merging pensions to benefit from the 25% tax-free allowance

moveover0

hi all. apologies in advance if this sounds stupid!
i have a couple pensions via various employers over the years that will come into effect when i retire, but one of them is only £3500 in total. I want to cash it in but as i'll be taxed on 75% of it, i was wondering if it's worth merging it in with one of the other pensions i have where taking the £3500 will keep it within the 25% tax-free allowance?

there again, i assume there will be fees attached by both pension companies sp not sure whether it's worth it baring in mind the small amount.

Just wondering what the general consensus is as to what's the best option. Thoughts please?

lisyloo

Are you aware you have a personal allowance I.e 12,570 of you income is taxed at 0% in addition to your tax free lump sum?

I’d look to take the £3.5k in one tax year when not working and adjust the other withdrawals downwards.
it’s simply too small to merge I.e. fees will be disproportionate.

Albermarle

I think maybe you are a bit confused how it all works ?
Lets say you have three pensions of £3500 - £40,000 and £50,000
You can take 25% tax free from all of them separately , or you could merge them together . This would give a £93,500 pot and you could take 25% tax free from that . It might be administratively easier to have them all in one place, but you get exactly the same amount tax free whichever way you do it .

The fees issue really depends on who the providers and how they charge . If they all charge a similar % then would not make much difference either way . 

cfw1994

If the small one is a DC (defined contribution) scheme, there is the ability to take it all as one lump under the "small pots rule"
I'm not an expert in it, but pretty sure that is the short description: google will help you: I imagine you can contact the scheme and ask them how to take it under that rule...

Good luck!

Albermarle

Whether you take it by the 'small pot rule ' or not ( some providers do not have this facility ) you still get 25% tax free and 75% taxable .
Taking it by the small pot rule does mean that MPAA is not triggered though ( Money Purchase Annual Allowance ) which is important if the OP is still contributing to their pension(s)

NannaH

Transfer your pensions into one ‘pot’ that allows what you want to do -  to take a £3500 tax free lump sum means crystalising £14000,  you can leave the remainder uncrystalised to take more tax free cash in the future. 
It’s easier if you use a Sipp company who keep the two pots separate, Hargreaves lansdown do so it’s easier to keep track.  

I think previous posters have misunderstood what you want to do.