Taking 25% lump sum at 55, what happens to the rest of the pension fund?

zAndy1

So I've spoken to Aviva today as I received a booklet in the post describing the 4 options available at 55 (annuity, drawdown, taking lump sums (25% tax free and 75% taxed) and withdraw all the pot in one go) and was a bit confused still. As I just want to take 25% (or maybe less) as a tax free lump sum and leave the rest invested and continue contributing the only relevant option as far as I can tell is the drawdown one. They said I could take 25% of the pot tax free, the other 75% would go into drawdown and continue to be invested in the funds it's invested in now and future contributions I make would be eligible for a further tax free lump sum of 25% of the value. They said ideally they would want me to take financial advice from pension wise first so I've got an appt with them next week but I can't see anything they say changing my mind about wanting to take a 25% tax free lump sum considering the circumstances I'm in (see seperate thread I've just posted). I'm not really 100% sure though whether the drawdown pot is a seperate pension / pot to the one I will continue to contribute to through my work pension scheme (the advisor wasn't sure either) with the contributions made after taking the tax free lump sum going into another pot that effectively starts at £0 again. If anyone has any experience of this and knows how it works I'd appreciate some clarification on that. Ta

Albermarle

For drawdown. Taking the full 25% tax free is a simple option, but nowadays many providers offer the possibility to take the 25% in stages, which is what I think you are looking for. The older the pension, typically the less options available.
I would check with Aviva if it is possible to take the 25% tax free in stages from this pension. If not you can easily transfer out to a more modern pension, either with Aviva or another provider.

They said ideally they would want me to take financial advice from pension wise first

All pension providers are obliged to warn you about the 'dangers' of withdrawing money from a pension ( it might run out too quickly for example) and often will recommend taking ( paid for )  financial advice. If you do not want to go down this route, they recently have become obliged to recommend you at least speak to Pension Wise ( who do not offer advice as such but will explain options). This is because many clients do not understand what they are doing and are unaware of available options.

I'm not really 100% sure though whether the drawdown pot is a seperate pension / pot to the one I will continue to contribute to through my work pension scheme (the advisor wasn't sure either) with the contributions made after taking the tax free lump sum going into another pot that effectively starts at £0 again.
This is the case with some providers, but with others you just stay with the same pension, and you have a crystallised part ( which is the potentially taxable 75% after the 25% is taken out) and the uncrystallised part. So for example if you had a pot of £100K and took £10K tax free, then £30K would be crystallised and the remaining £60K would be uncrystallised. Any new contributions would add to the uncrystallised part.

One issue with Aviva is that they have a legacy of a large number of older different pension plans, some gained by acquisition, so there is no such thing as a standard Aviva pension.

zAndy1

Can you take a 25% tax free lump sum from a pension fund and then transfer what's left to another existing pension? I'm thinking of taking a 25% tax free lump sum from my pensionbee fund and then transferring what's left to my current company pension

Marcon

zAndy1 said:

Can you take a 25% tax free lump sum from a pension fund and then transfer what's left to another existing pension? I'm thinking of taking a 25% tax free lump sum from my pensionbee fund and then transferring what's left to my current company pension

Yes, if the scheme to which you wish to transfer is willing to accept it. Check with Aviva.

Why would you want to make such a transfer rather than transferring the whole lot and then taking tax free cash, or simply taking 25% and leaving the rest where it is. Your plan won't increase the amount you can take tax free, so is there some other reason?

dunstonh

zAndy1 said:

Can you take a 25% tax free lump sum from a pension fund and then transfer what's left to another existing pension? I'm thinking of taking a 25% tax free lump sum from my pensionbee fund and then transferring what's left to my current company pension

Workplace pensions may not accept crystallised funds.  Some do but many will not.  What many people do is keep an individual pension that covers all the bases and then transfer workplace ones to that when they leave/retire.

Terry1966

So reading all of the above, i am in the same boat BUT living in the USA with a UK based pension with Zurich

a. What are the tax implications for me being one foot in each country so to speak
b. My fund is worth around 125,000GBP my annual salary is 55,000GBP

How much tax would i pay on this pension pot if i took the full amount, who would collect my tax HMRC or IRS or both 

MallyGirl

Terry1966 said:

So reading all of the above, i am in the same boat BUT living in the USA with a UK based pension with Zurich

a. What are the tax implications for me being one foot in each country so to speak
b. My fund is worth around 125,000GBP my annual salary is 55,000GBP

How much tax would i pay on this pension pot if i took the full amount, who would collect my tax HMRC or IRS or both 

You will probably be better off starting your own thread as the US angle makes a big difference