25% Tax Free on WHAT?

family4tunes

Hi all,

I have several pensions with only one real substantial pot, the others being smaller and bit'n'bobs.

I wondered about this 25% tax free withdraw on your pension but slightly confused since I have several pots altogether.

Dunno if you guys can help so the main question is:

Doe's the 25% tax free allowance just work on one pension fund, or can I withdraw 25% tax free for all the pension funds I have separately?

Or .. is it only 25% across the board so to speak?

I have one pension fund of around 75K and several others of around 20-30k. I have around 6 private (frozen) accounts altogether with only one small active and current fund with my present new employer.

Any clarity would be very much appreciated.

Thanks.

Linton

AIUI legally it is 25% of the total of all your pensions which can be taken whatever way you like. However no platform/pension provider supports this. I guess it would be too difficult to police since all of your pension providers would need to know about all the other ones. So in practice each pension pot is treated separately.

family4tunes

So in theory then 25% tax free on the overall amount of all my pension pots together.

Example: An overall pension pot from all my pension funds of say 100k would allow 25K tax free withdrawal?

If I had say 6 pension funds of various amounts it would be allowed to withdraw a % of each that would not exceed 25% of all my pension holdings.
Or, if I had few funds big enough I could withdraw 25% of my overall pension funds without touching the other smaller funds?

I have only contacted one fund direct and that is the largest of all (75K). They said I can only withdraw 17.5k and the rest must be paid as a normal pension. This is why I asked if it is 25% overall of all funds or a percentage of each not totally more than 25% altogether.

Thanks for your advice, I need to get this sorted and get a clear picture where I stand

Tassie_Devil

This says 25% of any pension:


https://www.gov.uk/tax-on-pension/tax-free

GunJack

With so many disparate funds, would a consolidation exercise be worthwhile before you start looking at withdrawals?? If for nothing else, for your own sanity of trying to keep track of them all

AnotherJoe

As said in the first reply It's 25% of each separate pension. You can't set one off against the other. If you want to do that then you'll have to consolidate them first which doesn't seem like a bad idea if you have 6.

danm

Say 100k in 4 pots A thru D - each with 25k

The rules allow you to take 25k of your personal total

If you call provide A and ask to take 25k from that pot they will decline as they have no way of knowing what you intend to do with pots B, C and D.

So you will have to take 6.25K from each of the 4 pots to get the max 25%

p00hsticks

family4tunes wrote: »

I have only contacted one fund direct and that is the largest of all (75K). They said I can only withdraw 17.5k and the rest must be paid as a normal pension. This is why I asked if it is 25% overall of all funds or a percentage of each not totally more than 25% altogether.

Are you sure this is a 'Direct Contribution' (DC) pension - i.e. one where your employers and your contributions are invested into a 'pot' that you can later withdraw from as you wish ?

It sounds like it might be a 'Defined Benefit' (DB) pension - i.e. one where in return for your contributionss your employer has promised to pay you a certain sum evey month/year when you reach the pension retirement date, depending on your salary and years of service.

The 25% rule only applies to DC schemes. DB schemes may or may not offer a lump sum as well as a regular pension but this can vary and it could be less than the maximum 25%

MrDinosaur

GunJack wrote: »

With so many disparate funds, would a consolidation exercise be worthwhile before you start looking at withdrawals?? If for nothing else, for your own sanity of trying to keep track of them all

As above, I don't think there is any financial benefit to lumping into one pot, but doing so just makes it so much easier to manage - the 25% will then be so much simpler.

cfw1994

If they are DB schemes, then there is a "Small Pot" rule, I believe.
https://www.pensionsadvisoryservice.org.uk/about-pensions/retirement-choices/the-right-choice-for-me/taking-a-small-pension-as-a-cash-lump-sum talks about it.

If they are DC schemes, then you can take 25% from *each* tax-free, or as MrD said, you could lump them together first if that were easier to manage (& perhaps easier to 'grow' over time!)

family4tunes

Mmmm? Thanks all that have replied to my post. you all have been helpful and given me good advice

I am gunna have to check which pensions are what (DB-DC) as I didn't know there was a difference, It's not a simple thing for me and will take some time to sort.

I'm 62 at the moment and need to get things in better perspective. The only thing I am clear about is I have one pension (the largest) payable now as it was available at 55. I contacted them and they told me the fund wont enhance any more that its value now as its matured.

The current one which I still contribute is payable at the normal retirement age, but hasn't been running that long (3 years) so it wont achieve that much really. The others were with former employers which were automatically frozen when I left the companies. Then I have the state pension which will be due at normal retirement.

I have thought about polling them altogether but don't know really how to do this, or who to chose to put the funds with if I did. Normally around April I get updates for all and hope to have some form of clue what to do by then so I can start to organise things.

I work full time at the moment but really would like to drop a day if possible and if affordable. Unfortunately even at my age I still have a big mortgage to pay which still has another 7 years to run. I'm not sure what a financial advisor would cost per hour or any other fees they might charge if they were employed as my funds are limited.

I don't want to get in the position where I get taxed more because some pensions are payable whilst I still work, its a dilemma which I am unclear at the present.

Again, thank you all for your replies and advise I truly appreciate your help.