Can I take £12,500 from DC pension without taking tax free lump sum?

waveydavey48

I will be 58 next week. I have a deferred DB pension of £16k pa before tax which starts when I am 60. I also have a DC pension pot of about £160k. We are living happily on savings and my wife's pension so don't need to dip into my DC pension at this stage. I am not working so will have no taxable earnings in the tax year which commences in April this year. I don't need to take the 25% tax free lump sum from my DC pot.

Can I take £12,500 from my DC pot (and put it in my S&S ISA) without touching the 25% TFLS?

I thought not but I have come across an article online which suggests it is possible to take cash from a DC put whilst leaving the TFLS untouched. Here is an excerpt, I have underlined the relevant bit.

"Flexi-access is almost always the preferred solution because it allows a very high degree of flexibility about the way you can draw your pension. You can draw some or all of the tax-free pension commencement lump sum without drawing the income at the same time, you can draw some or all the income without taking the PCLS or you can take some of each."

Have I misunderstood?

Thanks folks.

wjr4

You must take tax feee cash if taking an income as you have to ‘crystallise’ part of your pension.

Tom99

If you want to make full use of the £12,500 tax allowance you would need to take £16,667 out. 25% of which would be tax free and the other £12,500 would also be tax free using your annual allowance.

Linton

waveydavey48 wrote: »

I will be 58 next week. I have a deferred DB pension of £16k pa before tax which starts when I am 60. I also have a DC pension pot of about £160k. We are living happily on savings and my wife's pension so don't need to dip into my DC pension at this stage. I am not working so will have no taxable earnings in the tax year which commences in April this year. I don't need to take the 25% tax free lump sum from my DC pot.

Can I take £12,500 from my DC pot (and put it in my S&S ISA) without touching the 25% TFLS?

I thought not but I have come across an article online which suggests it is possible to take cash from a DC put whilst leaving the TFLS untouched. Here is an excerpt, I have underlined the relevant bit.

"Flexi-access is almost always the preferred solution because it allows a very high degree of flexibility about the way you can draw your pension. You can draw some or all of the tax-free pension commencement lump sum without drawing the income at the same time, you can draw some or all the income without taking the PCLS or you can take some of each."

Have I misunderstood?

Thanks folks.

The underlined quote is wrong. Where did it come from? I have Googled parts of it and failed to find any reference.


The PCLS cannot be taken after the corresponding taxable drawdown.

Albermarle

you can draw some or all the income without taking the FULL PCLS

I think what this should say is above .

For example your DC pot of £160K , your full tax free 25% = £40K
You could take £10K tax free and £30K would be crystallised that could be taken as taxable income .
You can do this via flexi drawdown , in which case you could leave the £30K alone and just take the £10K tax free , or take all or part of the £30K as taxable income.
Or you can take a UFPLS payment of £40K , of which £10K would be tax free and £30K taxable.
The two methods look similar but they are not the same.

waveydavey48

Linton wrote: »

The underlined quote is wrong. Where did it come from? I have Googled parts of it and failed to find any reference.

Thanks for your reply, here's the link.

https://www.moneymarketing.co.uk/opinion/ufpls-vs-drawdown/

I appreciate all of your replies.

Albermarle

you can draw some or all the income without taking the PCLS

It's badly worded and out of context.

What it means is that once you have taken part of the tax free sum , you can then later take income from the crystallised part without necessarily taking any more tax free money at the same time .
As I explained in my previous post .

jamesd

waveydavey48 wrote: »

you can draw some or all the income without taking the PCLS

add "at the same time, because you already took it".

Just use UFPLS and accept the tax free bit as part of the mixture. It's inflexible but seems to fit your need.

Strictly, when not using UFPLS you can pick from 0% to 25% tax free lump sum. You can't take the unused tax free part later. This is most likely to apply to someone over the lifetime allowance who isn't entitled to a tax free part.

caveman8006

jamesd wrote: »

add "at the same time, because you already took it".

Just use UFPLS and accept the tax free bit as part of the mixture. It's inflexible but seems to fit your need.

Strictly, when not using UFPLS you can pick from 0% to 25% tax free lump sum. You can't take the unused tax free part later. This is most likely to apply to someone over the lifetime allowance who isn't entitled to a tax free part.

or someone who is certain to be an IHT payer at death and doesn't need to draw on the capital in their DC SIPP but can drawdown the investment growth as a basic rate tax payer for whom it would be more tax-efficient to crystallize their DC pot without taking a Tax-free lump sum (which would save 20% income tax but then be liable for 40% IHT on death).