Taking 25% or not

Hi forumites,

This has probably been asked before byt I am unable to find the information. 

I've just hit the big 60 and am currently still working.
I have 3 dormant pensions from previous jobs, and 1 I'm currently paying into, but I'm only interested in two of the dormant ones. One is about £10k the other £130k.

My questions are,

If I take the full 25% from each one, both sums will be tax-free as I understand it, but what do I have to do with the remainder? Can I leave it where it is doing its thing, until I eventually retire, or do I have to do something with the remaining funds like take drawdown (which as I'm still working I don't want to do) or can I put the leftovers into my current work pension pot?

If I want to leave the remainder where it is, can I take less than 25% from the pot and leave the rest alone?

Sorry if I'm making this confusing.

There are genuine reasons that I need to make these funds available, unfortunately.

Thanks 
Jez

Comments

  • Marcon
    Marcon Posts: 10,572 Forumite
    First Post First Anniversary Name Dropper Combo Breaker
    Hi forumites,

    This has probably been asked before byt I am unable to find the information. 

    I've just hit the big 60 and am currently still working.
    I have 3 dormant pensions from previous jobs, and 1 I'm currently paying into, but I'm only interested in two of the dormant ones. One is about £10k the other £130k.

    My questions are,

    If I take the full 25% from each one, both sums will be tax-free as I understand it, but what do I have to do with the remainder? Can I leave it where it is doing its thing, until I eventually retire, or do I have to do something with the remaining funds like take drawdown (which as I'm still working I don't want to do) or can I put the leftovers into my current work pension pot?

    If I want to leave the remainder where it is, can I take less than 25% from the pot and leave the rest alone?

    Sorry if I'm making this confusing.

    There are genuine reasons that I need to make these funds available, unfortunately.

    Thanks 
    Jez
    Check if your old pensions support 'drawdown' - you may need to ask the providers if you can't find the information on their websites/on information they've sent you.

    Loads of info already on the internet - this is no bad starter: https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/what-is-flexible-retirement-income-pension-drawdown
    Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!  
  • DullGreyGuy
    DullGreyGuy Posts: 10,238 Forumite
    First Post First Anniversary Name Dropper
    Depends on the product, and to some degree their age, some will allow a draw down but many won't. Some will have very limited options, particularly older product pre-pension freedoms, but you can transfer them into a more flexible structure. The main challenge comes if you have any guarantees/protected rights where you may need regulated advice to be able to transfer. 
  • swindiff
    swindiff Posts: 863 Forumite
    Name Dropper First Anniversary First Post Newshound!
    edited 7 February at 11:34AM
    If your small pension is under 10K, you can take it all out using the small pots rule and not trigger the MPAA, which would limit your tax free pension contributions to £10k/year

    https://www.gov.uk/tax-on-pension/tax-free#:~:text=This is called a 'small,sums from different personal pensions

    With the larger pension you can take 25% of the whole pot tax free, or 25% of part of the pot tax free.  The associated taxable amount would then be "crystallised" you can leave this invested in the pension.

    So for example you could take £32.5k tax free and the remaining £97.5k would be crystallised and taxable when you choose to withdraw it.

    Or you could just take half of your tax free amount (or any other fraction) this would give you £16.25k tax free, would crystallise £48.75k, and leave £65k uncrystallised allowing you to take more tax free cash in the future.

    As soon as you take any of the taxable crystallised part of your pension you will trigger the MPAA

    https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/money-purchase-annual-allowance-mpaa

    If you pension does not support drawdown you can transfer it to a provider that does.
  • xylophone
    xylophone Posts: 44,292 Forumite
    Name Dropper First Anniversary First Post
    I have 3 dormant pensions from previous jobs, and 1 I'm currently paying into, but I'm only interested in two of the dormant ones. One is about £10k the other £130k.

    Growing in their sleep? :)

    All three of these pensions are defined contribution? Or is one of them defined benefit?

    In the case of the £130,000 pension, even if defined contribution, does it have any form of safeguarded benefit, (GAR for example)?

    You may well be asked if you have had a Pension Wise appointment - you could book here

    https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

    With regard to your current workplace pension, is it defined benefit?

    Have you obtained a state pension forecast?

    https://www.gov.uk/check-state-pension


  • jez123cars
    jez123cars Posts: 74 Forumite
    First Post First Anniversary Combo Breaker
    swindiff said:
    If your small pension is under 10K, you can take it all out using the small pots rule and not trigger the MPAA, which would limit your tax free pension contributions to £10k/year

    https://www.gov.uk/tax-on-pension/tax-free#:~:text=This is called a 'small,sums from different personal pensions

    With the larger pension you can take 25% of the whole pot tax free, or 25% of part of the pot tax free.  The associated taxable amount would then be "crystallised" you can leave this invested in the pension.

    So for example you could take £32.5k tax free and the remaining £97.5k would be crystallised and taxable when you choose to withdraw it.

    Or you could just take half of your tax free amount (or any other fraction) this would give you £16.25k tax free, would crystallise £48.75k, and leave £65k uncrystallised allowing you to take more tax free cash in the future.

    As soon as you take any of the taxable crystallised part of your pension you will trigger the MPAA

    https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/money-purchase-annual-allowance-mpaa

    If you pension does not support drawdown you can transfer it to a provider that does.
    Thanks swindiff

    The small pension is with Aviva and the transfer figure was £9235 as of Nov 23, and the other is Royal London and its value is just over £132k and the latest letter says i can take upto 25% tax free.

    So, Can I take the full Aviva pension without triggering the MPAA? But can I also take upto 25%(would only need around 20%) of the £132k one on top if this? If so this would likely be my best bet.

    Thanks
    Jez
  • jez123cars
    jez123cars Posts: 74 Forumite
    First Post First Anniversary Combo Breaker
    xylophone said:
    I have 3 dormant pensions from previous jobs, and 1 I'm currently paying into, but I'm only interested in two of the dormant ones. One is about £10k the other £130k.

    Growing in their sleep? :)

    All three of these pensions are defined contribution? Or is one of them defined benefit?

    In the case of the £130,000 pension, even if defined contribution, does it have any form of safeguarded benefit, (GAR for example)?

    You may well be asked if you have had a Pension Wise appointment - you could book here

    https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

    With regard to your current workplace pension, is it defined benefit?

    Have you obtained a state pension forecast?

    https://www.gov.uk/check-state-pension


    Hi xylophone

    Not sure what defined contributions, defined benefit or GAR means but the £132k one allowed me to take up to 25% lump sum after age 55, if that helps.

    Does the current workplace pension have any bearing on this?

    Thanks
    Jez
  • swindiff
    swindiff Posts: 863 Forumite
    Name Dropper First Anniversary First Post Newshound!
    swindiff said:
    If your small pension is under 10K, you can take it all out using the small pots rule and not trigger the MPAA, which would limit your tax free pension contributions to £10k/year

    https://www.gov.uk/tax-on-pension/tax-free#:~:text=This is called a 'small,sums from different personal pensions

    With the larger pension you can take 25% of the whole pot tax free, or 25% of part of the pot tax free.  The associated taxable amount would then be "crystallised" you can leave this invested in the pension.

    So for example you could take £32.5k tax free and the remaining £97.5k would be crystallised and taxable when you choose to withdraw it.

    Or you could just take half of your tax free amount (or any other fraction) this would give you £16.25k tax free, would crystallise £48.75k, and leave £65k uncrystallised allowing you to take more tax free cash in the future.

    As soon as you take any of the taxable crystallised part of your pension you will trigger the MPAA

    https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/money-purchase-annual-allowance-mpaa

    If you pension does not support drawdown you can transfer it to a provider that does.
    Thanks swindiff

    The small pension is with Aviva and the transfer figure was £9235 as of Nov 23, and the other is Royal London and its value is just over £132k and the latest letter says i can take upto 25% tax free.

    So, Can I take the full Aviva pension without triggering the MPAA? But can I also take upto 25%(would only need around 20%) of the £132k one on top if this? If so this would likely be my best bet.

    Thanks
    Jez
    If you make sure the small pots rule is used for the pension which is less than £10K, then yes you can take that in full without triggering the MPAA.  25% will be tax free and 75% will be taxable.  Taking taxable cash from a pension would usually trigger the MPAA but you can avoid this using small pots.

    You can also take 25% tax free of 20% of the larger pension (£6.6k), without triggering the MPAA, just make sure you don't take any of the 75% of that 20% which is taxable and would trigger the MPAA.
  • Albermarle
    Albermarle Posts: 21,979 Forumite
    First Anniversary First Post Name Dropper
    xylophone said:
    I have 3 dormant pensions from previous jobs, and 1 I'm currently paying into, but I'm only interested in two of the dormant ones. One is about £10k the other £130k.

    Growing in their sleep? :)

    All three of these pensions are defined contribution? Or is one of them defined benefit?

    In the case of the £130,000 pension, even if defined contribution, does it have any form of safeguarded benefit, (GAR for example)?

    You may well be asked if you have had a Pension Wise appointment - you could book here

    https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

    With regard to your current workplace pension, is it defined benefit?

    Have you obtained a state pension forecast?

    https://www.gov.uk/check-state-pension


    Hi xylophone

    Not sure what defined contributions, defined benefit or GAR means but the £132k one allowed me to take up to 25% lump sum after age 55, if that helps.

    Does the current workplace pension have any bearing on this?

    Thanks
    Jez
    You can continue to contribute to your current workplace pension, if you only take the 25% tax free from your RL pension.
    If you took out any of the 75% taxable part, you would be restricted to a max £10K pa going into your pension ( the MPAA), including your contributions, tax relief and employer contributions. 
    If you just withdraw all the Aviva pension, this would also bring on this MPAA limit, unless it is specifically withdrawn under the Small Pots rule ( which is a kind of slightly obscure loophole)
    An alternative maybe would be to transfer the Aviva pension into your workplace pension rather than withdraw it.

    Normally it is not a good idea to take retirement money whilst still working , as you will have less to live on in retirement.
  • xylophone
    xylophone Posts: 44,292 Forumite
    Name Dropper First Anniversary First Post
    https://www.moneyhelper.org.uk/en/pensions-and-retirement/pensions-basics/defined-benefit-or-final-salary-pensions-schemes-explained

    https://www.moneyhelper.org.uk/en/pensions-and-retirement/pensions-basics/defined-contribution-pension-schemes


    https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/guaranteed-annuity-rates

    For a person considering a pension transfer where the pension has "safeguarded benefits"

    https://assets.publishing.service.gov.uk/media/5a80b577ed915d74e33fbf54/pension-benefits-with-a-guarantee-factsheet-jan-2016.pdf

    With regard to your current pension, it is often possible to transfer in old pensions.

    However, particularly where that pension is a DB arrangement, this may only be permitted within a certain time period or under certain conditions.

    Where a person is considering takin pension benefits while still contributing to a pension, he will need to look into whether or not he will trigger the MPAA.


    https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/money-purchase-annual-allowance-mpaa

  • jez123cars
    jez123cars Posts: 74 Forumite
    First Post First Anniversary Combo Breaker
    Thank you all for your information.
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