Small Pension Pot

Walt66

Hi all
I have a pension fund of approx. 33k. I just turned 55 and I think I can make more out of the cash by starting a small part time business than I'll ever get out of it in a pension payment. It's the only pension I have so I think I need to make something of it. I am a basic rate tax payer and I have a scheme at work but I've only been it in for a few years. It may be relatively worthless at this stage in my life, I don't know.
My question is ... the pension fund mentioned above is just an ordinary personal pension. I haven't contributed to it for about 30 years. Can I take more than the 25% tax free cash from it and pay the relevant tax applicable on the rest? I hear people talking about drawdown which would allow me to do this or similar but someone mentioned that my fund isn't big enough. Any ideas on how I can get the most cash out of it? 

AlanP_2

If you have a pension scheme with your current employer this one isn't your only pension surely?

25% tax free, balance taxable at your marginal rate. You would also trigger the MPAA criteria iof you take any taxable money which would mean you (and employer) could only contribute a maximum of £4k a year to pensions form then on.

That may or may not be a problem. What is the current employers scheme DB or DC?

If MPAA is an issue then transferring it to Hargreaves Lansowne and asking them to pay out 3 * separate "Small Pots" of £10k each would be an option. Same tax but doesn't trigger MPAA.

Walt66

AlanP, so are you saying that I can take the 25% tax free and take the rest too and pay applicable tax on it without any problem? Again, someone had said to me that if I take the tax free cash then I have to buy an annuity with the balance and that further cash isn't an option. The MPAA 4k limit isn't going to be an issue. 

TVAS

If you take 3 Small Pot payments in the same tax year the income element i.e. £7,500 x 3 will be added to your employed income so depending on that salary you may pay higher rate tax. Have you looked at your outgoings can you reduce any of the fancy stuff such as an expensive mobile phone, subscriptions, switching energy providers, switching broadband providers I have just done this is is now seamless, so that you can increase contributions to your employer scheme as you have little pension provision? 

Walt66

TVAS, what is the 3 pots about? Is it related to the MPAA that Alan mentioned above? MPAA isn't an issue for me.

Linton

Walt66 said:

AlanP, so are you saying that I can take the 25% tax free and take the rest too and pay applicable tax on it without any problem? Again, someone had said to me that if I take the tax free cash then I have to buy an annuity with the balance and that further cash isn't an option. The MPAA 4k limit isn't going to be an issue. 

It is likely that an old pension scheme will not support taking the whole pension as cash as the law did not permit it when the pension management software was written.  So you may have to transfer your pension to another provider before you can access the whole pot.

Walt66

Thanks Linton.
The original policy was with Windsor Life. I never moved it but after what I assume was a merger it is now with ReAssure. Would that suggest it is now in a different scheme? 

Albermarle

Walt66 said:

Thanks Linton.
The original policy was with Windsor Life. I never moved it but after what I assume was a merger it is now with ReAssure. Would that suggest it is now in a different scheme? 

It is legally possible to take 25% as tax free cash and 75% as taxable . However if it is an old policy it might not be possible to do that without transferring it . The only way to get clarity on this is to call Reassure who took over the pension.
I am a basic rate tax payer and I have a scheme at work but I've only been it in for a few years. It may be relatively worthless at this stage in my life, I don't know.
Do you think it might  be a good idea to find out ?

xylophone

I just turned 55 and I think I can make more out of the cash by starting a small part time business than I'll ever get out of it in a pension payment. It's the only pension I have so I think I need to make something of it. I am a basic rate tax payer and I have a scheme at work but I've only been it in for a few years. It may be relatively worthless at this stage in my life, I don't know.

Not only one pension then!  Does your current scheme administrator not provide a scheme booklet/on line information/an annual statement of your pension entitlement?

Have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

You mention that you have not contributed to the personal pension since around 1990 - did you cease employment at that stage?

If not, are you sure that you do not have pensions with other employers?

With regard to the personal pension, it may be that the provider can facilitate the taking of both the  25% tax free pension commencement  lump sum and the  balance  as a taxable lump sum - remember that the taxable balance will be added to your income in the tax year of receipt and could push you into a higher  tax band.

Remember as well that the tax applied at that point is likely to be incorrect - see

https://adviser.royallondon.com/technical-central/pensions/benefit-options/emergency-tax-and-lump-sum-withdrawals/

Done in this way you would trigger the MPAA.

Or you might transfer to another provider which would facilitate your taking the tax free PCLS and the balance as and when so as to stay within the 20% tax band.

But taking taxable income would trigger the MPAA.

Or you might be able to transfer and split as explained above so as to create up to three "small pots" of £10,000 - taking these would not trigger the MPAA.

You could seek an interview with Pension Wise to discuss your options.

https://www.pensionwise.gov.uk/en?gclid=EAIaIQobChMIorSx4Mj97gIVk7PtCh1NXABPEAAYAiAAEgLv3_D_BwE