Strategy to cash in pension

Billxx

My wife works for the NHS. She has a pension associated with this employment. She also has an old stakeholder pension fund amounting to about 10k. She cannot take this £10k as a lump sum as the total sum of her pensions including the NHS pension is greater than the threshold. Our plan then is to move the stakeholder pension funds to a provider for a flexi-drawdown before she takes the NHS pension. Then take the £10k as 25% tax free and the remainder as taxable. We will do this when she has no other income in the year, and therefore all of it will effectively be tax free. Does this sound like a realistic plan?

Any advice gratefully received. Are there any providers of flexi-drawdown for low value pensions that anyone would recommend?

Thanks,

Bill

Dazed_and_confused

She cannot take this £10k as a lump sum as the total sum of her pensions including the NHS pension is greater than the threshold

By cannot do you mean she is choosing not to take it or there is some legal/pension rules problem?

What threshold?

dunstonh

She cannot take this £10k as a lump sum as the total sum of her pensions including the NHS pension is greater than the threshold.

Yes she can. There is no threshold applying to the stakeholder pension apart from whether it triggers the annual allowance reduction or not. if she is retiring, then that doesnt matter.

Most stakeholder providers cater for UFPLS. If she has a rare one that doesnt then she just transfers it to another pension that allows UFPLS. It doesnt have to be flexi-access drawdown as it isnt her intention to use drawdown.

Does this sound like a realistic plan?

Not enough info to go on.

xylophone

If this is £10,000 or under, are you sure that she cannot take it as a "small pot"? She could check.

See

https://www.pensionsadvisoryservice.org.uk/content/publications-files/uploads/Taking_small_pensions_Detailed_SPOT008_V1.5.pdf

If you have small benefits in a non-occupational pension, such as a personal pension, section 32 buyout, stakeholder plan or section 226 contract (retirement annuity contract), it may be possible for you to cash them in under triviality rules, even if the main rules above have not been met. The rules are:
 You must have reached the age of 60 or age 55 from 6 April 2015;
 The payment does not exceed £10,000 (before 27 March 2014 the limit was £2,000);
 It extinguishes all your rights under the arrangement; and
 You have not previously received more than two payments under one of these types of
scheme. This excludes any separate lump sum under the special rule for occupational schemes only.
The first 25% of the payment is tax-free, with the remaining 75% taxable under PAYE. If the pension is in payment, the whole amount is liable to income tax.

One of the "main rules" is (as you mention)


 You have to add all the benefit values of all company pensions/personal pensions/stakeholder pensions/retirement annuities/buy-out plans (but not any state pension) together. If they do not exceed £30,000 (before 27 March 2014 the limit was £18,000), trivial commutation may be a possibility.

If "small pot" is possible, she could take it in full in a year when she has no other taxable income and end up with it tax free?

I say "end up" because it would almost certainly be taxed by the provider before payment - she would reclaim the overpayment from HMRC.

Billxx

Thanks for all the replies. The benefit values of her NHS pension exceed £30k plus the stakeholder element is just over £10k, therefore I don't think the trivial commutation is possible. As you correctly say, we can take it as a UFPLS, it will probably be taxed by the provider and we will have to claim it back from HMRC.

Thanks again.

dunstonh

The benefit values of her NHS pension exceed £30k plus the stakeholder element is just over £10k, therefore I don't think the trivial commutation is possible.

Stakeholder pensions are not subject to trivial commutation any more. The rules changed in 2015.

DC pensions effectively only have the small pots rule now (caveats apply). And that isnt going to bother someone retiring.

As you correctly say, we can take it as a UFPLS, it will probably be taxed by the provider and we will have to claim it back from HMRC.

Triviality still got taxed. Indeed, UFPLS uses the exact same process that triviality used to use.

AnotherJoe

Billxx wrote: »

Thanks for all the replies. The benefit values of her NHS pension exceed £30k plus the stakeholder element is just over £10k, therefore I don't think the trivial commutation is possible. As you correctly say, we can take it as a UFPLS, it will probably be taxed by the provider and we will have to claim it back from HMRC.

Thanks again.

Not if it's in a year she's not earning. Just take out (for example) £1k a month until it's gone, as that's under the tax threshold there will be no tax paid.