Buying pension in small pots to avoid MPAA and LTA issues

dothenumbersaddup

Hello, I am 56, and would like to make a pension contribution of circa 25K this year. The question I have is - does it make more sense to buy two or three small pot pensions, rather than one larger one so I do not fall foul of LTA or MPAA rules?  I’ve not found many pension providers who specifically market small pots?  Is this because they do not make as much money out of them?

garmeg

dothenumbersaddup said:

Hello, I am 56, and would like to make a pension contribution of circa 25K this year. The question I have is - does it make more sense to buy two or three small pot pensions, rather than one larger one so I do not fall foul of LTA or MPAA rules?  I’ve not found many pension providers who specifically market small pots?  Is this because they do not make as much money out of them?

Hargreaves Lansdown will create a separate 'small pot' arrangement from a larger pension pot if you want to take £10,000 as a small pot. Think they are the only provider that is this accommodating!

Marcon

dothenumbersaddup said:

Hello, I am 56, and would like to make a pension contribution of circa 25K this year. The question I have is - does it make more sense to buy two or three small pot pensions, rather than one larger one so I do not fall foul of LTA or MPAA rules?  I’ve not found many pension providers who specifically market small pots?  Is this because they do not make as much money out of them?

You can't buy a 'small pot pension' as you seem to believe. What matters is how much you save into any particular pension. Exceed £10,000 and it ceases to be a small pot, unless the value drops again to below £10K. A few providers will allow you to split up a pot of higher value so you have an encashable pension which meets the definition of a small pot. Check with your intended provider whether that's the case, failing which you will need to open 3 pension plans to keep each within the £10K limit.

coyrls

If you are facing LTA issues, £30K (3 x £10K pots) is going to be neither here nor there, as your £1M+ pot could rise or fall by more than £30K in a single day.

dothenumbersaddup

Thanks Garmeg and Marcon, really helpful responses.  Seems like investing 8k in three separate pensions would give me the most flexibility, without having to rely on the pension provider to split a larger one - will just need to check the charges though?  

dothenumbersaddup

Thanks Coyris, good point.  I’ve drawn my DB pensions early (56) , and used 75% of my allowance, so I’m just being extra careful on the LTA front.  

Dazed_and_C0nfused

dothenumbersaddup said:

Thanks Coyris, good point.  I’ve drawn my DB pensions early (56) , and used 75% of my allowance, so I’m just being extra careful on the LTA front.  

Do you have enough earned/pensionable  income to be able to contribute £30k (gross)?

dothenumbersaddup

Hi Dazed, yes just about!  Future years income are likely to fluctuate, so I would like to be able to draw on the pots if needed.

garmeg

coyrls said:

If you are facing LTA issues, £30K (3 x £10K pots) is going to be neither here nor there, as your £1M+ pot could rise or fall by more than £30K in a single day.

Still useful though. PCLS of £7,500 in my pocket is better than an LTA charge of £7,500 in the Chancellor's.

coyrls

garmeg said:

coyrls said:

If you are facing LTA issues, £30K (3 x £10K pots) is going to be neither here nor there, as your £1M+ pot could rise or fall by more than £30K in a single day.

Still useful though. PCLS of £7,500 in my pocket is better than an LTA charge of £7,500 in the Chancellor's.

Or put the money in one SIPP and time crystallisation.

Albermarle

dothenumbersaddup said:

Thanks Garmeg and Marcon, really helpful responses.  Seems like investing 8k in three separate pensions would give me the most flexibility, without having to rely on the pension provider to split a larger one - will just need to check the charges though?  

For smaller amounts , a provider that charges a % of the pot will probably be best . Best known Sipp Providers doing this are HL ( 0.45%); Fidelity ( 0.35%) & A J Bell ( 0.25% but with a withdrawal charge ).
In fact I did not realise that small pots did not contribute to the LTA ( I knew about the MPAA not being triggered) and I will now think about opening up a couple of smaller pensions in addition to my main ones as LTA is a future possibility.
Useful this forum !