Tax free lump sum, but not retiring - questions...

Kevincambsuk

Hello all,

I have 3 pensions, 2 DB and 1 DC, the 2 DB are closed. I am still contributing to the DC along with my employer.

Now the question I have is as follows; I wish to take the 25% tax free lump sum at 55 out of just one of these ( the two DB is from the same employer and does provide this facility).

My confusion arises over the fact I do not intend to give up working so continue paying into my current pension at my current rate so my questions are;

1 If I take the tax free lump sum from either DB, this will crystallise and I will also start to take the taxed funds as well. But will I still be able to pay into my DC pension as normal?

2 If I take the DC 25% tax free lump sum instead, would I still be able to pay into this pension as I have been doing which is above 4k per year or does taking it make it crystallise anyway, and I cant stop that?, so I will have to take the income and pay the tax

3 Following on from point 3, if I did take that option and it does crystallise, and I am stuck with the 4k limit, I will obviously be at a financial disadvantage, as I pay in more than £4k, can you take a new pension and pay into this with salary sacrifice tax free?

Many thanks to all who take the time to answer, really appreciated.

Albermarle

Kevincambsuk said:

Hello all,

I have 3 pensions, 2 DB and 1 DC, the 2 DB are closed. I am still contributing to the DC along with my employer.

Now the question I have is as follows; I wish to take the 25% tax free lump sum at 55 out of just one of these ( the two DB is from the same employer and does provide this facility). In fact you do not get a 25% tax free lump sum from a DB pension , as there is not pot as such that you can take exactly 25% from . You will be offered a tax free lump sum with a reduced pension or no lump sum with a higher pension. The way this is calculated varies from scheme to scheme and for some schemes taking the lump sum is not a good deal , whereas in others it is .

My confusion arises over the fact I do not intend to give up working so continue paying into my current pension at my current rate so my questions are;

1 If I take the tax free lump sum from either DB, this will crystallise and I will also start to take the taxed funds as well. But will I still be able to pay into my DC pension as normal? YES

2 If I take the DC 25% tax free lump sum instead, would I still be able to pay into this pension as I have been doing which is above 4k per year or does taking it make it crystallise anyway, and I cant stop that?, so I will have to take the income and pay the tax. You can still pay more than £4k as long as you do not take any taxable income . So no  problem if you just take  to take the TFLS .

3 Following on from point 3, if I did take that option and it does crystallise, and I am stuck with the 4k limit, I will obviously be at a financial disadvantage, as I pay in more than £4k, can you take a new pension and pay into this with salary sacrifice tax free? Not relevant as long as you take no taxable income from the pension. If you did take taxable income the £4K limit applies however many new pensions you open .

Many thanks to all who take the time to answer, really appreciated.

Hopefully the above is clear .

Kevincambsuk

Thank you so much for your clear response , makes perfect sense , have a great day and again many thanks

AlanP_2

If the DC is your current, active employer's scheme check that you can take the 25% as you would like to AND keep the pension running for future contributions. You probably can but better to check now than find a problem when you ask them for some money.

atush

If you cant, ask if yu can transfer the built up pension out to another DC/Sipp, and still contribute to the current scheme.

Kevincambsuk

atush said:

If you cant, ask if yu can transfer the built up pension out to another DC/Sipp, and still contribute to the current scheme.

Thank you that is a great idea, best to be prepared!
thank you

pensionpawn

I have three DC pensions, the smallest one I SS into through my current employer. I wish to take 25% from the larger two though not enter draw down and continue my SS. My first question is does the 25% have to be 25% of each of the larger two pensions (which are with different company's) or can can the ratio vary? E.g. 25% from DC1 and 0% from DC2? My instinct tell me it has to be 25% of each. My second question is each DC pension is further broken down into different funds and one has a significant 'cash' balance. I'm assuming that I can choose which fund (or the cash) makes up the 25% or again will the 25% have to come from each fund / cash? It's just something I've not looked into before, and a quick Google revealed nothing. Cheers.

Albermarle

With each of the two DC pensions , you can take up to 25% tax free. You do that completely seperately . So you could take one and the other later , or both at once . It does not matter . As long as you take no taxable income ( from the remaining 75% basically) then you can continue to contribute to your current pension up to the usual earnings/annual allowance limit.
If you have a modern SIPP, normally you would sell funds so there was enough cash in the SIPP for you to be paid the tax free money. With older pensions that might not be possible and they would  cash funds in for you , I think.
As usual on here we always ask why do you want to take the tax free money? If it is for a good reason then fine, but if it is just because it is there , it is better left in the pension usually.

pensionpawn

Albermarle said:

With each of the two DC pensions , you can take up to 25% tax free. You do that completely seperately . So you could take one and the other later , or both at once . It does not matter . As long as you take no taxable income ( from the remaining 75% basically) then you can continue to contribute to your current pension up to the usual earnings/annual allowance limit.
If you have a modern SIPP, normally you would sell funds so there was enough cash in the SIPP for you to be paid the tax free money. With older pensions that might not be possible and they would  cash funds in for you , I think.
As usual on here we always ask why do you want to take the tax free money? If it is for a good reason then fine, but if it is just because it is there , it is better left in the pension usually.

Thanks for your reply and repeating the message about don't take it unless you need it (which I fully agree with). However I do need to take it. So, just to make sure I fully understand you couldn't take 20% of the total value of DC1 + DC2 (which is greater than 25% of either pot) from DC1 and 5% of DC1 + DC2 from DC2? You can only take a maximum of 25% from each. This is what I expected and doesn't really present a problem for me. I am just interested in knowing what is possible. Regarding the SIPP, am I correct in saying that if 25% of the SIPP is held in cash with 75% spread across a number of funds, the TFLS could be paid quite simply out of just the cash holding? 

cfw1994

pensionpawn said:

Albermarle said:

With each of the two DC pensions , you can take up to 25% tax free. You do that completely seperately . So you could take one and the other later , or both at once . It does not matter . As long as you take no taxable income ( from the remaining 75% basically) then you can continue to contribute to your current pension up to the usual earnings/annual allowance limit.
If you have a modern SIPP, normally you would sell funds so there was enough cash in the SIPP for you to be paid the tax free money. With older pensions that might not be possible and they would  cash funds in for you , I think.
As usual on here we always ask why do you want to take the tax free money? If it is for a good reason then fine, but if it is just because it is there , it is better left in the pension usually.

Thanks for your reply and repeating the message about don't take it unless you need it (which I fully agree with). However I do need to take it. So, just to make sure I fully understand you couldn't take 20% of the total value of DC1 + DC2 (which is greater than 25% of either pot) from DC1 and 5% of DC1 + DC2 from DC2? You can only take a maximum of 25% from each. 

Pretty sure this is correct, & that they are viewed independently.

This is what I expected and doesn't really present a problem for me. I am just interested in knowing what is possible. 

Regarding the SIPP, am I correct in saying that if 25% of the SIPP is held in cash with 75% spread across a number of funds, the TFLS could be paid quite simply out of just the cash holding? 

Perhaps depends on the Provider.  Aviva (my one) would need me to take 25% apportioned to both the cash and funds, and for me to then adjust to ‘all funds’ - no way for me to do what you ask.

Answers inline as I understand things!

BuildTheWall

Does that mean someone who is 55 can withdraw 40k every year while salary sacrificing it at same time, until he retires, as long as he doesn’t cross 25% of the pot?