Stupid question alert

Dazed_and_C0nfused

ussdave said:

If it's a 10K (and literally not a penny more, unless you split it) pot then couldn't it be taken under small pot rules, giving £8500 after tax and not triggering MPAA?

Possibly but the op is a higher rate taxpayer so the net proceeds would only be £7,000.

ussdave

Ah, fair point.  I missed/forgot that.

SWB

I understand a bit more now and I can see where I have misunderstood your questions due to the inaccuracies I have posted.
I have a DB work pension with 400k transfer value. (I am a 40% taxpayer)
My work is freezing this DB company pension on 31 March 2021 and all future pension payments will be paid into a brand new DC company pension which is currently at £0. Employees are being given 10k as a sweetener for the DB pension being replaced with a DC pension. 
The 10k sweetener can be paid as a bonus (40% tax to me) or into the old DB or the new DC pension scheme.
I dont need the 10k, I knew something about '25% tax free' and I wanted to put able to take 2.5k tax free without suffering any future pension detriment.
I turned 55 yo a few days ago and thought about taking a tax free lump sum to pay off my 60k mortgage. I dont need to pay off my mortgage because I intend to continue to work for the next three years until my mortgage is paid back. I dont want to waste my 'one-off' drawdown when I dont actually need it. I didnt understand that each pension was treated as a separate entity.
I now believe my best short term option is to:
Request the 10k sweetener be put into my new DC pension giving me a balance of 10k. Then ask for 25% tax free from this DC pension which gives me a 2.5k tax free bonus and leaves 7.5k in my new DC pension.
I will leave the 400k DB pension untouched as I dont currently need it and I can only take money from this one once, whether I take 10k or 100k.  Any second withdrawals will be taxed at 40% and I will be required to start drawdown (its a flexible option) which I dont want to do at this time.
Are there any drawbacks to this please?
Thanks

AlanP_2

The £400k is a transfer value, that is the amount (as a one-off lump sum) the DB scheme will transfer over to a personal pension / SIPP (a DC scheme). It can't be deferred and transferred at the same time, it must be one or the other.

If it is transferred you can take 25% as the tax free lump sum (so £100k for your numbers).

If it ios left as a deferred DB then the tax free value will be whatever it says in the scheme rules up to the HMRC maximum which, keeping it simple, is (20 * Annual Pension) * 25%.

SWB

The £400k is a transfer value, that is the amount (as a one-off lump sum) the DB scheme will transfer over to a personal pension / SIPP (a DC scheme). It can't be deferred and transferred at the same time, it must be one or the other.
Sorry, I am not sure where I wrote it was being transferred? It is being frozen and future payments paid into the new DC?

AlanP_2

SWB said:

The £400k is a transfer value, that is the amount (as a one-off lump sum) the DB scheme will transfer over to a personal pension / SIPP (a DC scheme). It can't be deferred and transferred at the same time, it must be one or the other.
Sorry, I am not sure where I wrote it was being transferred? It is being frozen and future payments paid into the new DC?

I will leave the 400k DB pension untouched as I dont currently need it and I can only take money from this one once, whether I take 10k or 100k.  Any second withdrawals will be taxed at 40% and I will be required to start drawdown (its a flexible option) which I dont want to do at this time.

It may be the terminology that is part of the confusion, for example "drawdown" is what you take from a DC scheme, and most people quote the value of a DB pension in £x annual pension terms not as a transfer value that can, and will, change over time (and is irrelevant unles you transfer).

LHW99

It is being frozen and future payments paid into the new DC?

Will it actually be frozen, or deferred? If only deferred, then the benefits will increase according to whatever is in the rules until you take it.

SWB

LHW99 said:

It is being frozen and future payments paid into the new DC?

Will it actually be frozen, or deferred? If only deferred, then the benefits will increase according to whatever is in the rules until you take it.

Apologies, yes, it will be deferred. Thank you  
So much to learn

Albermarle

I have a DB work pension with 400k transfer value

I think it is better to think of it this way >

A DB pension primarily means you have a promise of a guaranteed annual income when you retire . This is the benefit that you have accrued whilst working for this employer . This is the primary function and benefit of having a DB pension . Normally you will be offered a lump sum in return for a reduced annual pension, if you want to take it.

Completely separately, the scheme has calculated a transfer value that they will pay you for giving up these guaranteed income rights and getting the liabilities off their books . To go ahead with this you have to transfer the money into a DC scheme with no guarantees , which may or may not work out well.

So when you describe your DB pension , you should say ' I have a DB pension that will pay me £X pa for the rest of my life from when I retire and it is linked to inflation ( usually ) and will pay a spouse pension of 50% ( usually ) when I die '

Saying I have A DB pension with a transfer value of £X  ( which you may never transfer ) is coming at the subject the wrong way around. 

SWB

Thanks Albermarle. I am reading and learning more about pensions which is probably a good thing at my age
So, the original question...so far, I have found out that I can ask for the £10k to be paid into the newly opening DC and then drawdown a 2.5k tax free bonus without affecting my first DB pension. Are there any negatives to this please anyone?
Thanks for your help.