Two Pensions (Personal and Company Executive / Directors) 25% Cash Out + Merge

50000

I have two pension plans, which have not been topped up for 20 years. I am approaching 55 and would like to take out 25% tax free at that time. I have read other topics on this subject on this site, and I have spoken with Pension Wise. The goal is to take out 25% tax free and to then merge both into one flexi drawdown plan. I believe my situation is slightly complicated because of the two different types of plans that I have.

Plan 1 is a personal pension (defined contribution) with around £31K in the fund (£4.6K is former protected rights / SERPS). Plan 2 is a company pension for directors and exectives (occupational pension scheme) with around £15K in the plan. Both have not had any payments into them since the late 90s. Both are ex-Abbey Life, now Phoenix Life.

Options:

1. Take out 25% of Plan 1 and 25% of Plan 2 at age 55. Merge both into a single flexi drawdown

2. Take out all of Plan 2 now, with 25% tax free and the remaining 75% taxed. Change Plan 1 to flexi drawdown

3. Prior to age 55 merge Plan 2 with Plan 1 leaving Plan 1 with £46k. Take 25% of this tax free at 55 and the remainder into flexi drawdown

I would tend to favour option 2 - to shut it down completely but I would not want to lose out too much on tax. Currently I am a 20% payer, just a few K under the 40% threshold.

50000

Fees
I contacted Phoenix Life to check on fees that would be applied for the various options. Currently (before my 55th) I would be charged £1,668 and £1061 for the two plans if I transferred before my birthday. However, there is a rule stating that from your 55th birthday the charge can not be more than 1% of the pot total. This totally changes things as it brings the charges down to £310 and £150 - a huge saving. I will therefore do nothing until my birthday.

Withdraw More than 25% From Company Pension for Directors

There is the facility with this to take more than 25% tax free from this plan. I have to fill in a form to explore this. I guess this is to ensure that total earnings for the year are below a certain threshold? Also what are the implications of totally shutting down this plan after 55th birthday? Could I cash in all of the pot tax free.

Final question: If the company pension was all or partial cashed in could I keep the personal pension as-is for now or would that trigger a rule that it would have to change to drawdown or annuity?

dunstonh

1. Take out 25% of Plan 1 and 25% of Plan 2 at age 55. Merge both into a single flexi drawdown

You would consolidate them before crystallising the pension to use income drawdown. (25% lump sum, £0 income)

2. Take out all of Plan 2 now, with 25% tax free and the remaining 75% taxed. Change Plan 1 to flexi drawdown

That would trigger a reduction to just £4000 annual allowance.    That could be extremely damaging.

3. Prior to age 55 merge Plan 2 with Plan 1 leaving Plan 1 with £46k. Take 25% of this tax free at 55 and the remainder into flexi drawdown

That may or may not be an option that achieves your objective.  It may or may not be the best option even if it does.

You mention these two pensions.  However, what other pensions do you have?  Robbing your retirement years to have money during your working life is not normally considered a sensible thing to do.

50000

Those two are the only pensions I have. There are other savings and property and I do not intend to give up the work I do for a good few years yet, so not concerned at all about changing the pensions at this stage.

Prism

How have you managed not to have a pension since the late 90s? I assume you must be self employed or a director of a limited company?

Using a pension is one of the most tax effective ways of saving for the future. I'm not sure you should be so eager to limit yourself so soon.

50000

Yes, self employed / director of Ltd since the early 90s.

Hindsight is wonderful I know, and with age comes wisdom. But this is the situation now. I appreciate that some will say leave it as-is and startup again. But how about some answers as to the best choice (after not leaving it as is)?

Prism

50000 said:

Yes, self employed / director of Ltd since the early 90s.

Hindsight is wonderful I know, and with age comes wisdom. But this is the situation now. I appreciate that some will say leave it as-is and startup again. But how about some answers as to the best choice (after not leaving it as is)?

Option 3 then so you have it all together and you are in control of the tax you pay. Only you can decide if whatever you need this cash for its worth paying 40% tax on.

dunstonh

Yes, self employed / director of Ltd since the early 90s.

Shareholding directors have great tax advantages when using pensions.     You should be looking at this as its a great way to get money out of the company tax efficiently.

Brynsam

50000 said:

Yes, self employed / director of Ltd since the early 90s.

Hindsight is wonderful I know, and with age comes wisdom. But this is the situation now. I appreciate that some will say leave it as-is and startup again. But how about some answers as to the best choice (after not leaving it as is)?

You've asked for comments on the best choice but not given enough information for anyone to comment helpfully. In particular, why do you want to follow any of the options you've outlined in your original post? The answer to that is likely to have quite an impact on what 'best choice' might mean for you.

50000

Thanks for all the comments. If I may just make one point before addressing the comments it is that there seems to be a recurring theme on this forum in that someone says "I want my 25% now", which generates replies of "why do you want to do that" and "don't do it".

It could be that there are totally valid reasons why someone would want to take the 25% (such as charitable, health, religion and such) and that not everyone wants to take it out to go raving around the world.

I get the point about the company pension is advantageous for tax purposes but the ltd co. may or may not close down soon; the business may go in a different direction which would negate the need for staying ltd.

Back to option 3 (Prior to 55 merge both plans, then take out 25% after 55). I don't think this would be suitable now because would I not be hit with the £1060 exit fee, even though it would go from one Abbey Life plan to the other? Would it not be best to merge them at 55 and then take the 25% after that? This will only incur a £150 fee.

The next question is: Which should merge into which? Should the Personal plan be dominant and take in the company pension, or the other way round (if that is possible?)

Finally, I understand why I was advised to setup the company pension in the first place, but why was I advised to also keep the personal pension going? Why was it not possible to port the personal plan into the company plan back in 96?

Albermarle

to be a recurring theme on this forum in that someone says "I want my 25% now", which generates replies of "why do you want to do that" and "don't do it". That is because a lot of people just take it out 'because its there ' when it would be better for them to just leave it where it is. As you say there can be valid reasons in which case there is no issue .
There is the facility with this to take more than 25% tax free from this plan. I have to fill in a form to explore this. I guess this is to ensure that total earnings for the year are below a certain threshold? Also what are the implications of totally shutting down this plan after 55th birthday? Could I cash in all of the pot tax free
For tax free cash your earnings are irrelevant . I assume there will be a maximum you can take tax free - say maybe 35% but they will tell you this.