Transfer value confusion

SpareAdime

As ever, Xylophone, many thanks for your considered responses.  I'm hoping I may be able to finally give you your life back by my understanding what is going on in this situation, er... I think.

I'm sure you know all this, if it's correct, but here goes:  We are discussing a small pot, £140,000, of which £60,000 is retained to fund a £3000 p/a GMP.

In option 1, all residual funds are uncrystallised and can be transferred elsewhere. No PCLS is taken at the time, so the ability to generate a PCLS later from the GMP pot is lost.

In options 2 and 3, the GMP pot can be taken in to account when calculating the PCLS but cannot be used to fund it.   So, in option 2, residual cash - if any - would have to support the LS derived from the GMP and any LS derived from the residual pot's own initial value.  This LS is almost a "double tap" which can only accrue when GMP benefits and residual funds benefits are taken at the same time.  Hence the compulsory annuity associated with option 2. 

£140,000 minus £60,000 GMP = £80,000 residual fund 
£80k x 0.25 = £20,000 maximum PCLS from any residual funds crystallised
GMP x 0.25 = £15,000 maximum PCLS - all of which is deducted from available residual funds
Total PCLS = £35,000 maximum,  and only if funds are crystallised.

So far so good - hopefully.

If my understanding is finally correct then option 3, as detailed by my pension administrator, is not legal under HMRC rules. They quote:  GMP £3000pa plus £20,000 PCLS plus £60,000 uncrystallised fund to transfer elsewhere.

I believe that any "receiving scheme" would reject a transfer on the basis that benefits have only been taken on £60,000 of the original pot (the GMP fund) and therefore only £15,000 PCLS can be paid out tax free.  A £60,000 "transfer" would, in effect, be deemed partly crystallised.

I think the figures should be £15,000 PCLS and £65,000 transfer value - which could be used to take a £16250 tax free sum later, realising a potential PCLS total of £31250

My analysis may well be wrong, and/or there could be some other reason that my pension administrator is able to pay a higher PCLS which they haven't explained.  I'm not hopeful though.  This is a very large entity who's insurance arm recently bought out my employers pension liability.  They have a reputation for spectacular billion pound !!!!!!-ups and, I suspect, can't count above 10 without taking their shoes and socks off.

If you think I've got this wrong, and you are prepared to give even more of your valuable time, I'd be interested to know.  However, I thoroughly appreciate what you have contributed so far and I'm very grateful.  I will ask my pension admin. for their detailed breakdown and report back if they ever give an answer.

Many thanks

xylophone

• If my understanding is finally correct then option 3, as detailed by my pension administrator, is not legal under HMRC rules. They quote:  GMP £3000pa plus £20,000 PCLS plus £60,000 uncrystallised fund to transfer elsewhere.

  Yes - you will note  in response

  https://forums.moneysavingexpert.com/discussion/comment/80708247/#Comment_80708247
  

  If this is the case,  what is the tax position on the £60,000 transferred out?

  and

  https://forums.moneysavingexpert.com/discussion/comment/80710641/#Comment_80710641
  

  If the £60,000 is uncrystallised, 

  I expressed some reservations on this point (because if the options are indeed as stated, why would anyone opt for options 1 or 2)?

  
  

  
  

The pension you have although DC has the DB underpin.

Therefore it must pay you at least the GMP.

The total fund is £140,000.

The first consideration is the GMP, which we know is £3,000 per annum and will cost £60,000 to secure. 

Option 1 simply secures the GMP and offers a transfer out of the balance of the pot.

Once transferred out you may take £20,000 as a tax free PCLS while anything taken from the balance will be taxable as income in

the year of receipt.


With Option 2,  once again the first consideration is the GMP, which we know is £3,000 per annum and will cost around £60,000 to

secure.  This will leave  £80,000 remaining in the fund.  No tax-free cash can be taken from the GMP, but the maximum tax-free cash

calculation is based on the whole fund - hence the £35,000 offered under this option.


The administrator has specified that the residual  cash must be used to purchase an annuity  - the income  will be taxable in 

the year of receipt.


Option 3 offers the GMP,  a £20,000 tax free PCLS and the  "uncrystallised" £60,000.


I have to say that I don't understand how it can be uncrystallised if the PCLS has been taken - if it is indeed uncrystallised, why would

anybody choose option 1 or 2?



I fear that you are going to have to gird your loins and  deal (again!) with the Administrators....."Say not the struggle naught availeth.." 

SpareAdime

OK, game on.  I've received an answer from the "Administrators". 

First, my question to them - and I paraphrase:

"I have one question that needs clarification before another pension scheme would consider a transfer in - which I am contemplating.
Option 1 is a straight transfer of all residual funds to another provider or annuity scheme.
Option 2 is a maximum PCLS, comprising 25% of the GMP pot plus 25% of the residual pot - wholly funded from the residual pot according to the rules as I understand them
Option 3 seems to be the one needing clarification:  Your pre-retirement information pack  quotes a GMP of £3000 plus a PCLS of £20,000 leaving an uncrystallised fund of £60,000 to transfer.
As you previously explained, £3000 x 20 services the GMP and a PCLS is applicable to that £60,000 GMP "pot" - if residual funds suffice.
It looks to me as if the option 3 PCLS should only be £15,000 (£60,000 x 25%) and the uncrystallised balance to transfer would therefore be £65,000.  Do you have a breakdown of the £20,000 figure and is there some calculation I am unaware of that would boost it from £15,000.  My concern is that your figure is higher than 25% of the funds being crystallised - ie., the "GMP" pot - and would therefore exceed HMRC limits.  Please forgive me if I am being excessively stupid here."

Their reply - in total:

Option 2 provides a full pension, as you only hold GMP benefits which are non-commutable this means these benefits cannot be used to provide a PCLS therefore the PCLS arises from your Money purchase funds only.
Option 3 provides a full pension, restricted PCLS and uncrystallised funds.  The calculation used to provided a restricted PCLS is as follows:  
20 / 3 * pension per annum (£3000) = £20,000 (Restricted PCLS), this value is then deducted from your Money Purchase fund value (£60,000) which is then available to access flexibly as uncrystallised funds.

My thoughts:

Option 2: Their statement is clearly untrue. Their own paperwork quotes a PCLS of £35,000 (25%) on the total pot of £140,000 which includes £60,000 of GMP benefits.  But I'll give them the benefit of the doubt as it could just be very poor wording.  Perhaps I'm dealing with an A.I. or, as I prefer to call it, an A.S.S.

Option 3: My key question was why am I quoted a PCLS of more than one quarter of the funds I am crystallising.  Their answer is because they use one third in their calculation. Simples.

The strange noise you can hear is my head banging against the desk - still.

xylophone

Option 2: Their statement is clearly untrue. Their own paperwork quotes a PCLS of £35,000 (25%) on the total pot of £140,000 which includes £60,000 of GMP benefits.  But I'll give them the benefit of the doubt as it could just be very poor wording.  Perhaps I'm dealing with an A.I. or, as I prefer to call it, an A.S.S.

Their point is that the maximum PCLS can be based on the total value ( 25% x  £140,000 = £35,000) but in order to be able to take 

such a  PCLS there would have to be enough remaining after (£140,000 - £60,000 (cost of GMP).

In your case, £80,000 remains and therefore you can take a PCLS of £35,000.

The balance of the fund must be used to purchase an annuity?

As for option 3, I am still mystified as to how they can base this "restricted" PCLS on the value  of 6.66% x GMP.

However, assuming that this is correct, you can take the GMP, the  tax free  PCLS of £20,000, transfer the uncrystallised £60,000 to 

another provider and  then take a PCLS of £15,000?

If this is the case, why bother offering options 1 and 2?

Can you ask them if they are saying that once the £60,000 is transferred out, you will be able to take another  tax free PCLS of 

£15,000?