Got a DB and DC pension scheme, I don't want to commute any DB for tax-free cash, Can I?

RogerPensionGuy

Got a DB and DC pension scheme, I don't want to commute any DB for tax-free cash, can I?

I have a good DB deferred scheme that is inflation indexed linked up to 5% PA and am intending to activate it just after the 6th of April 2024 (35K PA) when hopefully it will not get any LTA % tag applied to it and this timing maybe helpful should the LTA or anything like it be put back on the pension table as I am guessing somthink will be invented or reinvented in 2025 or 2026.

I also have a 500K DC pot approximately and stopping paid employment before xmas this year.

Under the current rules the above looks like a 1.2M pension overall so I am somewhat happy.

Does anyone know if under the new rules if I can take the maximum 268K tax-free from the DC pot or is it only possible to take 25% maximum from any pension pot?

Reason being I really have a good use for 268K cash next year but, would much rather that I don't commute any DB value to get any tax-free out of it. 

The video below is a good one and mentions how this 268K or 25% may be achieved across various pension pots, I am hoping that I can suck out 268K outa my DC pot and leave the DB undiluted. The video at time/in between 4mins to 6mins covers my question. However all the video is well worth a watch, its a great channel. 

https://youtu.be/wJBTItv5JSM

If anyone has any more up to date info please post.

Daniel54

Each pension is separate.You can only take a maximum of 25% tax free from your DC .

Regarding the DB,then taking a PCLS will depend on the commutation ratio and your overall tax situation and drawdown plans.

RogerPensionGuy

Daniel54 said:

Each pension is separate.You can only take a maximum of 25% tax free from your DC .

Regarding the DB,then taking a PCLS will depend on the commutation ratio and your overall tax situation and drawdown plans.

Reference the video link in the opening post, looks to me that the new 25% tax-free rules maybe different to what was the normal up to the last pension tinkering, guessing any new new rules will apply after 6th of April2024.

Allowing 268K to be scooped out of any pots as long as total is 1.073M seams like a reasonable way to go so people can use their pots to maximum value considering different scheme rules, regulations and charges.

Time will tell I guess.

Daniel54

I have watched the video but there has been nothing from Government to suggest that the tax free allowance   can be accumulated at more  than 25% when applied separately to each individual pension.

Not a channel I will be following.

Marcon

RogerPensionGuy said:

Daniel54 said:

Each pension is separate.You can only take a maximum of 25% tax free from your DC .

Regarding the DB,then taking a PCLS will depend on the commutation ratio and your overall tax situation and drawdown plans.

Reference the video link in the opening post, looks to me that the new 25% tax-free rules maybe different to what was the normal up to the last pension tinkering, guessing any new new rules will apply after 6th of April2024.

Allowing 268K to be scooped out of any pots as long as total is 1.073M seams like a reasonable way to go so people can use their pots to maximum value considering different scheme rules, regulations and charges.

Time will tell I guess.

As Daniel has already said, you will only be able to take a maximum of 25% tax free cash from your DC pension scheme. It would be administratively impossible to allow people to take random amounts of cash from various pension pots 'as long as the total is £268K [maximum]'.

The only difference in the rules is that tax free cash is limited to 25% of the current LTA, rather than 25% of a world which no longer has a pension LTA.

I'm afraid there's nothing for time to tell!

Linton

AIUI there is nothing in the law to stop you taking all the DB TFLS from your DC  pot. However there are no pension schemes that will allow it unless the DB and DC pensions are part of the same scheme eg AVCs.

One can see the practical difficulties as it would require each pension scheme to understand your full pension situation.

RogerPensionGuy

Linton said:

AIUI there is nothing in the law to stop you taking all the DB TFLS from your DC  pot. However there are no pension schemes that will allow it unless the DB and DC pensions are part of the same scheme eg AVCs.

One can see the practical difficulties as it would require each pension scheme to understand your full pension situation.

Noted.

As I understand it today if I was to take 25% 268K tax fee cash out of one of my pensions, I couldn't take any take free out of any other pension I have because it would exceed the 268K total maximum limit. 

Therefore I'm guessing these tax free off takes are regulated in some fashion. 

So it's not beyond the pale to think it's possible to take various % of pots across different pension schemes, in fact looks fairly sensible like in my case that I don't wish to commute a DB scheme to keep maximum pension with some inflation linking and protection. 

As has been posted here, it's actually technically possible to do what I'm looking at but, nobody is currently doing it.

A few months ago not many people were thinking the LTA would disappear or the AA ramping up 50% would occur. 

Albermarle

Even before the recent LTA change it was just not possible.
I took my DB pension without a lump sum a couple of years ago, but I never considered that I would somehow be able to extract a larger tax free sum from my DC pot(s) than 25%.

Although these LTA changes have messed up my planning a bit, as the main reason I took the DB pension 2.5 years early was to fix a lower LTA %. Due to the recent high inflation would have been better to leave it until NRA.
Also now I think the LTA changes may eventually have a negative impact on the IHT exemption for DC pots.
For someone hovering around LTA and hovering around IHT, I would have much preferred that the LTA had just been increased 10%. More tax free cash available and less threat to IHT exemption. 

michaels

Linton said:

AIUI there is nothing in the law to stop you taking all the DB TFLS from your DC  pot. However there are no pension schemes that will allow it unless the DB and DC pensions are part of the same scheme eg AVCs.

One can see the practical difficulties as it would require each pension scheme to understand your full pension situation.

I guess it would not be impossible to implement such a system but given that it would likely lead to a reduction in tax revenue and not buy a lot of votes I can't see it happening (sadly)....

zagfles

Marcon said:

RogerPensionGuy said:

Daniel54 said:

Each pension is separate.You can only take a maximum of 25% tax free from your DC .

Regarding the DB,then taking a PCLS will depend on the commutation ratio and your overall tax situation and drawdown plans.

Reference the video link in the opening post, looks to me that the new 25% tax-free rules maybe different to what was the normal up to the last pension tinkering, guessing any new new rules will apply after 6th of April2024.

Allowing 268K to be scooped out of any pots as long as total is 1.073M seams like a reasonable way to go so people can use their pots to maximum value considering different scheme rules, regulations and charges.

Time will tell I guess.

As Daniel has already said, you will only be able to take a maximum of 25% tax free cash from your DC pension scheme. It would be administratively impossible to allow people to take random amounts of cash from various pension pots 'as long as the total is £268K [maximum]'.

The only difference in the rules is that tax free cash is limited to 25% of the current LTA, rather than 25% of a world which no longer has a pension LTA.

I'm afraid there's nothing for time to tell!

Why would it be impossible? It would be relatively simple to track and carry forwards unused PCLS. At every BCE, instead of an LTA usage certificate, you get a PCLS usage certificate giving two numbers, PCLS available and PCLS used. If PCLS available is more than PCLS used, then on the next/future BCEs you can take 25% plus the difference.

So eg first BCE is a DB scheme paying £20k a year, no PCLS taken. Instead of LTA certificate saying ~37% LTA used, you get a PCLS usage certificate saying £100k PCLS available, 0 used.

Then next BCE is a DC scheme with £200k in it, max PCLS would be £100k carried forwards plus 25%, ie £150k. 

I'm not saying they'll do it that way but it's certainly possible and not any harder to track than LTA usage currently.

GunJack

but then the scheme rules of the DB should prevent it happening, as if you took a TFLS from the DB it should be commuted down accordingly. If they were all DC pots, no problem...