Taking money from a small pot

plumb1_2

Hi , I have a small pension with Nest, under £10k
If I take the 25% tfls and start a drawdown, will this stop me paying into another pension I have. 

I am aware I am can pay upto £2880/£3600 if I don’t have any earnings 

xylophone

https://www.gov.uk/government/organisations/national-employment-savings-trust#:~:text=The National Employment Savings Trust,the NEST occupational pension scheme.

The National Employment Savings Trust (NEST) Corporation is the trustee of the NEST occupational pension scheme. The scheme, which is run on a not-for-profit basis, ensures that all employers have access to suitable, low-charge pension provision to meet their new duty to enrol all eligible workers into a workplace pension automatically.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/taking-your-whole-pension-in-one-go

Small pots – what do you need to know?

• A maximum of three small, non-occupational pensions can be commuted under small pot payments.
  
  
• There is no limit to the number of occupational pensions that can be commuted under small pot rules.

A small pot payment (properly called ‘small lump sum’) can be made from any arrangement, whether the rights are uncrystallised or comprise a pension in payment, irrespective of the overall value of the individual's pension's worth. Up to three small non-occupational pensions (personal pension plans etc.) can be commuted under small pots payments, but there’s no limit on the number of occupational pensions that can be taken under small pots. To allow the payment of small pot commutation, the following conditions need to be fulfilled:

• the member has reached the minimum retirement age of 55, or satisfies the definition for ill-health early retirement or has a protected early pension age.
  
  
• each payment must not exceed £10,000 at the time it‘s paid to the client
  
  
• for non-occupational pension schemes, the payment must extinguish all member benefit entitlement under the arrangement
  
  
• for occupational or public service pension schemes, the payment must extinguish the member’s entitlement to benefits under the paying scheme,

in respect of non-occupational pensions (personal pensions etc.), there’s a maximum of three small pot payments are permitted. A full list of the conditions is in the Pensions Tax Manual (PTM063700) covering;

https://www.nestpensions.org.uk/schemeweb/memberhelpcentre/contributions/money-purchase-annual-allowance.html

The money purchase annual allowance will apply only on the contributions made after you’ve accessed any of your retirement pots flexibly. ‘Flexible access’ is when you take retirement pot from a pension scheme in any of the following ways:

• taking all or some of your pot as cash without buying a retirement income unless you take your entire retirement pot and it’s worth less than £10,000
• buying a special type of retirement income called a ‘flexible annuity’ – the insurance company you buy the income from will tell you if it is a flexible annuity
• using some of your retirement pot for ‘income drawdown’.

Your provider will tell you if you’ve accessed your retirement savings flexibly.

As per the recent changes to legislation the Money Purchase Annual Allowance has been reduced to £4,000. This change is effective April 2017.

zagfles

No. You can still pay into another pension, but you might be limited by the MPAA, see https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/money-purchase-annual-allowance-mpaa however as this pot is under £10k you could take the whole lot under the "small pots rule" which doesn't trigger the MPAA. See link. 75% of it will still be taxable.

However this is probably moot anyway if you have no earnings, as the MPAA is £4k and you're restricted to £3600 gross anyway. But it could be worth avoiding triggering the MPAA just in case either you get a job in the future (some retired people might have to to pay their gas bill this winter!), or the govt reduce the MPAA in the future (they reduced it from £10k to £4k a few years ago). Once triggered, the MPAA applies for life.

The other thing that restricts people when they draw a pension is recycling rules, but £2500 tfls is not enough to worry about that unless it combines with any other pensions, see https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm133810

plumb1_2

Thanks for the reply, so in layman’s terms I have to take the full pot 25% tfls plus paying tax on the other 75% to avoid the mpaa coming into play.?
 I do work part time atm earning over the tax threshold. And plan to carry on as long as heath is ok, as I enjoy what I do.
So maybe best to transfer it into my vanguard sipp? And then I can keep paying into the sipp £10k plus this year if I can.

Dazed_and_C0nfused

so in layman’s terms I have to take the full pot 25% tfls plus paying tax on the other 75% to avoid the mpaa coming into play.?

Not really no.
If you do nothing (or simply move it onto another provider) then MPAA isn't triggered

If you take the 25% TFLS but no taxable income then MPAA isn't triggered

If you take it all under the "small pots" rule then MPAA isn't triggered

If you buy an annuity then MPAA isn't triggered.
Other than an annuity if you take one penny of taxable income MPAA is triggered.

plumb1_2

Dazed_and_C0nfused said:

so in layman’s terms I have to take the full pot 25% tfls plus paying tax on the other 75% to avoid the mpaa coming into play.?

Not really no.
If you do nothing (or simply move it onto another provider) then MPAA isn't triggered

If you take the 25% TFLS but no taxable income then MPAA isn't triggered

If you take it all under the "small pots" rule then MPAA isn't triggered

If you buy an annuity then MPAA isn't triggered.
Other than an annuity if you take one penny of taxable income MPAA is triggered.

Thanks, for simplified explanation.
So if I transfer it into my vanguard sipp, I could still pay into my sipp upto the maximum amount of my earning this tax year 22/23
Iam just trying to make things simpler for myself and DW, as over the past 12 mths I am finding it harder to keep on top of financial matters. 

xylophone

If you transfer the pension into your Vanguard SIPP then you won't have accessed it at all so MPAA becomes irrelevant anyway.

 Even if the pension had been more than £10,000  and you had only taken the 25% PCLS (leaving the balance within the pension) then the MPAA wouldn't have been triggered.

plumb1_2

Thanks to all that have replied, much more clearer now. 

One more question I am presuming that when Nest send the transfer this wood be in cash to Vanguard and then it would be upto me what fund I invested it in,( might put it in vls 100 as bonds are going down, or leave it in cash.

Albermarle

plumb1_2 said:

Thanks to all that have replied, much more clearer now. 

One more question I am presuming that when Nest send the transfer this wood be in cash to Vanguard and then it would be upto me what fund I invested it in,( might put it in vls 100 as bonds are going down, or leave it in cash.

That is correct. To be clear you ask Vanguard to initiate the transfer, there is no need for you to have contact with Nest about the transfer.

Marcon

plumb1_2 said:

Thanks to all that have replied, much more clearer now. 

One more question I am presuming that when Nest send the transfer this wood be in cash to Vanguard and then it would be upto me what fund I invested it in,( might put it in vls 100 as bonds are going down, or leave it in cash.

Might be worth thinking about not transferring your NEST pension. Once it's in with your SIPP, it ceases to be a small pot and you lose the flexibility you might otherwise have if you are the proud owner of a small pot.