Aviva drawdown and tax deductions (Edit) - new additional quick question

Sea_Shell

Hi Everyone

DH has a small ex-employers DC pension, with Aviva.     Annual Statements have always come on one letter, but noting 5 different policy/plan numbers.

2 of these numbers have a 55 age, and the other 3 have 60.    The overall value is approx. £17,000, but they have now written with the options for the 2 aged 55 plan numbers.   We're not entirely sure how this came about?

They are worth £6,200. (£5800 and £400)

He has 2 other potential "small pot" pensions with other providers, which he is planning on taking as small pots, but as you're only allowed 3 x £10,000 of small pots, we're not sure if this maturing part of  Aviva pension counts as 1 or 2 "small pots".     

Until this letter came, we had assumed that it would be treated a one bigger pot, and were planning to transfer it all in to his main pension, that will be placed in drawdown.

However, we now realise that we may be able to utilise a 3rd small pot.   

So the question is, does anyone know if Aviva count each plan number as a separate pension pot, as per the small pot rules, even though they've always treated it as one pension "account"?   

Cheers.


ETA - How long should we wait before chasing HMRC for the tax rebate, that is showing as having a predicted completion date of 8th December, and it's now 8th January.

I realise it's been the holidays and they're "working from home" or "isolating" and nothings probably getting done.

Also, how best to contact them?   Phone?  

ETAA - 

Another quick question.   DH has just received his first monthly DD payment from his (other) crystallised Aviva pension, but has been taxed £20, being the MA not being taken into account (which IS noted on his on-line tax account)

Personal allowance £12,570.  Marriage allowance £1,257 (effectively), so total at zero tax = £13,827 / 12 = £1152.25

DD set at £1150.   Amount received £1129.80.

How/when will this be refunded?   Will Aviva get notified of a new (MA) tax code via HMRC and it'll get adjusted next month, or will they deduct this £20 every month throughout the year, and they we have to wait for the end of the tax year for the overpayment to be calculated?  

Thank you in advance.

Sea_Shell

Also, are we right in thinking that the "small pot" rule (for DC pensions) is only to get around not having to transfer pots into a new drawdown plan before being able to access them, as there is no actual tax benefits in taking small pots over and above the usual 25% tax free.

eg. take 3 small pots, totalling £18,000.  25% of which will be tax free, and the balance £13,500 subject to usual personal allowance, which could be £13,827 if utilising spouses transferred allowance. (21/22 tax year)

Croeso69

Sea_Shell said:

Also, are we right in thinking that the "small pot" rule (for DC pensions) is only to get around not having to transfer pots into a new drawdown plan before being able to access them, as there is no actual tax benefits in taking small pots over and above the usual 25% tax free.

eg. take 3 small pots, totalling £18,000.  25% of which will be tax free, and the balance £13,500 subject to usual personal allowance, which could be £13,827 if utilising spouses transferred allowance. (21/22 tax year)

Two advantages of small pots ...

(1) Uses 0% LTA so useful if over LTA as increases LTA by £30,000
(2) Does not invoke the MPAA of £4,000 pa if you still make pension contributions

Dazed_and_C0nfused

eg. take 3 small pots, totalling £18,000. 25% of which will be tax free, and the balance £13,500 subject to usual personal allowance, which could be £13,827 if utilising spouses transferred allowance. (21/22 tax year)

You cannot have a Personal Allowance greater than £12,570 (21/22 tax year).

Marriage Allowance will knock £252 off whatever the recipients tax liability is.  The amount of income this effectively means no tax is due will depend on the income source being taxed.

dunstonh

2 of these numbers have a 55 age, and the other 3 have 60. 

The age is irrelevant and can be changed.  It is just so they give projections to that period.  There can be some relevance with With Profit (WP) funds.   The reason for the split may be that there was a period when some set pensions up the minimum age (50).  When this was increased to 55, then the projections were moved to 55 as well.   However, protected rights, from contracting out of SERPS/S2P could only be taken from age 60 (no longer the case).     

If these were ex Friends Provident or AXA plans then they would often have segments within the same plan for single premiums, regular premiums, contracted out and transfers in.  So, one plan could have multiple segments within it.   I have seen it on the odd Norwich Union plan but its mostly Friends and AXA plans you see it on under the Aviva brand.

So the question is, does anyone know if Aviva count each plan number as a separate pension pot, as per the small pot rules, even though they've always treated it as one pension "account"?   

To be honest, I don't know.   I have never treated them separately and not asked the question as there hasn't been a need to.

Sea_Shell

Thanks for that.  Yes, they were an old Friends Life / AXA plan.   That makes sense about the different segments.

So the question we need to ask is whether it is a single pension pot as far as the small pot rules go, or if each segment can be treated separately.

Sea_Shell

Dazed_and_C0nfused said:

eg. take 3 small pots, totalling £18,000. 25% of which will be tax free, and the balance £13,500 subject to usual personal allowance, which could be £13,827 if utilising spouses transferred allowance. (21/22 tax year)

You cannot have a Personal Allowance greater than £12,570 (21/22 tax year).

Marriage Allowance will knock £252 off whatever the recipients tax liability is.  The amount of income this effectively means no tax is due will depend on the income source being taxed.

Sorry have I misunderstood?  I thought I can transfer 10% of my PA to my husband, therefore giving him an extra £1257 of tax free allowance.

Is that not right?

Dazed_and_C0nfused

Sea_Shell said:

Dazed_and_C0nfused said:

eg. take 3 small pots, totalling £18,000. 25% of which will be tax free, and the balance £13,500 subject to usual personal allowance, which could be £13,827 if utilising spouses transferred allowance. (21/22 tax year)

You cannot have a Personal Allowance greater than £12,570 (21/22 tax year).

Marriage Allowance will knock £252 off whatever the recipients tax liability is.  The amount of income this effectively means no tax is due will depend on the income source being taxed.

Sorry have I misunderstood?  I thought I can transfer 10% of my PA to my husband, therefore giving him an extra £1257 of tax free allowance.

Is that not right?

No.  If you apply for Marriage Allowance you will get a reduced Personal Allowance of £11,310 but your spouse does not get an increased one, they get a fixed deduction of their tax liability (£252 in 2021:22).

For lots of people this makes no different whatsoever when compared to getting an increased allowance but there are situations where it makes a difference financially.

For example it can mean the MA recipient is liable to tax on the deferred State Pension even if they don't actually have to pay tax on their other income.

And it can be quite attractive to people with dividend income.  By applying you could make yourself liable to tax on an extra £1,260 of dividends.  Adding £94.50 to your tax liability (£1,260 x 7.5%).

But your spouse gets £252 knocked of their liability.  So as a couple you save £157.50 between you.

Sea_Shell

Dazed_and_C0nfused said:

Sea_Shell said:

Dazed_and_C0nfused said:

eg. take 3 small pots, totalling £18,000. 25% of which will be tax free, and the balance £13,500 subject to usual personal allowance, which could be £13,827 if utilising spouses transferred allowance. (21/22 tax year)

You cannot have a Personal Allowance greater than £12,570 (21/22 tax year).

Marriage Allowance will knock £252 off whatever the recipients tax liability is.  The amount of income this effectively means no tax is due will depend on the income source being taxed.

Sorry have I misunderstood?  I thought I can transfer 10% of my PA to my husband, therefore giving him an extra £1257 of tax free allowance.

Is that not right?

No.  If you apply for Marriage Allowance you will get a reduced Personal Allowance of £11,310 but your spouse does not get an increased one, they get a fixed deduction of their tax liability (£252 in 2021:22).

For lots of people this makes no different whatsoever when compared to getting an increased allowance but there are situations where it makes a difference financially.

For example it can mean the MA recipient is liable to tax on the deferred State Pension even if they don't actually have to pay tax on their other income.

And it can be quite attractive to people with dividend income.  By applying you could make yourself liable to tax on an extra £1,260 of dividends.  Adding £94.50 to your tax liability (£1,260 x 7.5%).

But your spouse gets £252 knocked of their liability.  So as a couple you save £157.50 between you.

Thanks for that explanation, it makes sense.   The £252 is the 20% tax that would otherwise be paid on the £1257, but it's done as a tax deduction rather than an increased allowance.      For our situation, I don't think it makes a difference, but I appreciate that that technical difference may effect others.

Sea_Shell

Another "sub" question...

How is the taking of small pots monitored, if you are applying to take them across 3 different providers?   

Other than the benefits mentioned above re the LTA and MPAA (not applicable to us), would there be any fallout, if Aviva did treat these two plan number as two separate small pots, if he then pulls 2 other small pots from elsewhere?

I'm assuming HMRC get notified, eventually, that, in fact, 4 small pots have been accessed, but in our case, would that make any actual difference to anything?

I'm assuming you can apply for small pots simultaneously from different providers, or do they check on a central database or something before releasing the funds under SP rules?

Croeso69

Sea_Shell said:

Another "sub" question...

How is the taking of small pots monitored, if you are applying to take them across 3 different providers?   

Other than the benefits mentioned above re the LTA and MPAA (not applicable to us), would there be any fallout, if Aviva did treat these two plan number as two separate small pots, if he then pulls 2 other small pots from elsewhere?

I'm assuming HMRC get notified, eventually, that, in fact, 4 small pots have been accessed, but in our case, would that make any actual difference to anything?

I'm assuming you can apply for small pots simultaneously from different providers, or do they check on a central database or something before releasing the funds under SP rules?

I guess it is monitored by HMRC. I will be taking three, exactly £10k each thanks to Hargreaves Lansdown creating sub pots specifically for this.

I have already crystallised 100% LTA to the penny.

Not risking breaking the law and taking a fourth small pot. Just won't crystallise the LTA excess until age 75, unless I need to! Doubt I will get lucky and have LTA abolished.