Three obscure pension questions! Someone will know...

Climberjohn

Hello!
I did try to search, but either got no results or a bazillion, so I'm hoping someone who knows can give me a straightforward answer.  It's much appreciated.
Question 1.
I have two defined benefit pensions that are in payment and do a small amount of part time work.
I took some tax free cash and a reduced pension, but not all that I could have: the Lifetime allowance value of the pensions was about £535k and I took £50k cash.
I have a defined contribution SIPP worth >£1m.
How much tax free cash can I take from the SIPP?  Is it a) £218k (being £268k max less the £50k received) or b) £134k (being 50% of the remaining notional LTA) or c) a hybrid that has used the tax free cash for the LTA value of the pension it was drawn from?
Question 2.
Given that I'm very fortunate and would be well over the LTA, what are the pros and cons of crystallising the SIPP and putting it all into drawdown so that it's outside any reinstatement of the LTA (i.e. before April)?  Do I lose tax free growth if crystallised?  Do those pros/cons change if I add the info that I have cancer and getting to 75 is about a 30% chance?
Question 3.
I'm married and my wife has £200k defined contribution savings.  If we divorced and split everything equally (pension in payment, pooled SIPP/DC), how much tax free cash could we each take (given question 1) and what would the LTA be (I know it's nominally gone but...)?

FWIW, I think the answer to #1 is b) (although I want it to be a), to #2 is that if I have a purpose for it, grab the cash but not otherwise, and #3 getting divorced makes no difference to tax free cash, would optimise for LTA if it still existed and would be good for income tax (from a purely tax perspective!)

Would very much value authoritative information!

MK62

I might be inclined to wait until the dust settles on the new changes........the government are introducing "Transitional tax free amount certificates" which appear to cover this situation (ie in your Q1, of having taken less tax free lump sum(s) than the  BCE amount(s) might suggest)......however, I'm not sure the process of their introduction is complete yet.
As to Q2, it would be a leap, as we don't know if the LTA will be reintroduced, and if it is, what form it would take (I think a straight reintroduction, at the current level is very unlikely.....but no way to be sure though)........personally I'd do my planning based on what is currently known (even if that is still a bit vague in places atm)
Q3 is one for a divorce lawyer I think......personally I wouldn't advise anyone to either marry or divorce for pension planning / tax purposes, and certainly not without full and proper advice around any unknown or unintended consequences.......

Marcon

Climberjohn said:

Hello!
I did try to search, but either got no results or a bazillion, so I'm hoping someone who knows can give me a straightforward answer.  It's much appreciated.
Question 1.
I have two defined benefit pensions that are in payment and do a small amount of part time work.
I took some tax free cash and a reduced pension, but not all that I could have: the Lifetime allowance value of the pensions was about £535k and I took £50k cash.
I have a defined contribution SIPP worth >£1m.
How much tax free cash can I take from the SIPP?  Is it a) £218k (being £268k max less the £50k received) or b) £134k (being 50% of the remaining notional LTA) or c) a hybrid that has used the tax free cash for the LTA value of the pension it was drawn from?
Question 2.
Given that I'm very fortunate and would be well over the LTA, what are the pros and cons of crystallising the SIPP and putting it all into drawdown so that it's outside any reinstatement of the LTA (i.e. before April)?  Do I lose tax free growth if crystallised?  Do those pros/cons change if I add the info that I have cancer and getting to 75 is about a 30% chance?
Question 3.
I'm married and my wife has £200k defined contribution savings.  If we divorced and split everything equally (pension in payment, pooled SIPP/DC), how much tax free cash could we each take (given question 1) and what would the LTA be (I know it's nominally gone but...)?

FWIW, I think the answer to #1 is b) (although I want it to be a), to #2 is that if I have a purpose for it, grab the cash but not otherwise, and #3 getting divorced makes no difference to tax free cash, would optimise for LTA if it still existed and would be good for income tax (from a purely tax perspective!)

Would very much value authoritative information!

Given the state of flux we are in, I suggest you ask for 'authoritative information' from someone who is insured to give it!

Silvertabby

Re Q3.  A story floated round pension world some time ago about someone who tried this for LTA purposes.  Wife: No pensions of her own.  Husband:  Pushing towards LTA X 2.  The plan was to divorce, split the pension via a PSO, then re-marry after the dust had settled.  But the wife had other ideas - she took the money and ran.

squirrelpie

If you're likely to die sooner rather than later, isn't that an argument for leaving any money you don't need immediately in the pension, so it can be inherited outside your estate?

Albermarle

Silvertabby said:

Re Q3.  A story floated round pension world some time ago about someone who tried this for LTA purposes.  Wife: No pensions of her own.  Husband:  Pushing towards LTA X 2.  The plan was to divorce, split the pension via a PSO, then re-marry after the dust had settled.  But the wife had other ideas - she took the money and ran.

A salutary tale of putting the tax tail before the marriage dog !

Albermarle

Would very much value authoritative information!

You are talking about a lot of money and some complicated issues. Have you not considered employing an Independent Financial Advisor ?

Steve_666_

Albermarle said:

Silvertabby said:

Re Q3.  A story floated round pension world some time ago about someone who tried this for LTA purposes.  Wife: No pensions of her own.  Husband:  Pushing towards LTA X 2.  The plan was to divorce, split the pension via a PSO, then re-marry after the dust had settled.  But the wife had other ideas - she took the money and ran.

A salutary tale of putting the tax tail before the marriage dog !

If the "someone" pursued a career for a working lifetime, built a hugh pension fund, while his wife perform unpaid labour, house, kids etc, then she is entitle to 50% of their joint retirement fund!

michaels

Albermarle said:

Silvertabby said:

Re Q3.  A story floated round pension world some time ago about someone who tried this for LTA purposes.  Wife: No pensions of her own.  Husband:  Pushing towards LTA X 2.  The plan was to divorce, split the pension via a PSO, then re-marry after the dust had settled.  But the wife had other ideas - she took the money and ran.

A salutary tale of putting the tax tail before the marriage dog !

Also known as a 'win-win'

Climberjohn

OP here.
Thanks for the replies!  A few comments/responses:
- I have spoken to three IFAs.  It's never great when the punter knows more than the advisor as was the case with the first.  The second knew more than me, but wasn't able to give advice on either point 1 or 2.  And the third said they could give advice but wanted 3% annually of the pot to do so.  So I thought I'd trawl some views.  I'm fully aware that the internet can be pretty uninformed too...and have asked for pros/conns not advice.
- Not sure what the perjury response refers to.  The new quickie divorce rules do not require blame and a reason, only agreement.
- I'm not serious about the divorce thing; it's a thought experiment.
- Leaving it in the pot uncrystallised is fine (I don't need it)...unless the LTA comes back
- Someone must have a view on Q1?

Albermarle

Climberjohn said:

OP here.
Thanks for the replies!  A few comments/responses:
- I have spoken to three IFAs.  It's never great when the punter knows more than the advisor as was the case with the first.  The second knew more than me, but wasn't able to give advice on either point 1 or 2.  And the third said they could give advice but wanted 3% annually of the pot to do so.  So I thought I'd trawl some views.  I'm fully aware that the internet can be pretty uninformed too...and have asked for pros/conns not advice.
- Not sure what the perjury response refers to.  The new quickie divorce rules do not require blame and a reason, only agreement.
- I'm not serious about the divorce thing; it's a thought experiment.
- Leaving it in the pot uncrystallised is fine (I don't need it)...unless the LTA comes back
- Someone must have a view on Q1?

Regarding Q1.
There are a number of technical issues surrounding the abolition of LTA and a new tax free limit. Your question being typical and similar questions have been discussed at length on the forum. The Govt published some proposals which were not the easiest to interpret. I am not sure of their current exact status ( in consultation, awaiting final passage through the Commons, I really do not know) and even when pension/tax legislation is passed there is often room for interpretation. So in essence there is not a 100% firm idea of how it will all work out.
Probably you will be able to take £218 K ( £268 minus £50K ) from the SIPPs once the correct admin processes are in place, but I would not bet my house on it.

  And the third said they could give advice but wanted 3% annually of the pot to do so. 

I think you must have misunderstood the charges. With your size of Pot a typical IFA might want say 1.5% as an initial charge, and then 0.5% annually ( plus platform and investment charges). Some fancier wealth management companies may charge more, but not 3% pa just for advice.