably highlights why pensions are so complicated and misunderstood.

A pension gets tax benefits for provision in retirement. You are looking to access your money prior to retirement. Not what the pension was intended for.

If you buy a motorbike, you shouldnt expect to carry all 4 members of the family on it. For that you need a car. That is effectively what is happening here with the pension.

The provisions in law are clear but my employee scheme isn't flexible enough to allow me to do what I want without some fairly complex transfers etc.

The provisions in law have existed 20 years. Nothing has changed recently that impacts on what you are looking to do.

I cant be alone in this position?

No you are not. However, you are in a small minority.

what have others done in this situation?

1 - prepared in advance with forward planning (using individual provision for any excess over employer to use to fill gaps prior to retirement)
2 - Not raid their pension early
3- jump through the hoops.

squirrelpie

I suppose the question is how feasible it is to get the small amount of cash in some other way? The most obvious possibility to me sounds like reducing your pension contributions for a year or two, but perhaps there are other alternatives.

kidmugsy

squirrelpie wrote: »

I suppose the question is how feasible it is to get the small amount of cash in some other way? The most obvious possibility to me sounds like reducing your pension contributions for a year or two, but perhaps there are other alternatives.

Yes; if part of the £40k doesn't get 40% tax relief, and especially if the OP doesn't benefit from salary sacrifice, that would be one possibility.

Another possibility would be to borrow - interest rates are still low by historical standards. But then he'd need a proper plan for paying it back.

Or he could just follow the procedure the employer described.

moedeeb

Thanks all, I think I will leave things as they are. All replies much appreciated.