Commute balance of PCLS from DB scheme or not? Tax man skewing the decision.

Marcon

Mutton_Geoff said:

Thank you for that link Marcon. Yes, Aviva will allow partial transfers out provided it's less than 95% of the invested total to keep the company scheme alive. The scheme will not receive any more company contributions after this month in any case. I was surprised there wasn't anything in the rules about deliberately setting up short term small pots for tax avoidance in this way but it does provide £7.5k of TFC plus subject the remaining £22.5k to marginal tax alone instead of LTA tax then marginal income tax so a further £5,625 tax saving.

The £30k will then net me £21k instead of £13.5k so that will pay for another holiday ;-)

I've got a dormant Vanguard account and will open an HL or similar now.

It would be impossible for HMRC to police, although that doesn't generally stop them setting up ridiculously complex rules to try and do so (e.g. pension recycling).

Mutton_Geoff

Marcon said:

Mutton_Geoff said:

Marcon said:

Not sure what sort of IP you have, but is paying in to 3 different personal pensions and then cashing each in while still at 'small pot' levels (i.e. no more than £10K per pot at the time you encash the pot in question) a possibility? If so, that would give you up to another £30K on top of the LTA, since using the small pots regime uses 0% of the LTA.

That's a good tip. I have IP2016 at £1.25m but pension values still around £550k in excess of that.

I have around £40k uncrystallised in an Aviva SIPP run by my employer. I was planning to sell investments within & move this across to my own SIPP at retirement but are you saying I could open two more SIPPs, move £9.9k into each, reduce the Aviva to £9.9k and then take out of the three by way of 25% TFC then taxed at marginal rate on the balances?

If so, this would be a tasty way to provide a few months income into retirement.

I've looked at LeoSayer's comment and if inflation were to run high for a decade, he is correct that if my DB pension rose by the max 5% a year, it would only be 10 years before I broke even with taking TFC vs income.

Check if Aviva will let you make partial transfers.  

There's a detailed explanation of the small pots regime here: https://professionalparaplanner.co.uk/techzone/small-pots-and-defined-benefit-trivial-commutations/

Marcon

I've been looking at this arrangement but had a question. In the article you link to, the author says "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."

However, the HMRC PTM (063500) states:

A payment cannot be a trivial commutation lump sum if the total value of the member’s pension rights on the nominated date is more than £30,000.

The total value of the member’s pension rights is the value of all their rights under every type of arrangement under every registered pension scheme that they belong to. This is the case even though not all types of pension rights can be commuted into a trivial commutation lump sum.

The valuation of the member’s pension rights includes the individual’s benefit entitlements, past and present. This includes:

pensions to which the member had become entitled before 6 April 2006

all amounts crystallised previously for lifetime allowance purposes in respect of that member since 6 April 2006

uncrystallised rights.

Does the 3x £10k small pots work because HMRC are unable to police the above rule or is there another text I've missed?

Marcon

Mutton_Geoff said:

Marcon said:

Mutton_Geoff said:

Marcon said:

Not sure what sort of IP you have, but is paying in to 3 different personal pensions and then cashing each in while still at 'small pot' levels (i.e. no more than £10K per pot at the time you encash the pot in question) a possibility? If so, that would give you up to another £30K on top of the LTA, since using the small pots regime uses 0% of the LTA.

That's a good tip. I have IP2016 at £1.25m but pension values still around £550k in excess of that.

I have around £40k uncrystallised in an Aviva SIPP run by my employer. I was planning to sell investments within & move this across to my own SIPP at retirement but are you saying I could open two more SIPPs, move £9.9k into each, reduce the Aviva to £9.9k and then take out of the three by way of 25% TFC then taxed at marginal rate on the balances?

If so, this would be a tasty way to provide a few months income into retirement.

I've looked at LeoSayer's comment and if inflation were to run high for a decade, he is correct that if my DB pension rose by the max 5% a year, it would only be 10 years before I broke even with taking TFC vs income.

Check if Aviva will let you make partial transfers.  

There's a detailed explanation of the small pots regime here: https://professionalparaplanner.co.uk/techzone/small-pots-and-defined-benefit-trivial-commutations/

Marcon

I've been looking at this arrangement but had a question. In the article you link to, the author says "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."

However, the HMRC PTM (063500) states:

A payment cannot be a trivial commutation lump sum if the total value of the member’s pension rights on the nominated date is more than £30,000.

The total value of the member’s pension rights is the value of all their rights under every type of arrangement under every registered pension scheme that they belong to. This is the case even though not all types of pension rights can be commuted into a trivial commutation lump sum.

The valuation of the member’s pension rights includes the individual’s benefit entitlements, past and present. This includes:

pensions to which the member had become entitled before 6 April 2006

all amounts crystallised previously for lifetime allowance purposes in respect of that member since 6 April 2006

uncrystallised rights.

Does the 3x £10k small pots work because HMRC are unable to police the above rule or is there another text I've missed?

Happily (and unusually for pensions!) it's a short answer: trivial commutation lump sums are different animals from their much newer cousin 'small pots' and are covered by different legislation.