Taking money out of pension at 55

BOWFER

Hi, I turn 55 in January and was hoping to be able to take money out of my pension to settle some debts etc.
I don't intend retiring for a long time yet, so can I take some money at 55 and then just leave the rest until I actually retire?
Or does taking a lump sum at 55 effectively mean I am taking the pension from that point?

Linton

What type of pension is it? Defined Benefit ("Final Salary") or Defined Contribution where you have a lump sum invested?

BOWFER

Linton said:

What type of pension is it? Defined Benefit ("Final Salary") or Defined Contribution where you have a lump sum invested?

I'm looking at my Halifax app (it was Scottish widows pension policy, now Halifax).
It doesn't specify anything other than 'workplace pension'
I'm pretty sure it's not a final salary one though.
I'm not actively contributing to it at the moment, I left that company and have started another pension with my new employer.
Despite not contributing to it, it's growing quite nicely to the point taking 20-25% of it in a few months is very appealing.

Linton

If it is a straightforward DC pension then it is legal to take money out and leave the rest invested BUT there may be limitations as to whether you can do it with your particular policy.  The problem is that old pension policies may not have the IT set up to handle the new freedoms.  In that case you would have to first transfer the pension elsewhere such as a SIPP. 

OK, some gotchas...

 - If you just take out the 25% tax free lump sum that is fine.  However if you were to take out 1p of taxable money the annual limit for future pension contributions including both personal and employer would be reduced to £4K/year.  This may seriously constrain your pension saving for retirement.  However you do say you want 20-25%

 - If your pension has certain guarantees then transferring it elsewhere transferring could be a problem.  Also, if there are it is possible that taking the money out could be a very bad idea.

So I suggest
 - you check with Halifax whether you can take out the tax free lump sum whilst leaving the pension invested
 - you check with Halifax whether there are any guarantees associated with the pension.

If the answers are YES and NO respectively then there are no issues beyond whether you still have enough left for retirement.

Otherwise I suggest you post again with the details.

Cus

Doesn't taking the 25% tax free mean you have to crystallise the other part and so mean that you can't then put more than £4k in?

NoMore

Cus said:

Doesn't taking the 25% tax free mean you have to crystallise the other part and so mean that you can't then put more than £4k in?

No becuase its withdrawing taxable cash that triggers the MPAA, you can crystallise and leave it in the pension and not trigger the MPAA.

Brie

Cus said:

Doesn't taking the 25% tax free mean you have to crystallise the other part and so mean that you can't then put more than £4k in?

That's exactly what I have been told which would put a serious dent in my future contributions.

p00hsticks

Brie said:

Cus said:

Doesn't taking the 25% tax free mean you have to crystallise the other part and so mean that you can't then put more than £4k in?

That's exactly what I have been told which would put a serious dent in my future contributions.

Then you've been told wrong. As no more says, currently you can take the whole 25% tax free and leave the rest 'crystallised' but still invested in the pension without triggering the MPAA. But as soon as you take a penny of the taxable portion the MPAA kicks in and you are limited to £4k contributions going forward.

xylophone

https://www.ii.co.uk/pensions/contributions/mpaa-triggers

It is important to note that the MPAA is not triggered in all circumstances where you access your pension. You will not trigger the MPAA if you:

• Take up to 25% of your pension as a tax-free lump sum.
• Take your tax-free lump sum and buy a lifetime annuity (that can stay level or increase)
• Receive benefits from a defined benefit pension scheme.

Cus

So taking less than 25% tax free but multiple times also ok?
And is MPAA triggered if you want to crystallise the amount over the LTA (if you even can do that?) and take that out at 25% income tax, but leave the full LTA uncrystallised?

Bowfer - sorry to highjack..

Dazed_and_C0nfused

So taking less than 25% tax free but multiple times also ok?

If you have multiple pensions to take 25% from then yes.

Or you only crystallised part of this pension when you take some TFLS i.e. you don't take 25% of the current value all in one go.