Defined Benefits & Defined Contributions

John_Dory

I currently have a defined benefits pension through my employer. I was considering setting up a separate personal pension through a SIPP.  If I do this and then Draw Down from the SIPP at retirement does the income from State Pension, the defined benefits scheme, and any money drawn down from the SIPP get combined and be taxed as one income? 

John_Dory

I probably should have also asked does the 25% tax free lump sum work the same way on the personal pension if you are also getting money from another pension?

Albermarle

John_Dory said:

I currently have a defined benefits pension through my employer. I was considering setting up a separate personal pension through a SIPP.  If I do this and then Draw Down from the SIPP at retirement does the income from State Pension, the defined benefits scheme, and any money drawn down from the SIPP get combined and be taxed as one income? 

Yes it will be all taxed as one combined income . The state pension is not taxed directly but your personal allowance will be reduced by the amount of the state pension . So you will effectively pay the tax on the state pension , via one of the other pensions. 

Albermarle

John_Dory said:

I probably should have also asked does the 25% tax free lump sum work the same way on the personal pension if you are also getting money from another pension?

You will get 25% of the personal pension tax free, regardless of any other income from any source.

Linton

Each (non SP) pension is completely separate (**)so separate 25%, and separate tax codes.  Multiple pension sources work in the same way as multiple jobs.  The tax allowance is split amongst all the jobs.  State pension is taxable but not taxed.  The amount is taken from your tax code for your taxed incomes.  So the net effect is that you are taxed the same whether the income is taken from one pension or many.

(**) for the pedants, some DB schemes reduce payments when you start your state pension.

John_Dory

Thanks for all the info.