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Pension and divorce

5 replies 307 views
Hello clever people
I used to think I was fairly ok on understanding pensions but seem to have lost the plot and would appreciate some interpretation.
I am getting divorced and we are still working through the financial settlement - amicably!
We are both retired and get state pension in just over a year.
I keep the house, and my husband has agreed to transfer his smaller pension pot to me. He has had a valuation and the provider has said 

I could keep the pension with the existing provider ' Should you  choose an internal transfer the benefits would be invested into a DC fund. You would then have the option to either:

 ·  Take the fund as a one off lump sum payment, 25% of which would be tax free the remaining 75% would be taxed at basic rate; or

·  Purchase an Annuity with an Annuity Provider. The annuity rates will be different depending on the provider she opts to transfer the benefits to meaning the pension value would change.

The value of pot is  £160,000.

Does this sound right? I could take the whole amount out of the DC fund and only pay basic rate tax ( 20%) on the amount above the TFLS? I have asked him to go back to the provider and query it .

I have my own DB pension of around 16k so with state pension the cash is looking like a better option re passing it on to the children, but not if most of it goes on tax

Thanks . 


Replies

  • El_TorroEl_Torro Forumite
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    No, that’s not right. 25% is tax free, yes, but the rest is taxed at your marginal tax rate. So if you take all £160k in one go you’re looking at a big income tax bill, certainly more than 20%.

    One option is to draw down a proportion of the pension every year, ensuring you don’t take too much, thereby avoiding paying 40% or more income tax. If your current pension provider isn’t offering you this option though you may need to move the pension to a provider which does. 
  • edited 21 November at 11:43PM
    Dazed_and_C0nfusedDazed_and_C0nfused Forumite
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    edited 21 November at 11:43PM
    They don't seem to be giving you sufficient options.

    For example I would be asking why couldn't you leave it with the same provider and drawdown whatever you want each year?

    Taking £120k of taxable pension income in one year (when it is the whole (taxable) fund) is madness as you would have an effective tax rate of 60% on some of it and 40% on a lot of it.
  • Mutton_GeoffMutton_Geoff Forumite
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    You could also spread your tax free amount over the next 10 years and draw £16,500 a year for 10 years (assuming no other earnings and zero growth on the investment) made up of £12,500 annual tax free allowance plus 1/10th of the PCLS at the commencement of drawdown (BCE), ie £4,000. That way, by drip feeding, you get the whole lot tax free. Any growth could extend the period where you could draw the balance within your annual tax free allowance.
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  • Dazed_and_C0nfusedDazed_and_C0nfused Forumite
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    You could also spread your tax free amount over the next 10 years and draw £16,500 a year for 10 years (assuming no other earnings and zero growth on the investment) made up of £12,500 annual tax free allowance plus 1/10th of the PCLS at the commencement of drawdown (BCE), ie £4,000. That way, by drip feeding, you get the whole lot tax free. Any growth could extend the period where you could draw the balance within your annual tax free allowance.

    I took the op to mean they already had a decent pension in payment.

    We are both retired and get state pension in just over a year
    I have my own DB pension of around 16k 


  • AlbermarleAlbermarle Forumite
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    They don't seem to be giving you sufficient options.
    For example I would be asking why couldn't you leave it with the same provider and drawdown whatever you want each year?

    It could be it is an older pension and this option is not available . In any case there should be the option of transferring it to a new pension provider who would offer more flexible withdrawal possibilities .

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